Irs Official Takes the 5th at Congressional Hearing

WASHINGTON (CNN) -- The Internal Revenue Service official who headed the division involved in targeting conservative groups invoked her constitutional right against self-incrimination Wednesday and refused to answer questions from a congressional committee.

Lois Lerner read a statement at a House Oversight Committee hearing that declared she did nothing wrong and broke no laws before saying she would not answer any questions.

"I have not done anything wrong. I have not broken any laws. I have not violated any IRS rules and regulations," Lerner said, adding that she never misled or lied to Congress, as contended by some legislators.

Over objections by some Republicans who said her statement amounted to testimony and she therefore waived her right to Fifth Amendment protection, the GOP chairman, Rep. Darrell Issa of California, dismissed Lerner with a warning she could be called back.

Before the exchange, Democratic Rep. Stephen Lynch of Massachusetts warned IRS officials to cooperate with the committee or face the likelihood of a special prosecutor being appointed in the case.

"There will be hell to pay if that's the route" chosen by the IRS, Lynch said.

The Justice Department is investigating to see if any laws were broken.

The dramatic exchange occurred at the third congressional hearing on revelations in a report released May 14 that detailed how IRS workers used a list of criteria that targeted conservative groups in determined levels of scrutiny for applicants seeking tax-exempt status.

J. Russell George, the Treasury inspector general who wrote the report, dropped a bombshell when he said there may have been other politically oriented lists of criteria used by the IRS than the one that targeted conservative groups. He provided no further details, saying further review was needed.

Other officials testifying at Wednesday's hearing included Deputy Treasury Secretary Neal Wolin, who first learned of the issue in the summer of 2012. As a high-ranking Obama administration official, Wolin will face questions on whether he shared information about the problem with the White House.

In his opening statement, Wolin said he first learned of a review of IRS tax-exempt applications in 2012, but received no details and told the agency watchdog that "our job is to stay out of the way."

His account matched previous statements to congressional committees on what Obama administration officials knew of the controversy and when they learned about it.

Two previous congressional hearings have left legislators frustrated with what they consider to be incomplete or vague responses from the outgoing IRS commissioner or the man he succeeded as the agency's director.

Republicans and Democrats on the Oversight Committee expressed outrage and frustration Wednesday at what they characterized as incomplete or deliberately vague responses from the former IRS commissioner, Douglas Shulman, and George.

'Should have run it up the chain'

Republicans contend the controversy is part of a pattern of a White House gone wild, while Democrats insist that what happened -- while unacceptable -- was initiated within the IRS instead of being a practice called for or supported by President Barack Obama.

The targeting followed the 2010 Supreme Court decision in the Citizens United case that opened the door to increased corporate and private political spending.

Obama and Democrats warned at the time that the ruling could cause an imbalance in political spending by permitting wealthy donors to secretly fund political action groups not directly linked to candidates and parties.

Spending by such groups has increased, and Shulman testified that the increased workload on IRS officials tasked with assessing tens of thousands of new requests for tax-exempt status contributed to the targeting problem.

Shulman repeated Wednesday what he told the Senate Finance Committee on Tuesday -- that he was unaware of the full details of the targeting that started in 2010 and ended in May 2012, when he was the top IRS official.

He said he became aware of some aspects of his agency's targeting in the spring of 2012, and took what he called the correct action of ensuring the situation would be independently reviewed.

Legislators called his response and management insufficient, accusing him of failing to properly notify Congress of the problem after having testified at a hearing earlier in 2012 that no political targeting had occurred.

On Tuesday, the official who succeeded Miller as IRS commissioner admitted he helped engineer a clumsy public disclosure of the controversy through a planted question at an American Bar Association event on May 10.

The question prompted Lerner to apologize at the event for the targeting, which was to be made public in coming days by the release of a report by the Treasury's inspector general on tax issues.

Steven Miller, who has been ousted as acting commissioner in response to the targeting issue, called the planted question a "bad idea" intended to create an initial IRS apology by Lerner before the story broke with the release of the inspector general's report.

The inspector general's report concluded that the improper targeting was due to mismanagement and incorrect policy, rather than political motivation, and Miller apologized for what he called "foolish mistakes" intended to help tackle an overwhelming workload.

