A Bombshell in the IRS Scandal

No, it wasn’t confined to a few rogue workers in Cincinnati.

The IRS scandal was connected this week not just to the Washington office—that had been established—but to the office of the chief counsel.

That is a bombshell—such a big one that it managed to emerge in spite of an unfocused, frequently off-point congressional hearing in which some members seemed to have accidentally woken up in the middle of a committee room, some seemed unaware of the implications of what their investigators had uncovered, one pretended that the investigation should end if IRS workers couldn’t say the president had personally called and told them to harass his foes, and one seemed to be holding a filibuster on Pakistan.

Still, what landed was a bombshell. And Democrats know it. Which is why they are so desperate to make the investigation go away. They know, as Republicans do, that the chief counsel of the IRS is one of only two Obama political appointees in the entire agency.

To quickly review why the new information, which came most succinctly in a nine-page congressional letter to IRS Commissioner Daniel Werfel, is big news:

House investigators soon talked to workers in the Cincinnati office, who said everything they did came from Washington. Elizabeth Hofacre, in charge of processing tea-party applications in Cincinnati, told investigators that her work was overseen and directed by a lawyer in the IRS Washington office named Carter Hull.

When the scandal broke two months ago, in May, IRS leadership in Washington claimed the harassment of tea-party and other conservative groups requesting tax-exempt status was confined to the Cincinnati office, where a few rogue workers bungled the application process. Lois Lerner, then the head of the exempt organizations unit in Washington, said “line people in Cincinnati” did work that was “not so fine.” They asked questions that “weren’t really necessary,” she claimed, and operated without “the appropriate level of sensitivity.” But the targeting was “not intentional.” Ousted acting commissioner Steven Miller also put it off on “people in Cincinnati.” They provided “horrible customer service.”

Now comes Mr. Hull’s testimony. And like Ms. Hofacre, he pointed his finger upward. Mr. Hull—a 48-year IRS veteran and an expert on tax exemption law—told investigators that tea-party applications under his review were sent upstairs within the Washington office, at the direction of Lois Lerner.

In April 2010, Hull was assigned to scrutinize certain tea-party applications. He requested more information from the groups. After he received responses, he felt he knew enough to determine whether the applications should be approved or denied.

But his recommendations were not carried out.

Michael Seto, head of Mr. Hull’s unit, also spoke to investigators. He told them Lois Lerner made an unusual decision: Tea-party applications would undergo additional scrutiny—a multilayered review.

Mr. Hull told House investigators that at some point in the winter of 2010-11, Ms. Lerner’s senior adviser, whose name is withheld in the publicly released partial interview transcript, told him the applications would require further review:

Q: “Did [the senior adviser to Ms. Lerner] indicate to you whether she agreed with your recommendations?”

A: “She did not say whether she agreed or not. She said it should go to chief counsel.”

Q: “The IRS chief counsel?”

A: “The IRS chief counsel.”

The IRS chief counsel is named William Wilkins. And again, he is one of only two Obama political appointees in the IRS.

What was the chief counsel’s office looking for? The letter to Mr. Werfel says Mr. Hull’s supervisor, Ronald Shoemaker, provided insight: The counsel’s office wanted, in the words of the congressional committees, “information about the applicants’ political activities leading up to the 2010 election.” Mr. Shoemaker told investigators he didn’t find that kind of question unreasonable, but he found the counsel’s office to be “not very forthcoming”: “We discussed it to some extent and they indicated that they wanted more development of possible political activity or political intervention right before the election period.”

It’s almost as if—my words—the conservative organizations in question were, during two major election cycles, deliberately held in a holding pattern.

So: What the IRS originally claimed was a rogue operation now reaches up not only to the Washington office, but into the office of the IRS chief counsel himself.

At the generally lacking House Oversight Committee Hearings on Thursday, some big things still got said.

Ms. Hofacre of the Cincinnati office testified that when she was given tea-party applications, she had to kick them upstairs. When she was given non-tea-party applications, they were sent on for normal treatment. Was she told to send liberal or progressive groups for special scrutiny? No, she did not scrutinize the applications of liberal or progressive groups. “I would send those to general inventory.” Who got extra scrutiny? “They were all tea-party and patriot cases.” She became “very frustrated” by the “micromanagement” from Washington. “It was like working in lost luggage.” She applied to be transferred.

For his part, Mr. Hull backed up what he’d told House investigators. He described what was, essentially, a big, lengthy runaround in the Washington office in which no one was clear as to their reasons but everything was delayed. The multitiered scrutiny of the targeted groups was, he said, “unusual.”

It was Maryland’s Rep. Elijah Cummings, the panel’s ranking Democrat, who, absurdly, asked Ms. Hofacre if the White House called the Cincinnati office to tell them what to do and whether she has knowledge of the president of the United States digging through the tax returns of citizens. Ms. Hofacre looked surprised. No, she replied.

It wasn’t hard to imagine her thought bubble: Do congressmen think presidents call people like me and say, “Don’t forget to harass my enemies”? Are congressmen that stupid?

Mr. Cummings is not, and his seeming desperation is telling. Recent congressional information leads to Washington—and now to very high up at the IRS. Meaning this is the point at which a scandal goes nowhere or, maybe, everywhere.

Rep. Trey Gowdy, a South Carolina Republican, finally woke the proceedings up with what he called “the evolution of the defense” since the scandal began. First, Ms. Lerner planted a question at a conference. Then she said the Cincinnati office did it—a narrative that was advanced by the president’s spokesman, Jay Carney. Then came the suggestion the IRS was too badly managed to pull off a sophisticated conspiracy. Then the charge that liberal groups were targeted too—”we did it against both ends of the political spectrum.” When the inspector general of the IRS said no, it was conservative groups that were targeted, he came under attack. Now the defense is that the White House wasn’t involved, so case closed.

This is one Republican who is right about evolution.

Those trying to get to the bottom of the scandal have to dig in, pay attention. The administration’s defenders, and their friends in the press, have made some progress in confusing the issue through misdirection and misstatement.

This is the moment things go forward or stall. Republicans need to find out how high the scandal went and why, exactly, it went there. To do that they’ll have to up their game.

A version of this article appeared July 19, 2013, on page A15 in the U.S. edition of The Wall Street Journal, with the headline: A Bombshell in the IRS Scandal.