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IRS workers in Tea Party ruckus face House panel

By Kim Dixon

WASHINGTON (Reuters) - Three Internal Revenue Service officials enmeshed in the Tea Party controversy will face lawmakers for the first time this week to testify in a case that triggered a partisan fight over how the agency reviews applicants for tax exemption.

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

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.

The administration of Democratic President Barack Obama has denied targeting the Tea Party, a political movement that draws its name from the Boston Tea Party protest of 1773 against British-imposed taxes.

The hearing before the House Oversight and Government Reform Committee, controlled by Republicans, on Thursday will be the first time lower-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 centralized. In private testimony to the committee, she complained about oversight from Washington.

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

A critical report from the Inspector General for Tax Administration in May described what it called inappropriate targeting of the groups, and use of a "Be on the Lookout" list, known internally as BOLO, including terms "Tea Party" and "Patriot" to flag applications for added review.

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

In the past month, Democrats have released IRS documents that show progressive groups were also on the BOLO lists and possibly faced added review.

Democrats have also called into question the inspector general's neutrality, after the office did not address how liberal groups were treated in its report.

Republicans counter that the inspector general later reported the progressive groups did not face the same level of scrutiny and delays like those faced by conservative groups.

Also testifying before the oversight panel on Thursday are Carter Hull, who was Hofacre's primary contact in Washington, and Steven Grodnitzy, a manager of tax lawyers in Washington who may have been Hull's supervisor.

Neither Hofacre, Hull nor Grodnitzy could be reached for comment.

Groups seeking tax-exemption under federal law may engage in limited political activity, depending on the type of exemption sought. The vagueness of the rules can make it difficult for IRS agents to tell which groups overstep and become ineligible for tax exemption.

(Reporting By Kim Dixon; Editing by Howard Goller and Doina Chiacu)

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