Washington (CNN) - Officials at the Internal Revenue Service knew in June 2011 that their agents were targeting conservative groups for additional scrutiny on tax documents, an inspector general report to be released this week is expected to say, according to a congressional source familiar with the inquiry.
Further, an early timeline of events compiled by the inspector general and obtained by CNN indicates the agency's practice of singling out conservative groups began as early as March 2010, and in July of that year, unidentified managers within the agency "requested its specialists to be on the lookout for tea party applications." In August, specialists were warned to be on the lookout for "various local organizations in the tea party movement" applying for tax-exempt status. The specific criteria would change several times over the next two years, according to a portion of the report.
Following tea party complaints, IRS admits 'mistakes'
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An IRS official on Friday admitted the agency made "mistakes" in the last few years with tax-exempt status applications and specifically those submitted by groups with the words "tea party" or "patriot" in their names. Multiple conservative groups have said their applications were delayed and returned with lengthy requests for supporting materials, sometimes including website printouts and lists of guest speakers.
The Treasury Department inspector general for tax administration launched an audit of the agency's practices, and spokesman David Barnes said the report is being finalized and is expected to be released this week.
Barnes said the review was requested by Rep. Darrell Issa, chairman of the House Committee on Oversight and Government Reform, and focused on programs and operations. An audit is separate from an investigation, which would assess wrongdoing such as violation of law or policies.
President Barack Obama's spokesman Jay Carney said Saturday that Obama believes the government should be staffed with "the very best public servants with the highest levels of integrity" and that "based on recent media reports, (the president) is concerned that the conduct of a small number of Internal Revenue Service employees may have fallen short of that standard."
"If the Inspector General finds that there were any rules broken or that conduct of government officials did not meet the standards required of them, the president expects that swift and appropriate steps will be taken to address any misconduct," he said in a statement.
Lois Lerner, director of tax-exempt organizations for the IRS, publicly admitted on Friday for the first time that agents used the keywords "tea party" and "patriot" to flag applications for further review, but she stressed that was done as a "shortcut" for picking the applications to review, not out of "political bias."
The IRS commissioner at the time said at a March 2012 congressional hearing that his agency did not target conservative groups for political reasons.
"I can give you assurances. We pride ourselves in being a nonpolitical, nonpartisan organization," Commissioner Douglas Shulman said. "There is absolutely no targeting. This is the kind of back and forth that happens when people apply for 501(c)(4) status."
The congressional source familiar with the inquiry understood that Lerner knew of the targeting in 2011 but sent letters to Congress earlier this year without disclosing the extent of her knowledge.
Lerner said on the Friday conference call that she "did not feel comfortable answering" as to when senior IRS officials became aware of the situation. She also said she could not give a time frame for when the IRS began looking into complaints.
She said the IRS has implemented changes to prevent similar mistakes in the future but could not say that any IRS employees had been disciplined.
The IRS said Sunday that the timeline in the inspector general's report was accurate, but that it "does not contradict" Shulman's March testimony.
"While Exempt Organizations officials knew of the situation earlier, the timeline reflects that IRS senior leadership did not have this level of detail," the statement from the IRS read. "The timeline supports what the IRS acknowledged on Friday that mistakes were made. There were not partisan reasons behind this."
The applications in question were processed by an office in Cincinnati that handles most applications for 501(c)(4) status and had seen the number of applications rise sharply between 2010 and 2012, Lerner said.
Some 75 conservative groups, flagged by agents because of their names, were among 300 groups singled out for this additional scrutiny, she said. The agency received more than 3,400 applications for 501(c)(4) status in 2012.
"They did pick the cases by names and that's absolutely inappropriate and not the way we should do things," she said, though stressing it was done as a "shortcut," not out of political bias.
Officials with some groups subjected to the scrutiny said they would have had to supply thousands of documents, stacked inches thick, to comply with the requests. Some chose not to, saying the agency was attempting to bury them in paperwork.
Tax-exempt groups are allowed to advocate for causes so long as their primary activities are dedicated to "social welfare," according to IRS rules. When an advocacy case is filed for further review, the IRS tries to determine if the group plans on sticking by that calculus.
IRS scrutiny of conservative applications appears to have begun well before the groups had any idea they were in the spotlight.
The timeline prepared by the inspector general and obtained by CNN redacts events before March 2010 as well as several between then and July 15, 2012, when the timeline concludes. But between the omitted content is a series of events showing what was happening inside the agency.
Initially, unidentified managers from the Determinations Unit of the IRS searched for "applications involving political sounding names (such as ) 'We the People' or 'Take Back the Country.'" In mid-March 2010, the agency identified 10 tea party-related cases, and by April 5, there was a list of 18, though "three had already been approved as tax exempt," the report read.
In late April and May, specialists from the Technical Unit were involved, and on June 7, the "Determinations Unit began training its specialists on emerging issues to watch for, including an emerging issue referred to as Tea Party Cases."
That summer, an e-mail and a "be on the lookout" note were sent to employees that included a "coordinator contact for the cases."
Over the next year, some responsibilities shifted and new staff joined the effort.
