By John Whitesides and Kim Dixon
WASHINGTON (Reuters) - Top Internal Revenue Service officials told Congress on Tuesday they were unaware of the agency's targeting of conservative groups for extra tax scrutiny until recently and did not deliberately mislead lawmakers last year when they did not reveal the practice.
Exasperated senators questioned the truthfulness of former IRS Commissioner Douglas Shulman, who led the agency from 2008 to 2012, and outgoing acting IRS chief Steven Miller. Republican Senator Orrin Hatch of Utah accused Miller of a "lie by omission."
At a Senate Finance Committee hearing, several Democrats tried to turn the focus to the IRS's difficulty in determining whether such groups qualified for tax-exempt status under a law that says they cannot be engaged "primarily" in politics - a loophole they said Congress should pass legislation to close.
"Notwithstanding the troubling and unacceptable conduct of the IRS, if political organizations do not want to be scrutinized by the government, they shouldn't seek privileges like tax-free status and anonymity for their donors," Democratic Senator Ron Wyden of Oregon said.
The rising political storm has undercut President Barack Obama's second-term agenda and put the White House on the defensive as he tries to negotiate a budget deal with Republicans and push a comprehensive immigration reform bill through Congress.
The hearing offered the first public testimony from Shulman, who said he was "dismayed" when he read an inspector general's report last week laying out evidence that IRS workers in Cincinnati, Ohio, had inappropriately focused on groups with the words "Tea Party" and "patriots" in their names.
Senators asked why Shulman did not reveal the practice, which started in March or April of 2010, during congressional testimony in late March 2012. At the time, he rejected conservatives' complaints that the IRS was targeting groups for extra scrutiny.
"The full set of facts around these circumstances came out last week ... until that point I did not have a full set of facts," Shulman, who was appointed by Republican President George W. Bush, said on Tuesday.
"What I knew sometime in the spring of 2012 was that there was a list that was being used. I knew that the word 'Tea Party' was on the list. I didn't know what other words were on the list, didn't know the scope and severity of this," he said.
A Treasury Department watchdog has said he informed Shulman about an investigation into the matter in May 2012, but assumed IRS officials would have told Shulman about potential targeting problems before that.
Both Shulman and Miller denied they had hidden the truth from Congress, and Miller had a pointed exchange with Hatch about what he had chosen to tell Congress last year.
"I did not lie, sir," Miller told Hatch.
"You lied by omission," Hatch said. "You knew what was going on and you knew that we had asked. You should have told us."
Miller was forced to resign last week and more senior agency officials could be on the firing line in the broadening scandal, as members of both parties have rushed to condemn the IRS for overstepping its authority.
CBOE Holdings Inc said on Monday that Shulman had withdrawn his bid to join the exchange's board of directors and cited the timing of Shulman's testimony.
Shulman is due back on the Hill on Wednesday for a hearing with the House Oversight and Government Reform Committee. Also expected to testify are Miller; Lois Lerner, chief of the IRS tax-exempt unit; and Deputy Treasury Secretary Neal Wolin.
'VERY DIFFICULT TASK'
The IRS officials denied that political partisanship had played a role in the tax-exempt reviews. Shulman said confusion about regulations were a factor in the scandal, and the IRS was given "a very, very difficult task" in determining exactly how much political activity a group engages in.
"The confusion and breakdown that you saw happen in the Cincinnati office is inexcusable, but I would also posit, at least this is my belief, that part of it was because of the very difficult task given to these people," Shulman said.
Several Democrats said they hoped the scandal would force Congress to rewrite tax regulations to treat politically oriented groups more equally.
They noted lines are blurred between politically active tax-exempt groups that have to disclose their donors, and 501(c)(4) groups, which are tax-exempt groups that do not have to make such a disclosure.
501(c)(4) groups can engage in political activity but it cannot be their primary purpose.
"Clearly a Mack Truck is being driven through the 501(c)(4) loophole," Democratic Chairman Max Baucus of Montana said.
J. Russell George, Treasury Inspector General for Tax Administration, head of the watchdog group that issued a report on the IRS targeting last week, told the panel his group was starting a report on enforcement of the law for the tax-exempt groups.
A spokeswoman for his office said the report would take six months to a year to compile, but would not address the status of American Crossroads, founded by Republican strategist Karl Rove, and Priorities USA, founded by Obama aides, which spent record amounts of money in the 2012 elections.
Republican Senator John Cornyn from Texas pressed Shulman on whether he would apologize for the targeting of conservative groups. Shulman said he was "deeply, deeply saddened" by the scandal but added: "I'm certainly not responsible for creating a list that had inappropriate criteria on it."
The hearing in the Democratic-controlled committee also touched on how and when the targeting scandal became public. Those questions gained more urgency on Monday when the White House revealed that two senior aides to Obama knew weeks ago about the draft watchdog report detailing the IRS targeting.
Miller said he never discussed the IRS targeting with anyone at the White House, and did not talk about it with Treasury Department officials until the report was about to come out.
Obama has said he did not learn of the targeting until May 10, when IRS official Lerner apologized for the agency's actions while responding to a planted question at an American Bar Association conference. Obama fired Miller after the inspector general's report was released on May 14. Miller said he would be leaving in early June.
At the Senate hearing, Miller took responsibility for the planted question at the event, calling it "an incredibly bad idea." He said there were ongoing discussions about discipline for Lerner.
(Editing by Karey Van Hall, Christopher Wilson and Tim Dobbyn)
Source: http://news.yahoo.com/white-house-counsel-kept-irs-probe-results-obama-012344283.html
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