Story Summary

IRS scandal

Reports have surfaced that the Internal Revenue Service was applying extra scrutiny to conservative groups asking the government for tax exempt status.

President Barack Obama demanded that IRS Acting Commissioner Steven Miller resign amid the scandal

Obama later named Danny Werfel, an official in his budget office, as the new IRS commissioner.

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A huge increase in workload, rather than deliberate targeting, led to “foolish mistakes” and the political discrimination in the Internal Revenue Service cited by an inspector general’s report, the agency’s outgoing commissioner said Friday.

The testimony by Steven Miller, who was forced to announce his resignation this week as acting IRS commissioner, came at the first congressional hearing on the matter that has put President Barack Obama’s administration on the defensive.

Rep. Dave Camp, chairman of the Republican-led panel, and other GOP members sought to depict the controversy as indicative of government gone wild, with the IRS abusing conservative groups and other political foes of the administration.

Democrats on the committee also expressed outrage at the political targeting of conservative groups seeking tax-exempt status, but they noted that the top IRS official at the time was appointed by Republican President George W. Bush, not Obama.

They also noted that the inspector general’s report stated that there was no evidence of any political motivation or influence from outside the IRS.

In his opening remarks, Miller described an IRS division that handles requests for tax exempt status by political groups as overwhelmed by a surge that followed the Supreme Court’s 2010 Citizens United decision, which greatly expanded the ability of corporations, unions and other organizations to participate in election spending, though not through direct contributions to candidates or parties.

“I think that what happened here was that foolish mistakes were made by people who were trying to be more efficient in their workload selection,” Miller said, calling the practices described in the inspector general’s report as “intolerable” and a “mistake,” but “not an act of partisanship.”

He apologized for what he later called “horrible customer service,” but he also stubbornly rejected any accusation that it amounted to politicizing the work of the IRS.

Miller underwent aggressive and accusatory questioning from Camp and other Republicans, who claimed he misled Congress by failing to reveal the extent of the problem at previous hearings dating back a year.

“When asked the truth and you know the truth and you have a legal responsibility to inform others of the truth but you don’t share that truth, what is that called?” Camp asked.

“I always answer questions truthfully, Mr. Camp,” Miller replied.

GOP Rep. Paul Ryan of Wisconsin, the unsuccessful vice presidential candidate in last year’s election, later asked how the panel could accept Miller’s repeated claim that he never misled the committee, despite the Republican assertions he previously failed to notify it about the problem.

Miller responded: “I did not mislead the committee” and added that the controversy was not politically motivated.

When asked by GOP Rep. Devin Nunes of California why he resigned if he wasn’t personally involved in the improper acts, Miller replied: “I resigned because as the acting commissioner, what happens in the IRS, whether I was personally involved or not, stopped at my desk.”

“And so, I should be held accountable for what happens,” Miller said. “Whether I was personally involved or not, a very different question, sir.”

During a break, Camp told reporters that he wasn’t satisfied with Miller’s testimony so far, but refrained from a final assessment pending the remainder of the hearing. Camp added the panel wanted to get unspecified records from Miller’s tenure at the IRS.

Democrats sought to balance their rejection of any perception of political manipulation by the IRS with an effort to portray the situation as a poorly managed increase in demand for tax exempt status by political groups.

Rep. Jim McDermott, D-Washington, said the vast majority of the increased applications for tax exempt status after the Citizens United decision were from “far right groups,” while fellow Democratic Rep. Richard Neal of Washington said the conservative organizations wanted to be involved politically without revealing donors — as allowed for the 501 (c) (4) groups under the federal tax code.

“It all started right after Citizens United,” he said, adding that political groups “saw the door open” and thought that “we can get in, we can do political advertising.”

McDermott said there is a difference between “stupid mistakes and deliberate mistakes,” adding that the IRS officials handling the requests took a shortcut “they deeply regret.”

Democrats repeatedly asked the other witness Friday — Inspector General J. Russell George, who wrote the report on the controversy — to reiterate that there was no evidence of political motivation.

Rep. Sander Levin, the panel’s ranking Democrat, specifically cited the former IRS commissioner, Douglas Shulman, for what he called misleading Congress on the issue. Shulman was not a witness at Friday’s hearing, but is scheduled to appear at other congressional hearings next week.

