"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.
Former Sen. Olympia Snowe, R-Maine, says she'll wait for Congress to do its job before judging how pervasive the inappropriate behavior was, but she adds she's "stunned" by the agency's incompetence.
"There is no employee who works at the IRS who isn't sensitized and comprehends the dimension of the powers they possess," she says. "That's what's stunned me more than anything, is the manner in which they used their powers."
In the event top officials were aware of the actions, Snowe says there should be "punitive action – first of all removal. But beyond that, determining whether or not there was criminal activity."
And if IRS leaders were unaware of the targeting, "it was a massive breakdown in leadership if no one was supervising these individuals," she says.
"It just raises the specter of enormous fear throughout this country because people don't have the time or the money to fight them," Snowe says.