A burgeoning scandal that threatens to undermine President Barack Obama's second-term agenda mushroomed over the targeting of grandmothers like Marion Bower, who counts an annual garage sale as one of her local Tea Party group's biggest fundraisers.
Bower's Fremont-based American Patriots Against Government Excess, which has an estimated $800 in the bank, was one of at least 75 groups across the nation that received extra scrutiny by the Internal Revenue Service when it applied for tax-exempt status under the IRS's 501 (c) 4 social welfare category.
IRS officials responded to Bower's application with 18 multi-pronged questions. She was given 15 days to deliver information including details of what happened at each meeting, a list of program speakers, copies of handouts and synopses of the books read by the group's book club.
"I am 68-years-old,'' Bower said. "I am not going to do a book report." Instead, she sent the IRS copies of the books read by her club — one being the Constitution of the United States.
The scandal has resulted in hearings, resignations, threats of lawsuits and allegations of political conspiracies not so widely uttered since the days of Richard M. Nixon. But conservative groups aren't the only ones outraged. Campaign watchdogs say the scrutiny of small so-called liberty groups has diverted attention away from the large — and secretive — tax-exempt groups that poured $250 million into the 2012 election.
"This is a Class A example of going after the little guy,'' said Bill Allison of the Sunlight Foundation, a Washington-based organization that advocates greater disclosure of campaign finance money.
Fred Wertheimer, president of Democracy 21, a Washington-based campaign watchdog group, said the IRS "never should've been looking at the groups they're looking at. They should've been investigating groups that are blatantly abusing the tax laws to hide their donors. They got it backwards."
Wertheimer said the IRS should pay more attention to groups such as Crossroads GPS, a 501 (c) 4 organization founded by former George W. Bush adviser Karl Rove that spent $70 million in the 2012 elections.
But Jonathan Collegio, a spokesman for that organization, said his group too faced unfair treatment at the hands of the IRS. He said their application for tax-exempt status was delayed for two and a half years, and he has accused the IRS Cincinnati office of leaking the application to a journalist.
Allison said Crossroads GPS, as well as the Priorities USA, which supported President Obama, would've been more reasonable targets for IRS scrutiny. He said organizations like those were set up with the purpose of allowing donors a place to donate without having their names disclosed.
The number of smaller groups seeking tax-exempt status has greatly expanded, he said, but it is the big-money groups that have the greater potential to influence the political process.
Tax-exempt status for organizations engaged in public policy has been part of the tax code for years. The American Civil Liberties Union and the National Rifle Association are examples of 501 (c) 4 organizations, which are recognized as social welfare groups. By contrast, the Albany Volunteer Fire Department in suburban Columbus is classified as a 501 (c) 3, which means it devotes most of its effort to charitable activities.
Such organizations can engage in educational forums or charitable work and can maintain their tax-exempt status. But under federal law, if more than 50 percent of their activities are political, they forfeit their tax-exempt status.
A series of 2010 court rulings encouraged organizations to seek approval for (c) 3 or (c) 4 status, because it allows them to keep secret the names of their donors.
That's been beneficial for groups like Rove's, but also for smaller groups just seeking donors. George Brunemann of the Cincinnati Tea Party said part of the reason his organization sought the c (4) status was because two local business owners wanted to donate to the group but did not want their names disclosed.
But while his organization has endorsed candidates, he said it is hardly the political powerhouse that bigger 501 (c) 4 groups are.
"They're picking on the insignificant," he said.
Lost in the hand-wringing over the IRS is that the agency faces a real dilemma, said Viveca Novak, editorial and communications director for the Center for Responsive Politics, a money in politics watchdog in Washington. Novak said most 501 (c) 4 applications are from groups that champion Republican causes. Any effort to determine whether these groups are eligible for tax-exempt status inevitably means more conservative organizations will be examined, she said.
"About 85 percent of the money that was spent in the 2012 election as reported to the Federal Election Commission was spent on conservative candidates,'' Novak said. "It certainly is the case that conservatives have been using this particular outlet much more actively than liberals.''
But some liberal groups were targeted as well, according to Brian Rothenberg of Progress Ohio. He said the left-leaning public policy group's sister organizations in Texas and Florida saw extra scrutiny. His group applied for the special tax status in 2006, he said, long before the IRS began targeting tax-exempt groups.
Rothenberg said court decisions have opened doors to more donors using 501 (c) 4s to support political candidates, a development that he believes has far more policy implications than the number of groups complaining about having to answer questions about their activities.