According to the report by George, the agency developed and followed a faulty policy to determine whether the applicants were engaged in political activities, which would disqualify the groups from receiving tax-exempt status.

The controversial move began in early 2010 and continued for more than 18 months, the report said, declaring that “the IRS used inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based upon their names or policy positions instead of indications of potential political campaign intervention.”

IRS officials, according to the report, did not consult anyone beyond the agency about the development of the additional screening criteria. They believed that the criteria they came up with were a screening shortcut meant to help with the influx of applications, the report said.

The IRS scrutiny began after the Citizens United case. Following the ruling, the number of politically oriented groups seeking tax exempt status as social welfare organizations under section 501 (c) (4) of the federal tax code increased greatly at a time when the federal government, including the IRS, was dealing with austerity measures that reduced or stagnated personnel and resources.

However, the IRS watchdog found that the criteria used to flag potential political applications resulted in substantial delays and the request of unnecessary information from the groups.

The investigation by the Treasury inspector general for tax administration was initiated after congressional complaints began to surface in the media in 2012 that the IRS was targeting conservative groups and holding up applications.

In a written response included in the report, the IRS commissioner of the Tax Exempt and Government Entities Division said there was no criminal behavior behind the actions of the agents, but rather inefficient management.

“We believe the front-line career employees that made the decisions acted out of a desire for efficiency and not out of any political and partisan viewpoint,” the commissioner wrote.

Obama called the inspector general’s findings outrageous and forced Miller’s resignation, which takes effect in early June.

Meanwhile, the commissioner of the IRS’ Tax Exempt and Government Entities Division also announced his retirement Thursday. Joseph Grant will leave in June, according to an internal IRS memo provided to CNN. Miller also is scheduled to exit then.

In his opening statement, Camp said the controversy “goes against the very principles of free speech and liberty” on which the nation was founded.

He also said the IRS lied to Congress about the targeting, and cited five violations of taxpayer rights by the agency’s practice, including intimidation of conservative groups and leaking of confidential information.

“The reality is this is not a personnel problem,” he said, instead calling it the result of an agency being too large and powerful, with the freedom to abuse that power. “Under this administration, the IRS has abused its power to tax and destroyed the faith of the American people” in the tax system.

Levin agreed that the IRS targeting was wrong, and he singled out former and current IRS officials for misconduct.

However, Levin specifically disagreed with Camp that the issue reflects a cultural problem in Obama’s administration.

“If this hearing becomes essentially a bootstrap to continue the campaign of 2012 and prepare the campaign of 2014, we will be making a very, very serious mistake,” Levin said.

Among the recommendations made by the Treasury inspector general: The IRS must better document reasons why applications are chosen for review, develop a process to track requests for assistance, develop and provide training to employees before each election cycle and immediately resolve outstanding cases.

The report also called on Treasury to develop guidelines to explain social welfare activity — the primary factor in obtaining tax-exempt status.

Already, the controversy has leaked into the debate over House Republican efforts to repeal Obama’s health care reform law. The IRS official in charge of that agency’s implementation of the program, Sarah Hall Ingram, once headed the unit under scrutiny in the scandal.

Miller, who appointed Ingram to the position, on Friday described her as an excellent public servant.

Camp told CNN on Thursday that he does not yet know if the scandal rises to the level of criminal conduct. Other Republican leaders have said they want criminal charges in the case.

“But clearly this is serious,” he said. “I think the penalties should be serious. I think Infringing on people’s constitutional rights is not something we should look (at) as a trifling matter.”

Camp promised more hearings to follow, partly to hear from Shulman, who was running the agency when the targeting program went into effect.

Shulman will testify before the House Oversight Committee on Wednesday, a House GOP aide told CNN. Shulman voluntarily agreed to attend. He is no longer in the government,.

Another official at the heart of the scandal, Lois Lerner, has told the committee through an attorney that she is in Montreal, and it’s unclear if she can make the hearing.

Lerner is the director for exempt organizations under Grant. Levin’s opening statement said Lerner should lose her job.

CNN’s Deirdre Walsh, Dana Bash and Alan Silverleib contributed to this report.

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By Melanie Mason and Wes Venteicher
Los Angeles Times

irsWASHINGTON–The ousted top official of the Internal Revenue Service will appear before a House committee Friday morning, his first public appearance since controversy erupted last week over how the agency mishandled applications for tax-exempt status for conservative advocacy groups.

