WASHINGTON — There's an irony in the Internal Revenue Service's crackdown on conservative groups.

The nation's tax agency has admitted to inappropriately scrutinizing smaller tea party organizations that applied for tax-exempt status, and senior Treasury Department officials were notified in the midst of the 2012 presidential election season that an internal investigation was underway. But the IRS largely maintained a hands-off policy with the much larger, big-budget organizations on the left and right that were most influential in the elections and are organized under a section of the tax code that allows them to hide their donors.

"The IRS goes AWOL when wealthy and powerful forces want to break the law in order to hide their wrongful efforts and secret political influence," said Rhode Island Sen. Sheldon Whitehouse, a Democrat who is among a small Senate group pushing campaign finance reform measures that would force these big outside groups to disclose their donors. "Picking on the little guy is a pretty lousy thing to do."

Karl Rove's Crossroads GPS and the Koch brothers' Americans for Prosperity were among those that spent tens of millions of dollars on TV ads and get-out-the-vote efforts to help Republicans. Democrats were aided in similar fashion by Priorities USA, made up of former Barack Obama campaign aides, and American Bridge 21st Century Foundation, an opposition research group led by a former adviser to Senate Majority Leader Harry Reid.

And yet those groups so far have escaped investigations into whether they have crossed the blurry line under the law between what constitutes a tax-exempt "social welfare" organization that is free from donor reporting requirements and a political committee subject to taxes and disclosures.

Watchdog groups and lawmakers who have sought more disclosure and restrictions on such groups claim an injustice. They say the IRS saga over the targeting of smaller groups shines a bright light onto the agency's failure to guard against the flood of secret money into the political system through the creation of the deep-pocketed groups.

Yet other advocates of reform worry that, in light of the IRS disclosure of targeting small groups, government regulators will be less likely to scrutinize the tax-exempt status of the bigger, more powerful groups out of fear that they will appear to be targeting groups for political reasons.

"We expect that opponents of disclosure will try to use the recent developments to allow the groups that are misusing the tax laws to hide donors to continue misusing them. But that's a battle that we will engage in," said Fred Wertheimer, founder and president of watchdog group Democracy 21.

Since a series of court decisions including the Supreme Court's ruling in the 2010 Citizens United case, the IRS has seen an influx of applications – from 1,735 in 2010 to 3,357 in 2012 – by so-called social welfare groups wanting to form under section 501(c)(4) of the federal tax code. That section grants tax-exempt status as long as the primary mission of these organizations is not politics and influencing elections. The IRS makes that determination. Such nonprofits can keep secret the names of their donors, which are not subject to traditional campaign finance limits.

The rules are fuzzy. The law says that these groups can only be involved in social welfare activity and not politics. But IRS regulations give the groups leeway to conduct political activities – as long as that is not its "primary activity." That conflict opens the door to potential abuses and different interpretations of what is allowed and what is prohibited.

An IRS inspector general's report released this week recommended developing for the first time specific guidelines to measure the primary activity of social welfare organizations, and some in Congress have shown a willingness to review big groups like the nonprofit Crossroads GPS and its sister super PAC, American Crossroads. They spent a combined $176 million in the last election cycle, much of it on television advertisements to benefit Republican candidates.

A Senate investigative panel led by Democrat Carl Levin of Michigan and Republican John McCain of Arizona has been reviewing the use of social welfare groups for political causes for the past year and now is examining the agency's handling of the tax-exempt reviews.

And in a letter to congressional investigators Thursday, Rep. Chris Van Hollen, D-Md., urged the House Ways and Means Committee not to ignore the influx of groups that may be abusing the tax code as part of its upcoming IRS probe, saying: "I hope we can remove the incentive for any group, regardless of its political orientation, to seek 501(c)(4) tax-exempt status to engage in significant political campaign activities while hiding their donors."

Despite the bipartisan outcry over the IRS scandal, there's little incentive for lawmakers on either side of the aisle to push for reforms because Republicans and Democrats alike benefit from these big outside groups.

