Meanwhile, the Mississippi Tea Party, which had applied for the status in spring 2009, received a letter from the IRS on Sept. 28, 2010 (the day before Baucus's request) asking for more information from the local group including its relationship to "Tea Party Patriots," a national organization, according to a timeline provided to U.S. News and World Report by Julia Hodges, head of the Mississippi group.
Hodges says after a litany of letters and requests for information from 2009 to 2012, her group abandoned its bid for the official designation.
"Basically for us, we just pass a hat and that's how money would come in," she said of their small fundraising efforts. "It's just kinda like, well, if that's what you want to know, it's a big hat, I can't tell you what kind of hat it was, it was a baseball hat if you want to know."
The group currently has less than $800 in the bank, Hodges says.
Conversely, a Democratic group that spent much greater sums of money promoting campaign positions and issues leading up to the 2012 election than Hodges' group – Priorities USA – operated as a 501 (c)(4) but never applied for the official designation because it's not technically required.
"The regulations stipulate that you don't have to as long as you are filing the appropriate paperwork and we did," says a Democratic consultant familiar with the operation. Similarly, Obama's campaign arm turned grass roots lobbying group, Organizing for America, is also operating as a 501(c)(4) but has not yet applied for the official status with the IRS, according to officials with the group.
When asked what other Democratic groups had operated as 501(c)(4)s , the Democratic strategist familiar with Priorities USA offered the House and Senate campaign arms, but didn't indicate the presence of a litany of local progressive organizations, such as what was happening on the conservative side. He blames that on a matter of political philosophy.
"We're sort of different than Republicans because on the Democratic side there isn't the same appetite for anonymous giving as there is on the Republican side," he says. "I mean, the numbers are the numbers."
So what emerges is the narrative that while small, grass roots organizations like Hodges', which relied on a volunteer CPA to negotiate the tax exemption application, tried to go above and beyond the legal requirements (perhaps unbeknownst to them) it was because of that they got punished as IRS officials felt political pressure to crackdown on the proliferation of filings.
To cope, the officials sought to use keywords to centralize their work, according to Lerner.
"They do that for efficiency and consistency," she told an audience at a tax panel last Friday, in response to a question she planted with a prominent Washington tax lawyer. "So centralization was perfectly fine however the way they did the centralization was not so fine. They used names like "tea party" or "patriots" and they selected cases simply because the application had those names in the title. That was wrong; that was absolutely incorrect, it was insensitive and it was inappropriate."
It remains unclear whether the IRS scandal truly is the result of misguided, low-level officials responding inappropriately to political pressure or if it was a directive from higher-ups. Congress began holding hearings on the controversy Friday and has pledged to continue to press the matter. But there's been no indication from official correspondence from Schumer or Baucus to the IRS that either of the Democratic senators asked them to unfairly scrutinize the conservative groups, as some on the right have implied.