Steven T. Miller, who resigned as acting commissioner Wednesday, is to testify at a hearing of the House Ways and Means Committee beginning at 9 a.m.  Also on the witness list is J. Russell George, the treasury inspector general for tax administration who released a report this week detailing how employees in a Cincinnati field office inappropriately flagged conservative groups applying for nonprofit status and subjected them to extensive questioning and lengthy processing delays.

The report pointed to lax management and confusion over laws regulating the political activity of such groups. Miller, in an op-ed published this week in USA Today before his resignation, said that the mistakes “were in no way due to any political or partisan motivation.”

The assurances did little to quell critics, particularly as it became clear that Miller had not disclosed the problems to Congress in letters and testimony despite being briefed on it.

“This Committee wants the facts, and the American people deserve answers to why they were targeted on the basis of their political beliefs,” House Ways and Means Committee Chairman Dave Camp (R-Mich.) said Wednesday in response to Miller’s resignation. “The IRS has demonstrated a culture of cover-up and has failed time and time again to be completely open and honest with the American people.  This investigation will continue so Congress can ensure that no taxpayer is unfairly targeted.

“The Committee and the American people deserve honest answers from Mr. Miller at our hearing this Friday,” he added.

The congressional scrutiny will continue next week, with both the Senate Finance Committee and the House Oversight Committee set to hold their own hearings on the issue.

On Thursday, President Obama named Daniel Werfel, a senior budget official in the Office of Management and Budget, to the post of acting IRS commissioner. He will start at the post  Wednesday.

A second IRS official, Joseph Grant, also announced he would step down over the scandal. Grant, who leads the division overseeing tax-exempt and government entities, will leave the agency in June, officials said.

Some of the key figures who will testify or are likely be the focus of testimony are:

J. Russell George, the treasury inspector general for tax administration. George’s office prepared the May 14 report that detailed the IRS’ inappropriate reviews of some conservative groups’ applications for tax-exempt status.

President George W. Bush appointed George to the post in 2004. George, an attorney from New York, also held various posts in the George H.W. Bush administration.

Lois Lerner, the director of the exempt organizations division of the IRS. On May 10, Lerner became the first IRS official to publicly acknowledge that the agency had been improperly targeting conservative groups.

Lerner, who has been at the IRS since 2001, was promoted to her current post in 2006. Before starting work at the IRS, she was a general counsel at the Federal Election Commission.

Douglas Shulman, a former IRS commissioner who was appointed by President George W. Bush. He testified to Congress in a hearing on March 22, 2012, that there was “absolutely no targeting” of conservative groups seeking tax-exempt status. The IRS has not said when Shulman learned of the targeting.

Shulman’s six-year tenure as commissioner ended in November. Before he was appointed commissioner, Shulman worked as a private-sector regulator of U.S. securities firms.

Steven T. Miller, the acting IRS commissioner since November  who announced his resignation Wednesday at the request of Treasury Secretary Jacob Lew. Miller will remain with the agency until early June to aid a smooth transition.

Before starting at the IRS as a tax lawyer, Miller was a congressional staffer and also worked in private practice.

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President Barack Obama named Danny Werfel, an official in his budget office, as the acting commissioner of the Internal Revenue Service, the White House announced Thursday.

Obama demanded the previous acting commissioner resign Wednesday after revelations the tax agency was applying extra scrutiny to conservative groups asking the government for tax exempt status.

Werfel, who serves as the controller of the Office of Management and Budget, will “lead efforts to ensure the IRS implements new safeguards to restore public trust and administers the tax code with fairness and integrity,” the White House said.

He’ll serve through the end of the fiscal year, and since he’s being tapped to become acting commissioner won’t be subject to Senate confirmation.

“Throughout his career working in both Democratic and Republican administrations, Danny has proven an effective leader who serves with professionalism, integrity and skill,” Obama wrote in a statement. “The American people deserve to have the utmost confidence and trust in their government, and as we work to get to the bottom of what happened and restore confidence in the IRS, Danny has the experience and management ability necessary to lead the agency at this important time.”

