The man who led the Internal Revenue Service when it was inappropriately scrutinizing conservative groups' applications for tax-exempt status said Tuesday that he intentionally kept himself in the dark about those kinds of decisions because he thought, as a political appointee, he should keep his distance.
Douglas H. Shulman, who was commissioner from 2008 to 2012, told the Senate Finance Committee that he didn't learn details of the agency's political targeting until the inspector general released a blockbuster report last week. Mr. Shulman becomes the second IRS official to testify in the burgeoning scandal, which has the agency reeling and has the White House trying to explain how much it knew.
On Wednesday, Lois Lerner, the woman who ran the IRS division accused of malfeasance and who now leads the IRS office in charge of enforcing President Obama's health care law, will testify but will refuse to answer questions on the grounds that she doesn't want to incriminate herself.
Ms. Lerner, who is slated to appear before the House Oversight and Government Reform Committee, is considered a crucial witness because Mr. Shulman and acting IRS Commissioner Steven Miller have testified that they didn't know much about the political targeting.
Mr. Shulman, who was appointed by President George W. Bush and left the IRS last year, said he was "dismayed" when he read the audit detailing how the IRS singled out for special scrutiny conservative groups that were applying for tax-exempt status.
He denied responsibility for a list that told specialists to "be on the lookout" for tea party groups in summer 2010.
"With that said, this happened on my watch," he told the committee, "and I very much regret that it happened on my watch."
"I don't think that qualifies as an apology," replied Senate Minority Whip John Cornyn, Texas Republican.
Mr. Shulman said he purposely avoided becoming involved in decisions of the unit in Cincinnati that reviewed these cases, which he felt should be left to career employees. Involvement by a political appointee such as himself could be construed as trying to influence the agency's actions on political grounds, he said.
"I had a partial set of facts, and I knew that the inspector general was going to be looking into it, and I knew that it was being stopped," Mr. Shulman told the panel. "Sitting there then and sitting here today, I think I made the right decision, which is to let the inspector general get to the bottom of it, chase down all the facts and then make his findings public."
Mr. Shulman's testimony to the Senate highlighted what Democrats said is a problem in the tax code: groups that use the tax law to hide their donors while taking part in politics.
"Today, there are countless political organizations at both ends of the spectrum masquerading as social welfare groups in order to skirt the tax code," said Senate Finance Committee Chairman Max Baucus, Montana Democrat.
The IRS has acknowledged bad judgment in targeting conservative-leaning groups with "tea party" or "patriot" in their names.
However, the service's officials argued before Congress last week that the scrutiny was not politically motivated, but intended to streamline investigations into the flood of applications after a 2010 Supreme Court decision.
That claim seems to be false according to the data the IRS provided to the Treasury Department's inspector general. According to those numbers, the IRS received fewer applications for tax-exempt status under section 501(c)(4) of the tax code in 2010 (1,735) than it did in 2009 (1,751).
House Republicans called the first hearing on the IRS activities last week, and Senate Democrats called Tuesday's hearing.
Democrats condemned the IRS actions but said part of the blame belongs to the foggy legal environment that led to the scandal.
Applicants who were singled out for extra scrutiny had filed for tax-exempt status under a portion of the tax code that limits their political activities as "social welfare" groups. As 501(c)(4) groups, they don't have to report their donors.
"Clearly, a Mack truck is being driven through the 501(c)(4) loophole," Mr. Baucus said, noting that he had asked the IRS to investigate the issue in late 2010.
Democrats said the situation raises questions about whether the IRS has the resources it needs to vet thousands of applications for tax-exempt status, which may be skirting the limits of campaign finance law.
Sen. Ron Wyden, Oregon Democrat, said he would like the revenue agency and the Federal Election Commission to come up with rules to guide tax-exempt groups that delve into partisan politics.
J. Russell George, the inspector general whose findings are driving congressional inquiries, testified Tuesday that his office is following up its audit with a detailed look at the IRS oversight of tax-exempt groups.
Republicans said their investigation of the IRS has just begun, and they were skeptical of the inspector general's conclusion that the agency's scrutiny was not politically motivated.
"I think it is almost beyond belief," said Sen. Mike Crapo, Idaho Republican, noting that the inspector general had to rely on the word of people implicated in the scandal, and they weren't under oath when they provided information for the audit.
Sen. Orrin G. Hatch of Utah, the finance panel's ranking Republican, accused high-level IRS officials past and present of failing to let Congress know about the targeted scrutiny, even after members requested details.
Mr. Miller, who was forced to resign as acting commissioner, said he never lied.
"I answered the questions. I answered them truthfully," he said.
The turmoil surrounding the IRS broke this month when Ms. Lerner, trying to beat the auditor's damning report, planted a question at a speech she was giving.
"Obviously, the entire thing was an incredibly bad idea," Mr. Miller told the committee Tuesday.
The White House said top officials there were part of the discussion over how to release the information, but did not approve the staged question.
In Wednesday's hearing, Ms. Lerner will cite her Fifth Amendment protection against self-incrimination, according to her attorney, William W. Taylor III.
Mr. Taylor said Ms. Lerner should be excused from testifying since she won't say anything, but a spokesman for the oversight committee said the panel hopes she will change her mind.
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