In fact, just the opposite may be happening.

Some congressional Democrats, fearful of being tied to the scandal, are backing the push for more aggressive enforcement of these groups. And some conservative leaders and Republican donors are using the IRS scandal to help protect the status quo while preparing to pump hundreds of millions of dollars – raised anonymously in many cases with no contribution limits – into the next election cycle, just as they did last fall.

"I would hope that this new information about the politicization of the IRS should put the brakes on any sort of disclosure of donors who wish to remain anonymous," said Charlie Spies, who helps raise money for several conservative organizations and previously led the super political action committee that raised more than $140 million to benefit Mitt Romney's presidential bid. "We're now seeing exactly what the risk is for donors to be disclosed."

At least some tea party groups are unwilling to trust the agency with more enforcement power in the wake of such damaging revelations.

"The IRS' integrity is shattered," said Jenny Beth Martin, chairman of the Tea Party Patriots, which was among the largest nonprofit conservative groups the IRS targeted. She said that now, more than ever, donors need freedom to give money anonymously "without fear of retribution" from a politicized IRS. In the meantime, she says her organization's influence is growing, fueled by anonymous unlimited donations.

Wertheimer, of Democracy 21, said the "laundering of secret money into elections" will become a greater scandal than IRS misconduct unless something is done.

"There will be efforts to sweep this under the rug," he said. "They may succeed on a temporary basis for a relatively short period, but they are not going to succeed in the long term."

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Peoples reported from Boston.

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  • President Barack Obama

    "This is pretty straightforward," Obama said at a <a href="http://www.huffingtonpost.com/2013/05/13/obama-irs-scandal_n_3266577.html" target="_blank">press conference</a>. "If, in fact, IRS personnel engaged in the kind of practices that have been reported on and were intentionally targeting conservative groups, then that is outrageous, and there is no place for it, and they have to be held fully accountable, because the IRS as an independent agency requires absolute integrity and people have to have confidence that they are applying the laws in a non-partisan way. You should feel that way regardless of party." (AP Photo/Jacquelyn Martin)

  • Sen. Marco Rubio (R-Fla.)

    Rubio <a href="http://www.rubio.senate.gov/public/index.cfm/press-releases?ID=bc8ce2a9-4e95-4792-8744-501d0c1b63b3" target="_blank">penned a letter</a> to Treasury Secretary Jack Lew demanding the IRS commissioner's resignation. The letter begins: "Recent revelations about the Internal Revenue Service’s selective and deliberate targeting of conservative organizations are outrageous and seriously concerning. This years-long abuse of government power is an assault on the free speech rights of all Americans. This direct assault on our Constitution further justifies the American people’s distrust in government and its ability to properly implement our laws." (AP Photo/J. Scott Applewhite)

  • House Speaker John Boehner (R-Ohio)

    "The admission by the Obama administration that the Internal Revenue Service targeted political opponents echoes some of the most shameful abuses of government power in 20th-century American history. Today, we are left with serious questions: who is ultimately responsible for this travesty? What actions will the Obama administration take to hold them accountable? And have other federal agencies used government powers to attack Americans for partisan reasons? House Republicans have made oversight of federal agencies a top priority on behalf of the American people, and I applaud the work that members such as Charles Boustany, Darrell Issa and Jim Jordan have done to bring this issue to light. I also strongly support Sen. McConnell’s call for a transparent, government-wide review to ensure similar practices are not happening elsewhere in the federal bureaucracy," Boehner said in a <a href="http://www.speaker.gov/press-release/speaker-boehner-statement-irs-targeting-conservative-groups" target="_blank">statement</a>. (AP Photo/Cliff Owen)

  • Rep. Darrell Issa (R-Calif.)

  • Rep. Michele Bachmann (R-Minn.)

  • Sen. Harry Reid (D-Nev.)