At the White House budget office, Werfel, 42, was responsible for enacting programs designed to enhance the federal government’s integrity in financial management, reporting and accounting. He also helped Obama’s administration implement and manage the forced spending cuts that went into effect March 1.

Previously he served in other roles at the OMB, and also acted as an attorney in the civil rights division of the Department of Justice.

He has a law degree from the University of North Carolina-Chapel Hill and a master’s in public policy from Duke, the White House said, and received his bachelor’s degree from Cornell.

He’ll join the IRS as the tax agency weathers its largest scandal in years. Republicans, including House Speaker John Boehner, have called for criminal charges against those employees responsible for the targeting of conservative groups, and the Federal Bureau of Investigation has launched an investigation into the matter.

Obama again expressed outrage at the IRS’s practices at a press conference Thursday.

“We will be putting in new leadership that will be able to make sure that — following up on the [inspector general's] audit — that we gather up all the facts, that we hold accountable those who have taken these outrageous actions,” Obama said. “As I said last night, it is just simply unacceptable for there to be even a hint of partisanship or ideology when it comes to the application of our tax laws.”
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President Barack Obama vowed Wednesday to hold accountable those at the Internal Revenue Service involved in the targeting of conservative groups applying for federal tax-exempt status, beginning with the resignation of the agency’s acting commissioner who was aware of the practice.

In a brief statement delivered to reporters in the East Room of the White House, the president announced that Treasury Secretary Jack Lew had requested — and accepted — the resignation of acting IRS Commissioner Steven T. Miller.

The president said the “misconduct” detailed in the IRS Inspector General’s report released Tuesday over the singling out of conservative groups is “inexcusable.”

“Americans have a right to be angry about it, and I’m angry about it,” Obama said.

“It should not matter what political stripe you’re from. The fact of the matter is, the IRS has to operate with absolute integrity.”

Miller was made aware of the agency’s targeting of conservative groups in May 2012, according to the IRS, while serving as deputy IRS commissioner. He did not tell Congress about it when he testified before an oversight committee in July despite being questioned on the issue. Miller was named acting IRS commissioner in November.

Obama pledged to work “hand in hand” with Congress as it investigates, and he vowed new safeguards will be put in place at the IRS so that “this doesn’t happen again.”

In an internal message to IRS employees obtained by CNN, Miller said he would be stepping down as commissioner in early June.

“This has been an incredibly difficult time for the IRS given the events of the past few days, and there is a strong and immediate need to restore public trust in the nation’s tax agency,” Miller wrote.

“I believe the Service will benefit from having a new Acting Commissioner in place during this challenging period.”

Despite his resignation, Miller is expected to testify Friday at a hearing before the House Ways and Means Committee, according to a source familiar with the proceedings.

‘Rogue’ employees

News of Miller’s resignation followed revelations that the IRS has identified two “rogue” employees in the agency’s Cincinnati office as being principally responsible for the “overly aggressive” handling of requests by conservative groups for tax-exempt status, a congressional source told CNN.

Miller said the staffers have already been disciplined, according to another source familiar with Miller’s discussions with congressional investigators. The second source said Miller emphasized that the problem with IRS handling of tax-exempt status for tea party groups was not limited to these two employees.

Miller met with Senate Finance Committee Chairman Max Baucus of Montana on Tuesday to discuss an appearance before Congress.

Asked Wednesday in a Senate hallway about his meeting with Miller, Baucus told CNN, “I did not learn as much from the meeting as I would have liked.”

“I told him that it was in his best interest to be totally cooperative — that it’s often the cover-up that causes more problems than the original malfeasance,” the senator said. “And just to be totally straight with me and everybody, and he said he would.”

Meanwhile, Republican congressional leaders on Wednesday accused Obama’s administration of potentially criminal behavior in the handling of requests for tax-exempt status from conservative groups.

Senate Republican Leader Mitch McConnell suggested criminal behavior had occurred, saying that the “very serious” allegations involve “an effort to bring the power of the federal government to bear on those the administration disagreed with in the middle of a heated national election.”

“It actually could be, could be criminal and we are determined to get the answers,” McConnell said.

House Speaker John Boehner was more definitive, declaring that “my question is, who’s going to jail over this scandal?”

He told reporters that “clearly someone violated the law” in what an IRS inspector general’s report described as delayed processing of applications by groups associated with the political right wing.

