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Obama says some IRS employees ‘failed’

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President Barack Obama said Tuesday the Treasury Department inspector general’s report examining how the Internal Revenue Service allowed for the targeting of “tea party” and other groups shows some IRS employees “failed” to act in a way “that’s worthy of the public’s trust.”

“Regardless of how this conduct was allowed to take place, the bottom line is, it was wrong,” the president said.

In his statement, Obama said he’s directed Treasury Secretary Jacob Lew “to hold those responsible for these failures accountable, and to make sure that each of the Inspector General’s recommendations are implemented quickly, so that such conduct never happens again.”

[Original story published at 7:40 p.m. ET]

(CNN) — Poor management and lax oversight at the Internal Revenue Service allowed for the targeting of “tea party” and other groups, resulting in lengthy delays in the processing of their applications for federal tax exempt status, according to a report from the agency’s inspector general obtained Tuesday by CNN.

The report found that for more than 18 months beginning in early 2010 the IRS developed and followed a policy that used “inappropriate criteria” to identify potential political applications and then forwarded those applications to a team of specialists for review.

“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,” according to the report, obtained by CNN from a congressional source.

The IRS said that it welcomed the release of the Treasury inspector general’s report, saying that it agreed that aspects of its original approach in handling the influx of tax-exempt applications was inappropriate.

“The IRS is required by law to determine if organizations are engaging in a legally permissible level of political activity. Centralizing these cases was necessary to achieve consistent treatment,” it said in a statement released Tuesday.

“After seeing issues with particular cases, inappropriate shortcuts were used to determine which cases may be engaging in political activities. It is important to note that the vast majority of these cases would still have been centralized based on the general criteria used for other cases. ”

The development came hours after U.S. Attorney General Eric Holder announced the Justice Department had launched a criminal investigation into whether the IRS politically targeted some conservative groups applying for federal tax-exempt status.

“The FBI is coordinating with the Justice Department to see if any laws were broken in connection with those matters related to the IRS,” Holder said at a briefing.

The report’s findings and the attorney general’s announcement come amid growing criticism over revelations that some IRS officials targeted certain groups that had either “tea party” or “patriot” in their names.

“Those actions were, I think as everyone can agree, if not criminal, they were certainly outrageous and unacceptable,” Holder said. “But we are examining the facts to see if there were criminal violations.”

The report, which contains a response from the IRS commissioner of the Tax Exempt and Government Entities Division, indicated there was no criminal behavior behind the actions, but rather inefficient management and lax oversight.

“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.

The IRS report compiled by the agency’s top watchdog found that the criteria used to flag potential political applications resulted in substantial delays and the request of unnecessary information of the groups.

It also found that the IRS team of specialists — known as the Determinations Unit — targeted groups with “tea party” in their names and then inappropriately expanded it to include organizations with other names, such as “patriots” or “9/12 project.”

“The inappropriate and changing criteria may have led to inconsistent treatment of organizations applying for tax-exempt status,” the report said.

“For example, we identified some organizations’ applications with evidence of significant political campaign intervention that were not forwarded to the team of specialists for process but should have been.”

It also said it identified applications that had no political campaign connections.

The report found that all of the applications that were sent to the Determinations Unit “experienced substantial delays in processing.”

“Although the processing of some applications with potential significant political campaign intervention was started soon after receipt, no work was completed on the majority of these applications for 13 months,” it said.

The report’s findings indicate that of the 296 cases reviewed by the IRS inspector general as potential political cases not eligible for tax exempt status: 72 contained the name “tea party,” 11 contained “9/12” and 13 contained the word “patriots,” according to the report. There were 202 cases that did not contain any such reference.

Of those applications still open for review, 160 cases were open from 206 days to more than three years — through two election cycles.

“Although the IRS has taken some action, it will need to do more so that the public has reasonable assurance that applications are processed without unreasonable delay in a fair and impartial manner in the future,” the report said.

Lois Lerner, director of tax exempt organizations for the IRS, acknowledged Friday that the IRS had targeted some groups for further review because they had those words in their names.

She said the activity took place at the IRS office in Cincinnati, which handles applications for 501(c)(4) status.

But documents suggest at least three other IRS offices did the same.

Letters provided to CNN show IRS officials in Washington and California contacted conservative groups to demand more information before approving the groups’ requests for tax-exempt status.

The American Center for Law and Justice, a legal group representing numerous conservative organizations, provided CNN with four such letters: one each from IRS offices in Washington; Cincinnati; El Monte, California, and Laguna Niguel, California.

The words “patriots” or “tea party” figured in the names of each group that received the letter.

The IRS did not respond to CNN’s request for comment regarding the letters.

White House spokesman Jay Carney told reporters Tuesday that he’s “confident” no one at the White House was involved in the practice.

Asked about complaints by some Republican lawmakers for the past couple of years that conservative groups were being unfairly targeted, Carney said he is “sure some people knew about the stories. But we were not aware of any activity or any review by the inspector general.”

President Barack Obama on Monday called the IRS’ alleged actions “outrageous” and said personnel involved “have to be held accountable.” Some Republicans criticized the president for not speaking out on the issue immediately. He said he learned about it through news reports Friday.

Lawmakers on both sides of the aisle have expressed outrage as well and multiple congressional probes are under way.

The Republican-led House Ways and Means Committee, which oversees the IRS, announced it will hold a hearing Friday. Slated to testify are Steve Miller, the acting IRS commissioner; and the Treasury inspector general investigating the complaints, J. Russell George.

Sen. Carl Levin, D-Michigan, said the Permanent Subcommittee on Investigations — which he chairs — now needs to expand an investigation already under way.

That one has focused on the IRS’s “failure to enforce the law requiring that tax-exempt 501(c)4s be engaged exclusively in social welfare activities, not partisan politics,” he said in a statement. The IRS’ announcement about targeting of some conservative groups raises questions over its impartiality in doing so, he added.

Sen. Marco Rubio, R-Florida, demanded the resignation of the IRS commissioner in a letter to Treasury Secretary Jack Lew on Monday, noting the agency “cannot operate with even a shred of the American people’s confidence under the current leadership.”

Miller assumed the role of acting head of the IRS last November. The previous commissioner, Douglas Shulman, was appointed by President George W. Bush. Shulman testified at a March 2012 congressional hearing that his agency did not target conservative groups for political reasons.

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