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The House Ways and Means Committee leaders disagree on the politics of the hearing

A report found that the IRS targeted conservative groups seeking tax-exempt status

A huge increase in workload, rather than deliberate targeting, led to "foolish mistakes" and the political discrimination in the Internal Revenue Service cited by an inspector general's report, the agency's outgoing commissioner said Friday.

The testimony by Steven Miller, who was forced to announce his resignation this week as acting IRS commissioner, came 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.

"This kind of reconfirms that, you know what, they can do anything they want to anybody they want any time they want," GOP Rep. Mike Kelly of Pennsylvania said about the IRS.

The public gallery erupted in cheers and applause when he concluded by saying: "This is absolutely an overreach and this is an outrage for all Americans."

Democrats on the committee also expressed outrage at the targeting of conservative groups seeking tax-exempt status, but they pointed out 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 there was no evidence of any political motivation for what happened, or influence from outside the IRS.

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However, the inspector general who filed the report on the political targeting, J. Russell George, told Friday's hearing that he notified top Treasury officials, including Deputy Secretary Neal Wolin, as early as June 2012 that he was reviewing the office that handles tax-exempt applications.

George made clear that he only told them that he was conducting a review, which he said was prompted by a request from someone he described as a congressional staff member.

"It was not to inform them of the results of the audit, it was to inform them of the fact that we were conducting the audit," George later clarified.

A Treasury official, who discussed the matter on the condition of not being identified, told CNN that Wolin learned of the review, but not any findings, in the summer of 2012. Wolin did not discuss the review with anyone outside the Treasury department, the official said.

The Treasury Department oversees the quasi-independent IRS. Some Republicans are trying to find a link between the Obama administration and the IRS targeting, and the GOP-led House Oversight Committee has invited Wolin to appear at a hearing next week on the IRS controversy.

In his opening remarks Friday, 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 2010 Citizens United decision, 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 came under 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.

"When asked the truth and you know the truth and you have a legal responsibility to inform others of the truth but you don't share that truth, what is that called?" Camp asked.

"I always answer questions truthfully, Mr. Camp," Miller replied.

A tense exchange with Rep. Diane Black, a Tennessee Republican, involved Miller's denial that what he called the "listing" of names or phrases that triggered extra scrutiny of exemption requests amounted to political "targeting," the word used in the inspector general's report.

Miller acknowledged that the list of triggering phrases was conservative-based, causing Black to cut him off by declaring: "Then I would say its targeted. You can't have that both ways."

GOP Rep. Devin Nunes of California later asked why Miller resigned if he wasn't personally involved in the improper acts. Miller replied: "I resigned because as the acting commissioner, what happens in the IRS, whether I was personally involved or not, stopped at my desk."

"And so, I should be held accountable for what happens," he said. "Whether I was personally involved or not, a very different question, sir."

Another Republican, Rep. Tom Reed of New York, took exception with Miller's characterization of his resignation, noting it meant he would retire with full benefits and "nothing bad is going to happen to you."

With an incredulous grin, Miller responded: "Nothing bad is happening to me, congressman?"

Reed remained stern-faced, noting Miller continued to get his taxpayer-funded salary.

"You're getting paid for being here today, right?" Reed asked, to which Miller, his smile gone, dryly replied: "Right."

After the hearing, Camp described a "disturbing lack of detail and information" during testimony.

"We're going to continue to pursue this, as a committee, to find out who knew what, when, where, and how these decisions were made and how they were carried out," he said.

Earlier he told reporters the panel wanted unspecified records from Miller's tenure at the IRS.

Democrats sought to balance rejection of any perception of political manipulation by the IRS in the case with an effort to portray the situation as a poorly managed increase in 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," McDermott said, adding that political groups "saw the door open" and thought that "we can get in, we can do political advertising."

He described 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 George, who wrote the report on the controversy, to reiterate that there was no evidence of political motivation. Each time, George agreed his review found no such evidence.

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."

Among the criteria used by IRS officials to flag applications was a "Be On the Look Out" list, which was discontinued in 2012, the report said.

The criteria included:

-- Whether "Tea Party," "Patriots" or "9/12 Project" was referenced in the case file.

-- Whether the issues outlined in the application included government spending, government debt or taxes.

-- Whether there was advocating or lobbying to "make America a better place to live."

-- Whether a statement in the case file criticized how the country is being run.

-- Whether it advocated education about the Constitution and the Bill of Rights.

Conservative groups complain their requests were delayed for months or even years through the targeting that sought to prevent ineligible political groups from getting tax exempt status. Miller testified Friday that determining the political nature of groups was one of the hardest tasks of IRS officers tasked with assessing requests for tax exempt status.

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.

Some Democrats pointed to budget cuts at the IRS as a reason for the agency's inability to properly enact an increasingly complex tax code.

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.

On Friday, Miller told the committee that more changes would be coming to the IRS over the controversy, implying that more officials would be forced to leave.

"We're not done yet. We're not," he said. "We now have the Treasury inspector general's report. We now have the sense of the facts. Now is the time for those that remain, including the incoming acting commissioner ... to take those actions."

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.

Treasury Secretary Jack Lew met Friday with Werfel and directed him to conduct "a thorough review of the organization in an effort to restore public confidence in the IRS and ensure the organization is providing excellent and unbiased service to the taxpayer," a Treasury official told CNN.

The official said Lew asked Werfel to report to Obama within 30 days on progress made in holding wrongdoers responsible, correcting problems that allowed the targeting to occur and providing a "forward-looking systemic view" of the IRS.

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 what he called 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 also 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, told the committee through an attorney that she was in Montreal. Lerner didn't attend the hearing, and Levin's opening statement said she should lose her job as director of the program assessing applications for tax exempt status.