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Published: Saturday, May 18, 2013, 12:01 a.m.

Treasury officials knew of problems at IRS

Top tax watchdog said he had informed them about IRS woes.

WASHINGTON -- The firestorm buffeting the Internal Revenue Service intensified Friday as lawmakers began what they promised would be an extensive effort to learn whether there was any political motivation or White House involvement in the agency's recently acknowledged misdeeds.
Fueling those concerns, J. Russell George, the Treasury Department's top tax watchdog, said Friday he had informed top Treasury officials last summer about problems related to the special attention the agency was paying some conservative organizations seeking tax-exempt status. George said he shared the information with the Treasury's general counsel in June and with Deputy Treasury Secretary Neal Wolin "shortly thereafter."
Such a timeline could be significant, as Republicans have been trying to establish how early the Obama administration learned about the agency's conduct, which officials were informed and whether the coming presidential election affected their response.
The agency officials on the front lines of the controversy deny any political motives and say the problems were mostly the result of sloppy work.
At a hearing before the House Ways and Means Committee on Friday, Steven Miller, the former acting commissioner of the IRS, apologized for what he described as "horrible customer service" after revelations that IRS employees singled out conservative groups seeking tax-exempt status for special scrutiny.
Miller, who resigned Wednesday, acknowledged "foolish mistakes" and described some of what occurred as "obnoxious," but insisted that none of it was politically driven.
"We provided horrible customer service here. I will admit that," Miller said. "Whether it was politically motivated or not is a very different question."
Republicans were unconvinced and envision a more nefarious set of circumstances.
"The reality is, this is not a personnel problem," said Rep. Dave Camp, R-Mich., the committee's chairman. "This is a problem of the IRS being too large, too powerful, too intrusive and too abusive of honest, hardworking taxpayers."
Camp said he believed the problem reaches beyond the tax-collection agency.
"This appears to be just the latest example of a culture of coverups and political intimidation in this administration," he said. "It seems like the truth is hidden from the American people just long enough to make it through an election."
Under almost four hours of intense questioning, Miller said he recently met with Treasury officials to discuss how the agency had targeted tax-exempt groups, but insisted that he never had contact with White House officials.
"Absolutely not," he said when asked by Rep. Devin Nunes, R-Calif.
"How about President Obama's re-election campaign?" Nunes asked later.
"No," Miller replied.
Miller even challenged the notion that the groups were"targeted" because they were conservative. Instead, he said, they were "listed" because they were politically active.
"We took a shortcut on some of it, but we collected, to be blunt, more than tea party cases," he said.
Friday's session was the first of several hearings expected in coming weeks as lawmakers in both chambers plan to summon current and former IRS officials to Capitol Hill. "We're not done," Camp said of Friday's Ways and Means hearing. "We found out about this a week ago, so we're going to continue to examine."
One measure of the potential political fallout from the controversy is that Democrats also felt compelled to denounce the agency even as they defended the administration.
"All of us are angry on behalf of the nation and we are determined to get answers," said Rep. Sander Levin of Michigan, the panel's top Democrat. But Levin took exception to Camp's remarks about the Obama administration. "If this hearing becomes essentially a bootstrap to continue the campaign of 2012 and to prepare for 2014, we will be making a very, very serious mistake," he said.
George, who leads the Treasury Inspector General for Tax Administration, released an audit this week saying that the IRS used "inappropriate criteria" to identify tea party and other conservative organizations for review.
Levin asked Miller and George whether they had found any evidence of political motivation by the IRS employees who reviewed the applications for tax-exempt status. "We did not, sir," each of them replied.
George also told the panel that he began informing top Treasury Department officials about his audit last spring as part of an annual review of forthcoming investigations.
Miller said he had only recently discussed the situation with Wolin and Mark Patterson, the chief of staff to Treasury Secretary Jacob Lew.