  • Sen. Chuck Grassley (R-Iowa)

  • Rep. Vern Buchanan (R-Fla.)

    Buchanan also <a href="http://buchanan.house.gov/index.php?option=com_content&view=article&id=4787:buchanan-to-treasury-secretary-the-nations-trust-in-government-was-betrayed&catid=1:latest-news" target="_blank">wrote a letter</a> calling for the IRS commissioner's resignation. His letter reads: "On March 22, 2012, as a member of the House Ways and Means Committee which oversees the IRS, we heard then-Commissioner Douglas Shulman clearly state that the IRS did not engage in the practices of which it is now accused saying "there is absolutely no targeting." Yet, less than a year earlier, Commissioner Shulman's own deputy, Lois Lerner, was made aware that such malpractice had indeed occurred. It became evident that groups with "tea party" or "patriot" in their names were extremely vulnerable to auditing harassment. Even nonprofit organizations that sought to educate Americans about the U.S. Constitution were unfairly singled out for scrutiny. The nation's trust in government was betrayed by this unconscionable behavior. On behalf of my constituents, your immediate response is not only warranted but essential to clearing up a matter that would have our founding fathers rolling in their graves." (AP Photo/Steve Nesius, File)

  • Sen. Jerry Moran (R-Kan.)

  • Sen. Dean Heller (R-Nev.)

  • Sen. Jeff Flake (R-Ariz.)

  • Rep. Joe Barton (R-Texas)

  • Rep. Erik Paulsen (R-Minn.)

    "It is unconscionable that the IRS deliberately targeted individuals based on their political beliefs. Absolutely no one should come under extra scrutiny from the IRS because of their political affiliation. It’s simply un-American," Paulsen said in a <a href="http://paulsen.house.gov/press-releases/paulsen-statement-on-fridays-hearing-examining-irs-targeting-conservative-groups/" target="_blank">statement</a>. (Photo by Daniel Acker/Bloomberg via Getty Images)

  • Rep. Kenny Marchant (R-Texas)

    “I have long been concerned with reports that the IRS has unfairly targeted some political groups over others – a charge that they have repeatedly denied. In March 2012, I sent IRS Commissioner Doug Shulman a letter demanding an explanation of this unacceptable behavior. Now, more than a year later, the IRS has admitted to what we have long suspected – it was targeting tea party groups. The IRS’s actions are unacceptable, and I commend Chairman Dave Camp and Oversight Subcommittee Chairman Charles Boustany for moving forward with a full investigation. We will continue to work to ensure there are protections in place so no American, regardless of political affiliation, has their right to free speech threatened by the IRS," Marchant said in a <a href="http://marchant.house.gov/news/documentsingle.aspx?DocumentID=333635" target="_blank">statement</a>. (Photo By Chris Maddaloni/CQ Roll Call)

  • Rep. Jason Chaffetz (R-Utah)

  • Rep. Ed Markey (D-Mass.)

  • Rep. Roy Blunt (R-Mo.)

  • Rep. Bob Goodlatte (R-Va.)

  • Rep. Tom Price (R-Ga.)

  • Sen. Mark Udall (D-Colo.)

    <i>CORRECTION: An earlier version of this slideshow incorrectly identified Udall as a Republican.</i>

  • Rep. Jack Kingston (R-Ga.)

  • Rep. Aaron Schock (R-Ill.)

  • Sen. John Cornyn (R-Texas)

    “Today’s revelation that the IRS targeted average Americans using taxpayer dollars solely for disagreeing with them politically is completely unacceptable from this Administration. “Partisan politics have consistently characterized this White House, and the Administration must take immediate disciplinary action and ensure American citizens are not subject to this type of Orwellian persecution again," Cornyn said in a <a href="http://www.cornyn.senate.gov/public/index.cfm?p=NewsReleases&ContentRecord_id=ebc9edeb-f748-45cf-a6b3-0143c6cb41c0" target="_blank">statement</a>. (AP Photo/J. Scott Applewhite)