IRS official denies intentional targeting, lying to Congress

WASHINGTON (CNN) -- A huge increase in workload, rather than deliberate targeting, led to "foolish mistakes" and the political discrimination an inspector general's report found in the Internal Revenue Service, the outgoing commissioner of the agency said Friday.

The testimony by Steven Miller, who was forced to announce his resignation this week as acting IRS commissioner, came early 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 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 Citizens United decision in 2010, 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.

"How can we conclude you did not mislead this committee?" said GOP Rep. Paul Ryan of Wisconsin, the unsuccessful vice presidential candidate in last year's election.

As he did to other such accusations, Miller responded: "I did not mislead the committee," and added that the controversy was not politically motivated.

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 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 contributed to this report.