WASHINGTON - The seeds of the current Internal Revenue Service targeting scandal were planted more than five decades ago, sprouting from an obscure rule issued in 1959 allowing tax-exempt groups to start dabbling in politics.
Critics say that IRS rule opened a loophole for political groups to "masquerade" as social welfare groups, while spending millions of dollars trying to influence federal elections. The rule has few defenders today. In recent weeks, campaign-finance watchdogs, Tea Party activists and lawmakers have all denounced it as nebulous, out-dated and ill-conceived.
"The regulations are unconstitutional because they're so vague," said Jay Sekulow, chief counsel of the American Center for Law and Justice, a conservative organization suing the IRS over the agency's targeting of conservative groups seeking tax-exempt status.
But whether anyone will fix it is far from clear - even amid the uproar over revelations that IRS workers in the agency's Cincinnati field office gave extra scrutiny to Tea Party groups, at least in part because of confusion about the 54-year-old rule.
Congress first decided in 1913 that civic leagues and similar organizations should get a pass on federal taxes if they were operating for the "common good" and the "general welfare" of a community. The law governing certain tax-exempt groups - those organized under the 501(c)(4) section of the IRS code - states that they should be "operated exclusively for the promotion of social welfare."
But during the Eisenhower administration, the IRS issued a rule saying 501(c)(4) organizations could participate in other activities as long as their "primary" focus was still social welfare. The switch from requiring such groups to operate "exclusively" for social welfare to making that their "primary" purpose opened the door for such groups to become involved in politics.
Adding to the confusion: The IRS has never defined "primary."
"There's no 'bright-line test,' " Holly Paz, the IRS' director of rulings and agreements, told investigators with the House oversight committee, one of three congressional panels probing the tax agency's handling of conservative groups' tax-exempt applications.
Paz was hardly the only one to complain about the rule.
John Shafer, a manager in the IRS' Cincinnati field office, told the oversight committee that it was hard for his agents to figure out when a group should be denied tax-exempt status because of its campaign activity.
"It's not real clear as to how much political activity a (c)(4) public organization can participate in," he told the committee.
And Steven Miller, the recently ousted IRS commissioner, pleaded with lawmakers to clarify the guidelines when he testified before Congress about the scandal.
Political groups have flocked to organize under the 501(c)(4) section of the tax code because such groups do not have to disclose their donors.
And, critics say, conservative and liberal organizations alike have taken advantage of the fuzziness of the word "primary" by assuming that political pursuits can make up 49% of their total annual expenditures.
"If it's not a majority, there should be no problem," said Sekulow, who represents more than two dozen Tea Party and other groups who say they were targeted by the IRS.
That 49% figure didn't make life easy for IRS workers reviewing tax-exempt applications, who described two problems: first, defining what is political activity, as opposed to lobbying; and second, quantifying how much political activity is too much.
Elizabeth Hofacre, the agency's emerging issues coordinator in Cincinnati when the targeting began, said agents struggled to figure out if a group crossed the 50% mark in its political activities. "Fifty-one percent, I mean, how do you measure that?" Hofacre said.
The combination of the murky rule and political strategists taking advantage - along with the IRS' failure to properly scrutinize these groups - has led "to massive misuse of the tax laws to hide donors financing campaign activity," said Fred Wertheimer, president of Democracy 21, a campaign-finance watchdog group.
He said the current IRS scandal could have been averted if there was a "bright-line test" for IRS workers to use in evaluating tax-exempt applications.
"If you had a clear test that said you can't spend more than 10% of your money on political activity, one would have been able to judge whether the group was complying with that test," he said. "And certainly, if it said you could not do any political activity, that would be even easier to judge."
Sen. Sherrod Brown, D-Ohio, who serves on the Senate Finance Committee, echoed that assessment.
"The IRS made a terrible mistake when they interpreted 'exclusively' as 'primary,' " Brown said. " 'Primary' means they can . . . game the system."
He said many 501(c)(4)s "are political organizations that masquerade" as social welfare groups but do almost no such work.
Brown said Congress doesn't need to get involved because the IRS can simply issue a new rule that's clearer.
"It's a loophole that the IRS should close," Brown said.
Wertheimer said he's not confident that the IRS or Congress will do what's needed. His group has been pressing top IRS officials to revise the rule since 2011, to no avail. "They haven't done anything, and we are exploring a lawsuit right now to challenge" the rule, he said.
Sekulow agreed that the rule needs to be clearer - but he said codifying the 49% might be a better route. "That would be straightforward," he said.
He predicted that Congress will act, creating a standard that doesn't prohibit non-profit groups from engaging in political activity, but that makes "a lot more sense" than the 1959 rule does.
Contributing: Gregory Korte, USA TODAY; James Pilcher, The Cincinnati Enquirer
Deirdre Shesgreen, Gannett Washington Bureau