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IRS workers, watchdog in IRS scrutiny case to face U.S. lawmakers

By Kim Dixon

WASHINGTON (Reuters) - More key players in the controversy over the Internal Revenue Service targeting of conservative groups will face lawmakers this week in a case that has triggered a partisan fight over how the agency reviews applicants seeking tax exemption.

The House of Representatives committee looking into IRS practices will question a Cincinnati-based employee who was in charge of examining Tea Party-linked applications and a Washington IRS official who played a role in overseeing her work.

Top officials at the IRS inspector general, an internal watchdog, will also appear, aides said late on Monday.

Political tensions flared two months ago when a Washington IRS official acknowledged that the agency gave extra scrutiny to conservative groups seeking tax-exempt status.

Groups seeking tax exemption may engage in limited political activity. But vague rules make it hard for IRS agents to tell which groups overstep and become ineligible for tax exemption.

House oversight panel chairman Darrell Issa and other Republicans have focused on the role of Washington and potentially the White House in the affair.

No evidence so far links the White House to the IRS practices, and the administration of Democratic President Barack Obama has denied targeting the Tea Party, a conservative political movement.

Thursday's hearing before the Republican-controlled Oversight and Government Reform Committee will be the first time mid-level officials tell their side of the story.

Witness Elizabeth Hofacre was a specialist in the Cincinnati office where nearly all applications for tax-exempt status are handled. In private testimony to the committee, she complained about oversight from Washington.

"It was demeaning," she told investigators, according to a transcript reviewed by several news organizations including Reuters.

In her testimony, she expressed frustration at having Carter "Chip" Hull, her primary contact in Washington, review her responses to applicants. She described long delays waiting for his comments.

'KEY' TESTIMONY

Hull will testify for the first time on Thursday.

Earlier the committee had said that Steven Grodnitzy, a manager of tax lawyers in Washington, would testify. Later it said he would not be at Thursday's hearing.

"What is going to be key is what Chip Hull says," said Paul Streckfus, a former IRS official in the tax-exempt unit who has known Hull for decades.

He said Hull never expressed political leanings one way or another.

A report from the Inspector General for Tax Administration (TIGTA) in May described what it called inappropriate targeting of the groups, and use of a "Be on the Lookout" list, known internally as BOLO.

That list included the terms "Tea Party" and "Patriot" to flag applications for added review.

The fracas led Obama to oust the IRS chief. Several others were removed from their posts at the agency.

TIGTA chief Russell George, chief counsel Michael McCarthy and Gregory Kutz, the assistant inspector general overseeing tax-exempt organizations, will also testify.

Democrats called George back to the panel after questioning the inspector general's neutrality. Democrats have since released IRS documents showing progressive groups were also on the BOLO lists and possibly faced added review.

The oversight panel has privately interviewed about 15 current and former IRS officials as part of its investigation.

(Reporting By Kim Dixon; Editing by Howard Goller and Xavier Briand)

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