JUST A NORMAL BUREAUCRACY IN ACTION:

Overseen by a revolving cast of midlevel managers, stalled by miscommunication with I.R.S. lawyers and executives in Washington and confused about the rules they were enforcing, the Cincinnati specialists flagged virtually every application with Tea Party in its name. But their review went beyond conservative groups: more than 400 organizations came under scrutiny, including at least two dozen liberal-leaning ones and some that were seemingly apolitical.

Over three years, as the office struggled with a growing caseload of advocacy groups seeking tax exemptions, responsibility for the cases moved from one group of specialists to another, and the Determinations Unit, which handles all nonprofit applications, was reorganized. One batch of cases sat ignored for months. Few if any of the employees were experts on tax law, contributing to waves of questionnaires about groups' political activity and donors that top officials acknowledge were improper.

"The I.R.S. is pretty dysfunctional to begin with, and this case brought all those dysfunctions to their worst," said Paul Streckfus, a former I.R.S. employee who runs a newsletter devoted to tax-exempt organizations. "People were coming and going, asking for advice and not getting it, and sometimes forgetting the cases existed." [...]

Administering the nearly four-million-word federal tax code involves so many arcane legalities, and is so fraught with potential to ignite Washington's partisan skirmishes or infuriate taxpayers, that much of the I.R.S. is run by lawyers.

But the Exempt Organizations Division -- concentrated in Cincinnati with fewer than 200 workers, according to I.R.S. officials -- is staffed mostly with accountants, clerks and civil servants. Working for one of only three I.R.S. divisions not charged with collecting tax revenue, specialists in the Determinations Unit in Cincinnati primarily review and process roughly 70,000 applications for exemptions each year, relatively few from groups engaged in election activity.

Inside the agency, the unit was considered particularly unglamorous. "Nobody wants to be a determination agent," said Jack Reilly, a former lawyer in the Washington office that oversaw exempt organizations. "It's a job that just about everybody would be anxious to get out of it."

In recent years, the office's biggest headache was not the rising tide of political groups seeking tax exemptions or the growing calls from Washington lawmakers, chiefly Democrats, demanding closer scrutiny of big-spending political operations claiming tax-exempt status. The office was consumed with a different problem: a tweak Congress had made to the tax code that threatened more than 400,000 nonprofit groups around the country with an automatic loss of tax exemption, potentially putting some out of business, according to a report by the Taxpayer Advocate Service, which handles complaints about tax cases. Tens of thousands of such groups had reapplied for exemptions, overwhelming the office with queries and paperwork.

The rules governing those traditional charities, known as 501(c)3 groups, are relatively clear. But after the Supreme Court's 2010 Citizens United decision on campaign financing freed corporations and unions to spend money on elections, hundreds of new applications began to arrive from Tea Party and other organizations. Most sought a different status, 501(c)4, under which "social welfare" nonprofit groups may engage in a limited amount of election activity without registering as political action committees and disclosing their donors.

Those indicating that they will intervene in elections typically receive closer scrutiny, former I.R.S. officials said, because of the potential that they may not be entitled to a tax exemption.

It is not unusual for I.R.S. specialists to search for patterns in applications, in part for clues toward fraud and scams -- a single tax preparer employing the same tax gambit for multiple clients, for example -- and in part to ensure that similar groups are treated in a consistent way, the former officials said.

It is not yet clear which manager in Cincinnati asked for an initial keyword search of Tea Party applications, Congressional aides said. One of the employees that the House committee is seeking to interview this week, Joseph Herr, had been a manager in charge of the group of specialists in Cincinnati from its inception through August 2010, according to the aides.

By October 2010, a batch of 40 cases were under heightened review, 18 of them with "Tea Party" in the group names. Specialists throughout the Determinations Unit had been issued a "Be on the Lookout" notice for Tea Party applications, and some were given training on how to evaluate groups planning to do election-related work, according to the I.R.S. inspector general.

In October 2010, as part of a reorganization of the unit, responsibility for the cases was shifted to a different group of specialists. Some applications that had been farmed out to Determinations Unit specialists elsewhere were moved back to the Cincinnati office.

One manager there complained that the "technical unit" -- lawyers, chiefly in Washington, who advise the specialists on the tax law -- had been slow in providing guidance on the applications, according to the inspector general. Over the next several months, the inspector general said, low-level specialists, managers and the lawyers appeared to struggle to come up with a consistent set of criteria and questions to ask the groups.

Philip Hackney, who was an I.R.S. lawyer in Washington, occasionally reviewed the exempt unit's work until 2011 and was not involved in the Tea Party cases. He said that several times he and other lawyers revised the procedures the Cincinnati employees devised to scrutinize applicants because their questions might be interpreted as intrusive or politically insensitive.

"We're talking about an office overwhelmed by 60,000 paper applications trying to find efficient means of dealing with that," said Mr. Hackney, who is now a law professor at Louisiana State University. "There were times where they came up with shortcuts that were efficient but didn't take into consideration the public perception."

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