In his first public comments since the matter came to light this month, Shulman said Tuesday he properly notified the appropriate Treasury inspector general about the problem when he learned that IRS workers were categorizing groups seeking tax-exempt status according to criteria including whether they had "tea party" in their name.

His statement drew angry responses from members of the Senate panel. When he made similar statements Wednesday, he came under similar criticism.

What the White House knew

At the White House on Tuesday, spokesman Jay Carney revealed new details about the administration's response to the IRS controversy for a second straight day.

Carney told reporters that White House and Treasury officials discussed the timing of the release of the inspector general's report and its findings after General Counsel Kathryn Ruemmler learned about it on April 24 and told others, including Chief of Staff Denis McDonough.

However, Carney said Obama was deliberately kept out of any discussions on the issue to prevent any possible suspicion of presidential meddling in an upcoming report by an independent watchdog.

His comments followed Miller's disclosure earlier Tuesday about the planted question at the ABA meeting on May 10 that provided Lerner, who oversaw the IRS division handling requests for tax-exempt status, to publicly apologize for targeting conservative groups ahead of the report's release.

Asked if the White House had any involvement in the planted question, Carney said "we were not aware of what ultimately led to the first reporting of this on May 10th."

On Monday, Carney had first revealed the date Ruemmler learned details of the upcoming report and that she told McDonough, among others. It was the first time the White House acknowledged that McDonough was aware of the report before it became public more than two weeks later.

Carney insisted no one -- including Ruemmler and McDonough -- told Obama anything about the inspector general's pending report before media reports about it began appearing on May 10.

However, the new information on Monday and Tuesday continued a perception of a White House on the defensive over the issue.

A second conservative group filed a lawsuit Tuesday against the IRS over the political targeting. True the Vote asked a federal court in Washington to grant its request for tax-exempt status that has been held up by the IRS for three years, and to award damages.

On Monday, a Northern California tea party group has filed the first lawsuit against the U.S. government stemming from the IRS targeting.

Baucus and Hatch sent a letter to the IRS on Monday seeking an exhaustive list of information about the case as part of a full investigation by their committee. Their panel's hearing followed a similar grilling of Miller and George last week by the House Ways and Means Committee.

Worry about impact and public trust

At Tuesday's hearing, senators from both parties worried that the controversy destroyed public trust in the IRS and wondered how the improper acts could have continued for so long without detection or correction.

George, who wrote the report on the targeting, explained that his mission was to conduct an audit that would examine if wrongdoing occurred, rather than to necessarily identify who was responsible.

Carney noted Monday that the inspector general's report found that there was no outside intervention regarding what he called "inappropriate scrutinizing of conservative groups" seeking tax-exempt status, and that no one in the White House intervened in the inspector general's review or "did anything that could be see as intervening."

In addition, Carney said, the misconduct had stopped in May 2012, almost a year before Ruemmler or anyone else at the White House was told of it by anyone at Treasury.

For his part, Miller denied deliberate discrimination for the targeting cited by the inspector general's report, calling the acts "foolish mistakes" made by overworked staffers struggling to enforce unclear regulations involving what political activity is permissible by tax-exempt groups.

"We are down a billion dollars over the last couple of years, the IRS is, and that's caused us to cut training in some areas," he said, adding that the agency deals with 70,000 applications for tax-exempt status. "Do we have the resources to get the job done. I don't believe we do at this point."

Democratic senators also focused on the ambiguity in the tax code and IRS regulations on the matter, saying the tax code needs to be altered. Republicans also called for tax code reforms, but with the goal of slashing the responsibilities of the agency as part of the party's longstanding push for smaller government and a reduced taxing authority.

Inspector general blames a faulty policy

According to the inspector general's report, the IRS 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."

The conservative groups complain their requests were delayed for months or even years through the review process, which is intended to prevent ineligible political groups from getting tax-exempt status.

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.

Obama called practices described by the inspector general outrageous and forced Miller's resignation. In addition, 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.

Obama has appointed Danny Werfel, a White House budget office official who has served in both Democratic and Republican administrations, to succeed Miller through the end of the fiscal year on September 30.