The IRS singled out tea party and other conservative groups for "burdensome" scrutiny because of their politically charged names and delayed approving some applications for so long that the groups simply gave up, according to an official government audit, released Tuesday, that has the agency reeling.
Members of Congress said the latest revelations suggest that Internal Revenue Service officials withheld information from Congress, and two Republican governors called for a special prosecutor to investigate the matter. Attorney General Eric H. Holder Jr. said Tuesday that the Justice Department will determine whether anyone at the IRS broke federal tax laws.
Tea party groups are adding fuel to the fire for an employee purge at the tax collecting agency, saying those responsible for the scandal must resign or be sacked immediately.
"I am astounded and appalled that the IRS targeted organizations based on their political beliefs," said Rep. Dave Camp, who as chairman of the House Ways and Means Committee is the nation's chief tax-law writer. "No American, regardless of political affiliation, should have their right to free speech threatened by the IRS."
The audit has been in the works for a year. In the 54-page report, the Treasury inspector general for tax administration said the IRS used "inappropriate criteria" to single out conservative and tea party groups that were applying for tax-exempt status for special scrutiny to determine whether they were crossing the line into campaigning.
The auditors said the IRS reviewed every single application that used "tea party," "patriot" or "9/12" in their names. Even as they were scrutinizing those groups, the IRS ignored other applications that should have raised flags, the auditors said.
The auditors also said the agency's leadership showed "ineffective management" in allowing the scrutiny for 18 months.
The auditors also said the IRS delayed decisions on some conservative groups' applications for more than three years. Some applicants simply gave up.
Despite the extra attention, none of the nearly 300 applications was ever denied, the auditors said.
The IRS last week acknowledged it had targeted conservative groups, and in the days since the agency has been under fire from Democrats and Republicans on Capitol Hill.
Lois Lerner, who heads the IRS division that oversees tax-exempt groups, said organizations were singled out if they had "tea party" or "patriot" in their titles. In some cases, groups were asked for their lists of donors, which usually violates IRS policy.
Ms. Lerner apologized for the "inappropriate" practice and said the cases were initiated by low-level workers in Cincinnati, though she failed to mention that some senior IRS officials knew agents were targeting tea party groups as early as June 2011, according to an inspector general's timeline of events obtained by The Washington Times.
But officials in Washington and at least two other offices were involved with investigating conservative groups seeking tax-exempt status, making clear that the effort reached well beyond the branch in Cincinnati that was initially blamed, The Washington Post reported.
Republicans are focusing their attention on acting IRS Commissioner Steven Miller, who the agency said was first informed on May 3, 2012 — when he was deputy commissioner — that applications for tax-exempt status by tea party groups were inappropriately singled out.
Mr. Miller later briefed Congress about the reports but failed to mention that tea party groups were being targeted inappropriately.
Several groups of House and Senate Republicans also subsequently sent letters to the IRS demanding answers to allegations, but also weren't told of the practice.
"They purposefully misled me," Sen. Orrin G. Hatch of Utah, the senior Republican on the Senate Finance Committee, told reporters Tuesday. "I am very upset about it. This should have never happened."
The IRS says scrutiny of conservative groups wasn't politically motivated but rather an attempt to vet a burgeoning set of political newcomers applying for tax-exempt status in the lead-up to the 2012 elections.
In an opinion piece in Tuesday's USA Today, Mr. Miller said the agency "recognizes that we should have done a better job of handling the influx of applications by advocacy organizations."
"Mistakes were made, but they were in no way due to any political or partisan motivation. We are — and will continue to be — dedicated to reviewing all applications for tax-exempt status in an impartial manner," he said.
Tea party groups say they don't believe the explanation.
The Tea Party Patriots, which bills itself as the nation's largest tea party organization, rejected the IRS apology and demanded the immediate resignations of all involved in the "deliberate harassment" of tea party groups.
"They need to be terminated, they need to be disciplined. The American people need to know that the people involved in this are held accountable," Jenny Beth Martin said Tuesday on C-SPAN's "Washington Journal."
Despite filing its applications for tax-exempt status in 2010, Tea Party Patriots has yet to receive a decision from the IRS, she said.
That discrimination, Ms. Martin said, is reason for "legal action," though she didn't discuss the specifics of any lawsuits under consideration.
The inspector general's report suggested lax management resulted in long delays in processing certain applications and allowed "unnecessary information requests to be issued."
The report recommended several interim reforms, including better documentation of the reasons why IRS agents believe certain groups are chosen for review.
In their response to the report, the watchdog said IRS officials agreed with seven of its nine recommendations.
Rep. Darrell E. Issa, California Republican and chairman of the House Oversight and Government Reform Committee, requested the inspector general probe and said its findings magnify "concerns about the breadth and depth" of the IRS actions.
"What we do know for sure is that the IRS personnel responsible for granting tax exemptions systematically targeted conservative groups for extra scrutiny, and that officials in Washington, D.C., were aware of this practice, even while publicly claiming that it never happened," Mr. Issa said.
President Obama, who said he first learned of the matter from media reports Friday, called the finding's "intolerable and inexcusable."
In a White House statement issued Tuesday evening, the president said he has directed Treasury Secretary Jack Lew to "hold those responsible for these failures accountable, and to make sure that each of the inspector general's recommendations are implemented quickly, so that such conduct never happens again.
"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.
The Justice Department is conducting a criminal investigation with the FBI, Mr. Holder said.
"Those [actions] were, I think, as everyone can agree, if not criminal, they were certainly outrageous and unacceptable," Mr. Holder told reporters. "But we are examining the facts to see if there were criminal violations."
On Friday, the Republican-led House Ways and Means Committee will hold the first of what likely will be many congressional hearings on the IRS. Mr. Miller and J. Russell George, Treasury's inspector general for tax administration, are the scheduled witnesses.
The Democrat-controlled Senate Finance Committee has launched its own investigation.
"It's non-negotiable that IRS agents in Cincinnati and everywhere else must do that work in a totally nonpartisan, evenhanded way," said Sen. John D. Rockefeller IV, West Virginia Democrat. "We'll review carefully the independent inspector general report and tackle the key questions of what happened, how it was handled, who is responsible, and how it's going to be fixed."
•Seth McLaughlin and Ben Wolfgang contributed to this report.
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