Justice Dept. to investigate IRS

Probe to examine outside knowledge of unfair scrutiny

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WASHINGTON -- An inspector general's report issued Tuesday blamed ineffective Internal Revenue Service management in the failure to stop employees from singling out conservative groups for added scrutiny. Congressional aides, meanwhile, sought to determine whether the Obama administration's knowledge of the effort extended beyond the IRS.

House and Senate aides said they were focusing on an Aug. 4, 2011, meeting in which the IRS's chief counsel appears to have conferred with agency officials to discuss the activities of a Cincinnati field office team that had been subjecting applications for tax-exempt status from Tea Party and other conservative groups to a greater degree of review than those from other organizations.

Under IRS rules, the agency's chief counsel, William J. Wilkins, reports to the Treasury Department's general counsel, and investigators want to determine if Mr. Wilkins took the issue out of the independent IRS to other parts of the Obama administration.

If the inquiry determines any new link to the administration, it could change the political equation for the White House, which has stressed the IRS's independence, even as President Barack Obama has castigated the agency over the allegations of political bias. A bipartisan investigation by the Senate Finance Committee built steam Tuesday, and the House Ways and Means Committee prepared for the first hearing on the matter Friday with an extensive request for documents from the IRS. The House Oversight Committee formally accused one IRS official of misleading lawmakers on four occasions.

"What we don't know at this point is whether it jumped the fence from the IRS to the White House," said Senate Minority Leader Mitch McConnell, R-Ky. "But we do know this: We can't count on the administration to be forthcoming about the details of this scandal, because so far they've been anything but."

Late Tuesday, Mr. Obama said in a statement that "the report's findings are intolerable and inexcusable." He added: "The federal government must conduct itself in a way that's worthy of the public's trust, and that's especially true for the IRS. This report shows that some of its employees failed that test."

He said he was asking Treasury Secretary Jacob J. Lew "to hold those responsible for these failures accountable, and to make sure that each of the inspector general's recommendations are implemented quickly."

The Obama administration tried to stay ahead of the furor with an announcement by Attorney General Eric H. Holder Jr. that he had ordered a federal investigation into whether IRS officials broke any criminal laws by singling out the conservative groups. "The FBI is coordinating with the Justice Department to see if any laws were broken in connection with those matters related to the IRS," Mr. Holder told reporters. "Those were, I think, as everyone can agree, if not criminal, they were certainly outrageous and unacceptable, but we are examining the facts to see if there were criminal violations."

But a matter the IRS portrayed Friday as a little-known operation conducted in Cincinnati, largely out of sight of Washington officials, continued to sprawl. The report by the Treasury inspector general for tax administration offered new details on the scope and duration of the IRS targeting effort.

Mismanagement at the agency allowed "inappropriate criteria" for the singling out of conservative groups to be developed and stay in place for more than 18 months, starting in 2010, the report said. That resulted in "substantial delays" for groups applying for tax-exempt status, either as 501(c)(4) or 501(c)(3) organizations, and it allowed unnecessary and intrusive information such as donor lists to be gathered. IRS officials told the inspector general that all donor information received was later destroyed.

Of the 296 applications the inspector general reviewed, 108 were approved, 28 were withdrawn by the applicants and 160 were still open, some pending for as long as 1,138 days.

In a statement Tuesday night, the IRS acknowledged that "inappropriate shortcuts were used to determine which cases may be engaging in political activities." But it said the agency had a responsibility to make sure that such organizations did not engage in impermissible political actions, and that not just conservative groups were singled out. It also said "there was no intent to hide this issue," but that the agency had been awaiting the inspector general's report.

The report said senior IRS officials told inspectors that no individual or organization outside the agency influenced the criteria used to single out Tea Party or other conservative groups.

But congressional aides looking into the matter are not convinced. One notation in a 12-page timeline of events prepared by the inspector general stood out for exploration. On Aug. 4, 2011, officials at the IRS's rulings and agreement office met with the IRS's chief counsel, "so that everyone would have the latest information on the issue," according to the inspector general.

That was interpreted as an invitation to bring the matter up the chain of command, to the Treasury general counsel, George W. Madison, who left the department in June 2012. Treasury officials declined to comment Tuesday.

It is clear that the IRS headquarters in Washington was far more involved in the effort than initially portrayed. A "sensitive case report" on Tea Party targeting was sent from Cincinnati to Lois Lerner, head of the IRS's division for tax-exempt organizations, and another Washington official on April 19, 2010, more than a year before previously thought. Ms. Lerner told reporters Friday that she learned of the effort in early 2012 through news media reports of Tea Party complaints.

Even before then, in mid-March 2010, 10 Tea Party cases appear to have been brought to the attention of another senior IRS official in Washington, just two weeks after the Cincinnati effort began, according to the inspector general's audit.

And Steven Miller, now the acting IRS commissioner, was aware of the matter in March 2012, a month before he told Republican senators that there was no special treatment for conservative applicants for tax exemption. "They purposely misled me," said Utah Sen. Orrin Hatch, the Senate Finance Committee's ranking Republican.

Ahead of a public hearing Friday with Mr. Miller, the bipartisan leadership of the House Ways and Means Committee requested all IRS documents on the targeting of conservative organizations. Mr. Miller met privately with Senate Finance Committee chairman Max Baucus, D-Mont., as four GOP senators, including the top two leaders, demanded his resignation.

In a nine-page letter to Ms. Lerner, Rep. Darrell Issa, R-Calif., chairman of the House Committee on Oversight and Government Reform, and Rep. Jim Jordan, R-Ohio, accused her of providing false or misleading information to their panel four times in 2012 as the scope of the targeting effort became clear ahead of the presidential election.

The letter said 471 groups in all had now been targeted. Many were asked for complete lists of donors, an action Mr. Issa and Mr. Jordan called unprecedented. Yet, they concluded, no IRS employee has been disciplined, and one in Cincinnati was promoted.

The inspector general did seem to back up the Obama administration's portrayal of a roguelike Cincinnati operation flouting the wishes of senior IRS officials in Washington.

After being briefed on screening criteria in June 2011, which included a search of case files for criticism of how the nation was being run, Ms. Lerner immediately ordered the criteria to be expanded to encompass applicants that would not necessarily be conservative.

But in January 2012, the Cincinnati team had again changed the criteria "without executive approval because they believed the July 2011 criteria were too broad," the report said.

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