* Conservative Tea Party groups rally on Capitol Hill
* Ousted IRS chief to testify before House panel on Friday
* Republican McConnell alleges ‘government intimidation’
(Adds details, background)
By Jeff Mason and Patrick Temple-West
WASHINGTON, May 16 (Reuters) – U.S. President Barack Obama
on Thursday chose a White House budget official to lead the
beleaguered Internal Revenue Service and vowed to ensure that
the tax-collection agency will not single out any more groups
based on their political beliefs.
Danny Werfel, who has been Obama’s point man in overseeing
the controversial “sequestration” budget cuts, will tackle the
biggest scandal of Obama’s presidency when he takes charge of
the IRS on May 22.
It could be a thankless job.
The IRS faces a criminal investigation and at least three
congressional probes in the wake of last week’s revelation that
during the past three years, the agency’s examiners had targeted
conservative groups for extra scrutiny after the groups applied
for tax-exempt status.
The agency has been without a permanent chief since November
and lost another senior official on Thursday when Joseph Grant,
the head of the division at the center of the scandal, announced
plans to retire.
Grant’s retirement followed Obama’s decision on Wednesday to
fire acting IRS Commissioner Steven Miller. The IRS has
acknowledged that Miller knew about the targeting of
conservative groups last year; several members of Congress have
complained that Miller did not tell them about it.
Obama is racing to get ahead of a political firestorm that
threatens to derail his second-term agenda as Republicans and
conservative groups accuse his administration of using the
levers of power – including the IRS, which is supposed to be
non-partisan – to persecute political enemies.
The Democratic president has rejected that notion, and said
he did not know about the IRS’s targeting of conservative “Tea
Party” and “Patriot” groups until the agency acknowledged last
week that it had done so.
Obama fired Miller after an internal IRS audit released on
Tuesday found that poor management – not partisan politics – had
led to an “inappropriate” focus on conservative groups.
“I think we’re going to be able to figure out exactly what
happened, who was involved, what went wrong, and we’re going to
be able to implement steps to fix it,” Obama said at a news
conference on Thursday with Turkish Prime Minister Tayyip
Erdogan.
“It is just simply unacceptable for there to even be a hint
of partisanship or ideology when it comes to the application of
our tax laws,” Obama added.
Obama has faced a series of recent setbacks that could
threaten his ability to pursue priorities such as revamping the
nation’s immigration laws and a budget deal with congressional
Republicans.
Obama’s Republican critics have hammered the
administration’s handling of the deadly militant attack last
year on the U.S. mission in Benghazi, Libya, and the Justice
Department has faced bipartisan criticism for seizing phone
records of journalists from the Associated Press as part of a
criminal probe into intelligence leaks.
‘SOMETHING PROFOUNDLY UN-AMERICAN’
On Capitol Hill the IRS scandal seemed to rewind the clock
to 2010, when groups aligned with the conservative Tea Party
movement were a frequent and vocal presence outside Congress.
“There is something profoundly un-American about targeting
your political opponents,” Kentucky Republican Senator Rand
Paul, a potential 2016 presidential candidate, told a crowd of
about 100 Tea Party enthusiasts outside the Capitol on Thursday.
The scandal dates to March 2010, as the IRS struggled to
deal with a surge of new advocacy groups that sprang up in the
wake of a Supreme Court decision that struck down limits on
independent political spending by businesses and other outside
groups.
The agency has trouble keeping track of the more than 1
million tax-exempt organizations that already exist, analysts
say.
The number of applications for tax-exempt “social welfare”
status nearly doubled from 2010 to 2012, according to IRS
figures.
Groups applying for what is known as 501(c)4 status can
engage in limited campaign activity but are not supposed to make
electioneering the focus of their efforts. Unlike political
campaigns, they may keep their donors secret.
Spending by these groups and other similar organizations
jumped to $309 million in 2012 from $79 million in the 2008
election, according to the Center for Responsive Politics.
Conservative groups accounted for about three-quarters of that
total, according to the watchdog group.
As a result, the agency faced pressure from top Democrats
such as Illinois Senator Dick Durbin, New York Senator Charles
Schumer and Max Baucus, who heads the Senate’s tax-writing
committee, to make sure the non-profit groups weren’t exploiting
a loophole to evade taxes and keep their donors secret.
Because that activity lacked revenue-generating potential,
it was seen as a low priority within an agency whose central
mission is tax collection, according to tax specialists.
The IRS gave the task to a field office in Cincinnati, Ohio,
rather than assign it to higher-ranking staff in its Washington
headquarters.
According to an internal IRS watchdog, that unit set its own
criteria for checking tax-exempt groups in the absence of clear
guidance from more senior officials.
AN ‘INTRUSIVE’ AUDIT
At the rally on Thursday, Tea Party speakers described how
the increased scrutiny prevented them from participating in the
democratic process – in some cases by delaying their groups’
applications until after the 2012 elections had passed and in
other cases through overly intrusive questioning by IRS agents
that some Tea party groups say led them to give up their
organizing efforts.
“The IRS just keeps asking questions. Our audit has been so
intrusive,” said Susan McLaughlin of the Liberty Tea Party in
Liberty Township, Ohio. McLaughlin said her group had been
waiting for three years to win tax-exempt status.
Republicans in Congress vowed to conduct a thorough
investigation.
Senate Republican Leader Mitch McConnell of Kentucky called
on the IRS’s internal watchdog to investigate whether the agency
had leaked the donor list of the National Organization for
Marriage, a conservative group fighting gay-marriage
initiatives, to a rival group.
“This is what government intimidation and harassment looks
like,” McConnell said.
They may get some answers on Friday, when ousted IRS chief
Miller testifies before the House of Representatives Ways and
Means Committee.
The man who will fill his shoes worked as a non-partisan
civil servant in the White House budget office for Republican
President George W. Bush before Obama asked him to take on the
more partisan role of controller.
Werfel, 42, developed a track record of coolly responding to
harsh questions from lawmakers as he testified several times
this year about the “sequestration” budget cuts that kicked in
after Congress and the White House failed to reach a larger
deficit-reduction deal.
Werfel takes over a tax agency that is maligned by many
Americans even in the best of times. Obama eventually will have
to decide whether to ask the Democrat-led Senate to confirm
Werfel to the job permanently or nominate another candidate who
could win more support among Republicans.
“No one in their right mind would want the job right now,”
said Paul Streckfus, a tax journalist who used to work in the
IRS division that is now at the center of the scandal.
As the furor has increased, some key IRS employees have
pulled out of public events.
Lois Lerner, the IRS official who broke the news of the
scandal last week, canceled plans to speak at a graduation
ceremony for her law-school alma mater, Western New England
University.
And in Washington, the IRS softball team canceled a
scheduled match against the staff of Senator John Cornyn, the
Texas Republican said on Facebook.
(Additional reporting by Thomas Ferraro, Richard Cowan, Kim
Dixon, Tabassum Zakaria, Elvina Nawaguna, Mark Felsenthal, Kevin
Drawbaugh, Nanette Byrnes, Roberta Rampton; Writing by Andy
Sullivan; Editing by David Lindsey and Jim Loney)