"We just talked through the troubling nature of the reports," Miller said in response to questions. "I indicated that we had worked on fixing the problem and that's what we talked about."
Miller also described how the IRS orchestrated the disclosure of the targeting issue by planting a question that would elicit the apology in a public discussion. At a May 10 conference hosted by the American Bar Association, Lois Lerner, who heads the tax-exempt unit, acknowledged and apologized for the extra scrutiny.
Miller told the committee that he knew Lerner would be attending the conference and fielding questions. He and Lerner discussed having Celia Roady, a tax attorney with the Washington firm Morgan Lewis, who sits on an IRS tax-exempt advisory panel, ask Lerner a question about the targeting.
In a statement Friday, Roady confirmed that Lerner suggested the question. "We had no discussion thereafter on the topic of the question, nor had we spoken about any of this before I received her call. She did not tell me, and I did not know, how she would answer the question," Roady said.
Several lawmakers accused the IRS of trying to mislead Congress and expressed anger at Miller and his colleagues for not disclosing the information sooner, even when they knew that investigations were underway. Rep. Paul Ryan, R-Wis., noted that Miller had been asked by the committee about the allegations, "but you did not divulge that to this committee when we were asking questions about this."
"You didn't mention targeting based on ideology," Ryan said. "You didn't mention targeting based on buzzwords like 'tea party' or 'patriots' or '9/12.' You knew that, but you didn't mention this to the committee. Do you not think that that's a very incomplete answer?"
"I answered the question truthfully," Miller replied.
Later, Rep. Peter Roskam, R-Ill., asked Miller why he thought it would be a good idea to disclose the news at a legal conference instead of first informing Congress.
"We were going to do it at the same time, I believe; that our intent was to talk to you all at the same time," Miller said.
"But that didn't happen, did it?" Roskam asked.
"It did not happen, I don't believe," Miller replied.
Several times Miller attempted to explain why agency employees might have felt compelled to closely examine the motivations of certain groups. Under sharp questioning by Rep. Charles Boustany Jr., R-La., Miller denied that the IRS engaged in "targeting" conservative groups, saying that was a "pejorative term." Instead, he said, IRS employees had centralized a "list" of applications in a "troublesome" manner.
"This was the time frame in 2010 when Citizens United was out," Miller said in reference to the U.S. Supreme Court decision that struck down restrictions on political spending by corporations, associations and labor unions. After that ruling, he said, the IRS was flooded with applications for 501(c)(4) tax-exempt status because such groups did not have to disclose their donors.
Miller said that the way employees grouped certain applications was "troublesome," but the concept of doing so was not. Later, Miller added that he didn't believe the practice was illegal.
Rep. Xavier Becerra, D-Calif., said there "appeared to be some confusion" in the IRS about what activities by 501(c)(4) groups were permissible, notably because they were supposed to have "social welfare" as their primary mission.
Miller said that under the law, 501(c)(4) groups are allowed to engage in "some" political activity, "but not a primary amount."
Part of the issue, he said, was staffing. He said the IRS has "a limited number of people" - 140 to 200 - who work on applications for tax-exempt status of all types. "We do not have enough people right now," he said.
Lists of donors "were requested in some cases" during reviews of applications, Miller said, adding that "donors can be relevant" in determining tax-exempt status, but should not requested in every case. "To just ask for donors without a rationale shouldn't be done," he said. He noted that more than half of those requests did not involve "tea party cases."
In response to questions, George said the audit found that 27 donor lists were requested, 13 of them from tea party groups.
Two more congressional panels - the House Oversight and Government Affairs Committee and Senate Finance Committee - plan to hold hearings next week. The Senate panel will receive testimony Tuesday from Miller, George and Douglas Shulman, the former IRS commissioner who stepped down last November, while the House oversight committee is scheduled to hear from Wolin, Lerner and Shulman on Wednesday.
"I have a hunch that a lot more is going to come out," Senate Finance Committee Chairman Max Baucus, D-Mont., told Bloomberg TV in an interview Friday.

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