Before the court activity, "It was very clear that the primary purpose (of 501 (c) 4 groups) was issues," he said. Bower's group might have escaped scrutiny were it not for the big groups using tax status for political fundraising, according to Rothenberg.
Wertheimer expressed frustration because he said the scandal will likely provide a distraction to watchdogs' quest to see disclosure of all campaign contributions.
"We expect that those who have abusing the tax laws in order to hide their donors will try to use this as a cover for preventing an end to these abuses," he said, adding, "The issue of laundering secret money into campaigns is going to continue to be its own scandal."
The IRS mess seems to build with each passing day. Senate Minority Leader Mitch McConnell said Thursday the actions by the tax agency amounted to "runaway government at its worst. Who knows who they will target next?"
Two IRS officials have resigned, and House Republicans made clear in a hearing Friday that they have no intention of backing off.
At a Tea Party rally Thursday, which also included Republican Rep. Michelle Bachmann and Sens. McConnell, Ted Cruz and Rand Paul, there was talk of civil suits and criminal charges.
The possibility that crimes were committed "is real and serious," said Jordan Sekulow, executive director of the American Center for Law and Justice.
Ohio Republican Sen. Rob Portman wrote President Barack Obama last week to ask if any "private pressure was exerted by the White House or Treasury Department political appointees on the IRS regarding the standards for approving and monitoring tax-exempt organizations.''
Allison of the Sunlight Foundation said the scandal illustrates another problem: The IRS is not equipped to handle election law, he said.
"The IRS should be concerned about applying tax law and the Federal Election Commission concerned about applying election law," Allison said, "and right now, that's not the case."
What is a 501 (c) 4?
A 501 (c) 4 is a social welfare organization as defined by the Internal Revenue Code. Under federal law it must not be organized for profit and must operate primarily to further the common good and general welfare of the people of the community. Political organizations have also used 501 c (3) organizations, which are for charitable purposes.
Are the use of 501 (c) groups' involvement in elections new?
No. Bill Allison of the Sunlight Foundation dates use of such organizations for political purposes back to a 1996 "get out of the vote effort" organized by Democrat Harold Ickes, a senior adviser in the Clinton administration. But recent court decisions have helped pave the way for more groups to apply for tax exempt status in order to garner donations that aren't publicly disclosed.
When are 501 (c) 4 organizations not allowed to intervene in political campaigns?
According to the IRS: "The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. However, a section 501(c)(4) social welfare organization may engage in some political activities, so long as that is not its primary activity. In general: As long as 51 percent of the work done by the organization is not political, it usually gets a pass.
Source: The IRS and Sunlight Foundation
Jan. 26, 2012: The Ohio Liberty Council, a conservative organization seeking tax-exempt status, receives a letter from the IRS asking more than 30 questions about the organization, including Facebook status and whether board members or their families had ever or would ever run for public office.
March 7, 2012: The New York Times writes an editorial saying that "taxpayers should be encouraged by complaints from Tea Party chapters applying for nonprofit tax status at being asked by the Internal Revenue Service to prove they are ‘social welfare' organizations and not the political activists they so obviously are."
March 14, 2012: Sen. Rob Portman, R-Ohio, and 11 other Republican senators write IRS Commissioner Doug Shulman asking if the agency is targeting conservative organizations who are seeking tax-exempt status.
March 27, 2012: Rep. Jim Jordan, R-Urbana signs a letter to the IRS asking many of the same questions Portman had asked.
April 26, 2012: Steven Miller, then the deputy IRS commissioner, writes Portman to assure that "there have been no communications between IRS employees and the Department of the Treasury and the White House with respect to requests for donor information from any 501 (c) (4) applicant organizations.''
May 2012: IRS officials tell Miller that some conservative organizations have been unfairly singled out.
April 22, 2013: White House counsel's office is notified of the IRS targeting of conservative organizations.
May 10, 2013: IRS official Lois Lerner tells a conference in Washington that low-level employees in the agency's Cincinnati office had focused extra scrutiny on conservative organizations.
May 13, 2013: President Barack Obama tells reporters at a news conference that he first "learned about'' the IRS targeting conservative groups on May 10 "from the same news reports that I think most people learned about this.''
May 14, 2013: A Treasury Department's Inspector General audit declares that the IRS "used inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status.''
May 15, 2013: Obama announces that Miller has resigned his post as acting IRS commissioner.
May 16, 2013: At a news conference a reporter asks Obama if he could "assure the American people that nobody in the White House knew about the agency's actions before your counsel's office found on April 22?'' Obama replies that he could "assure you that I certainly did not knowing anything about the (inspector general's) report before the IG report had been leaked to the press.''