Multiple investigations

U.S. Attorney General Eric Holder, who ordered a criminal investigation into the situation, said Wednesday at a congressional hearing that investigators will look at the conduct of IRS offices nationwide.

“The facts will take us where ever they take us,” he said.

Holder said the investigation will also examine whether IRS officials lied to Congress about the singling out of conservative groups.

While the allegations originated in the Cincinnati office, the Justice Department inquiry is based out of Washington, Holder said.

The comments came as all 45 Senate Republicans sent the White House a letter that called for the administration to “comply with all requests related to congressional inquiries without any delay” involving the controversy.

The letter called the scandal “yet another completely inexcusable attempt to chill the speech of political opponents and those who would question their government, consistent with a broader pattern of intimidation by arms of your administration to silence political dissent.”

The clearly coordinated attacks were part of a GOP effort to increase pressure on the Obama administration over the controversy, one of three potential scandals that has the White House on the defensive less than four months into the president’s second term.

According to the report by the agency’s inspector general released Tuesday, the IRS developed and followed a faulty policy to determine whether the applicants were engaged in political activities, which would disqualify the groups from receiving tax-exempt status.

The controversial move began in early 2010 and continued for more than 18 months, the report said, declaring that “the IRS used inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based upon their names or policy positions instead of indications of potential political campaign intervention.”

IRS officials, according to the report, did not consult anyone beyond the agency about the development of the additional screening criteria. They believed that the criteria they came up with were a screening shortcut meant to help with the influx of applications, the report said.

The controversial actions began after the 2010 Supreme Court ruling in the Citizens United case that greatly expanded the ability of corporations, unions and other organizations to participate in election spending, though not through direct contributions to candidates or parties.

After the ruling, the number of politically oriented groups seeking tax exempt status as social welfare organizations under section 501 (c) (4) of the federal tax code increased greatly at a time when the federal government, including the IRS, was dealing with austerity measures that reduced or stagnated personnel and resources.

The IRS’ top watchdog found that the criteria used to flag potential political applications resulted in substantial delays and the request of unnecessary information from the groups.

‘Be On the Look Out’

Among the criteria used by IRS officials to flag applications was a “Be On the Look Out” list, which was discontinued in 2012, according to the report.

The criteria included:

– Whether “Tea Party,” “Patriots” or “9/12 Project” was referenced in the case file.

– Whether the issues outlined in the application included government spending, government debt or taxes.

– Whether there was advocating or lobbying to “make America a better place to live.”

– Whether a statement in the case file criticized how the country is being run.

– Whether it advocated education about the Constitution and the Bill of Rights.

The investigation by the Treasury inspector general for tax administration was initiated after congressional complaints began to surface in the media in 2012 that the IRS was targeting conservative groups and holding up applications.

“Whether the inappropriate criterion was shorthand for all potential political cases or not, developing and using criteria that focuses on organization names and policy positions instead of the activities permitted under the Treasury regulations does not promote public confidence that tax-exempt laws are being adhered to impartially,” the report said.

The IRS welcomed the report, saying that it agreed that aspects of its original approach in handling the influx of tax-exempt applications was inappropriate.

“The IRS is required by law to determine if organizations are engaging in a legally permissible level of political activity. Centralizing these cases was necessary to achieve consistent treatment,” it said in a statement.

Inefficient management

In a written response included in the report, the IRS commissioner of the Tax Exempt and Government Entities Division said there was no criminal behavior behind the actions of the agents, but rather inefficient management.

“We believe the front-line career employees that made the decisions acted out of a desire for efficiency and not out of any political and partisan viewpoint,” the commissioner wrote.

The report’s findings indicate that of the 298 cases reviewed by the IRS inspector general as potential political cases not eligible for tax exempt status: 72 contained the name “tea party,” 11 contained “9/12″ and 13 contained the word “patriots,” according to the report. There were 202 cases that did not contain any such reference.

Of those applications still open for review, 160 cases were open from 206 days to more than three years — through two election cycles.

Among the recommendations made by the Treasury inspector general: The IRS must better document reasons why applications are chosen for review, develop a process to track requests for assistance, develop and provide training to employees before each election cycle and immediately resolve outstanding cases.

The report also called on Treasury to develop guidelines to explain social welfare activity — the primary factor in obtaining tax-exempt status.
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