'SOMETHING PROFOUNDLY UN-AMERICAN'

On Capitol Hill the IRS scandal seemed to rewind the clock to 2010, when groups aligned with the conservative Tea Party movement were a frequent and vocal presence outside Congress.

"There is something profoundly un-American about targeting your political opponents," Kentucky Republican Senator Rand Paul, a potential 2016 presidential candidate, told a crowd of about 100 Tea Party enthusiasts outside the Capitol on Thursday.

The scandal dates to March 2010, as the IRS struggled to deal with a surge of new advocacy groups that sprang up in the wake of a Supreme Court decision that struck down limits on independent political spending by businesses and other outside groups.

The agency has trouble keeping track of the more than 1 million tax-exempt organizations that already exist, analysts say.

The number of applications for tax-exempt "social welfare" status nearly doubled from 2010 to 2012, according to IRS figures.

Groups applying for what is known as 501(c)4 status can engage in limited campaign activity but are not supposed to make electioneering the focus of their efforts. Unlike political campaigns, they may keep their donors secret.

Spending by these groups and other similar organizations jumped to $309 million in 2012 from $79 million in the 2008 election, according to the Center for Responsive Politics. Conservative groups accounted for about three-quarters of that total, according to the watchdog group.

As a result, the agency faced pressure from top Democrats such as Illinois Senator Dick Durbin, New York Senator Charles Schumer and Max Baucus, who heads the Senate's tax-writing committee, to make sure the non-profit groups weren't exploiting a loophole to evade taxes and keep their donors secret.

Because that activity lacked revenue-generating potential, it was seen as a low priority within an agency whose central mission is tax collection, according to tax specialists.

The IRS gave the task to a field office in Cincinnati, Ohio, rather than assign it to higher-ranking staff in its Washington headquarters.

According to an internal IRS watchdog, that unit set its own criteria for checking tax-exempt groups in the absence of clear guidance from more senior officials.