The timeline suggests the first hesitation within the agency regarding the process came in June 2011, when "the acting director, Rulings and Agreements, commented that the criteria being used to identify tea party cases may have resulted in over-inclusion." But part of that entry, as well as the preceding one, are redacted from the timeline.
Later that month the director of exempt organizations was briefed on the efforts, and the criteria for evaluating applications were adjusted, one of several times the criteria would be tweaked. A guide sheet for handling applications was developed, and in September, "A Technical Unit specialist reviewed the list (of applications) to determine if any cases could be closed on merit or closed with an adverse determination letter," meaning the application would be accepted or denied.
The timeline continues to show incremental changes to the criteria, additional reviews and the involvement of counsel after the entry labeled "February-March 2012."
"Numerous news articles began to be published with complaints from tea party organizations about the IRS's unfair treatment," it read. "Congress also began to show interest in the IRS's treatment of Tea Party organizations."
Congress asks questions
By March of 2012, Congress was asking questions of the IRS. That month, Shulman denied the agency targeted groups for political reasons at the congressional hearing.
There was also an exchange of letters involving Capitol Hill, Shulman and Lerner.
"News reports ... indicate that the IRS effort lacks balance, with conservative organizations being the target of the IRS's scrutiny," Issa wrote to Lerner in a March 27, 2012, letter obtained by CNN. He noted a Capitol Hill news outlet had "contacted several liberal groups ... (and) none had received the recently-sent questionnaire."
Lerner responded that the IRS sets aside "applications that require further development by an agent in order to determine whether the application meets the requirements for tax-exempt status.
"... The revenue agent uses sound reasoning based on tax law training and his or her experience to review the application and identify the additional information needed to make a proper determination of the organization's exempt status," she wrote deeper in the eight-page response.
She did not disclose in that letter that the IRS targeted conservative groups, even if for nonpolitical reasons.
Separately, a dozen U.S. senators, led by Sen. Orrin Hatch, R-Utah, and Sen. Rob Portman, R-Ohio, sent Shulman a letter asking for more information about this situation.
Shulman's six-year term ended in November and the agency is currently led by interim commissioner Steven Miller.
CNN's Athena Jones and Ashley Killough contributed to this report.
Everybody always speaks about making government more efficient. Well, that is what happened here.
If you are tax exempt company you loose that status or are denied that status if you engage in lobbying or are a political party.
Well, what was the Tea Party???? Was it not a political party? So, if I were given a stack of applications for tax exempt status and the applicant put on the application the name of a known political party, what would I do?
I could act like a total dolt and scrutinize every application and tie up taxpayer money or I could use my common sense.
Well, looks like common sense gets you in trouble.
Barack Obama is beginning to look more and more like Richard Nixon every day.
Republicans are quick to protect the tea baggers from the IRS but not the average American. Real typical.
and, folks, under Obamacare, these are the very folks who will decide, on a cost-to-benefit ratio, how much health care you will receive.
For those on the right trying to use this as proof of liberal conspiracy, keep in mind they targeted Occupy as well. The Tea Party is named for protest against taxes. If you are confirmed anti-tax, of course they are going to target you.
i can hardly wait until republicans take power and set the irs lose on every group with leftist leanings, along with all of their major donors. nothing wrong with that correct lefties? what good for the goose is good for the gander correct lefties? all of george soros sham organizations as well as soros himself had better find a cave. remember lefties.... you all said it was ok.
Repeal the 16th amendment and get rid of the IRS. It is the only way to stop this tyrannical beast known as the federal government.
@Woodbeans, you are one of the few commenting that actually see the real danger in this behavior. Most are too blinded by ideology to notice that tyranny isn't so kind when the iron fist is applied against you instead of for you.
I would like the IRS to protect the taxpayers by targeting all kinds of 'nonprofit' organizations who only take and never give. We have nonprofit hospitals who rake in dollars which are then turned into perks for administration, duplicate services, and thinking up ways to increase charges to Medicare. We have religious organizations who meddle in politics by telling their people what to think and how to vote. We have charitable organizations who give little to the charity but take huge salaries. If the IRS targeted the Tea Party, please continue and add a bunch more organizations to your list. I'm sick of paying and paying because nonprofits and their administrators have been on the dole too long. It's like having a coworker who is sick one day a week and leaving all his work for others to pick up. The work, or the taxes, still must be taken care of but there are too many sitting it out. GO IRS!!!
Issa was very selective in his request. Thats like asking a law enforcement district to provide a report with information for only those with the name of smith. He SHOULD have requested information from any firm on K street with such status but that hits too close to home. Hyprocrite. Time for him to be voted out. He'll play with his committee to cause as much consternation as possible before he starts campaigning. This in no way contributes to creating jobs. Think tanks are now "people" with first amendment rights to take tax free status and lobby their way into even more ways to avoid taxes, following regulations or anything else that benefits all of society rather than the 1%. A small IRS office going after the tea party sounds like they may have had probable cause for some reason. ANy guesses?
Everyone on these comments needs to learn exactly what the TEA Party stands for. It certainly doesn't support not paying taxes.
The number of uneducated people commenting here is staggering. Referring to Tea Party members as being racist? 1/3 of registered tea party members are black.