IRS official in charge of targeting unit takes the 5th

A six-hour congressional hearing Wednesday on Internal Revenue Service targeting of conservative groups lacked one thing – answers from the woman who heads the unit responsible for a scandal dominating Washington politics.

Lois Lerner, the IRS director of exempt organizations, invoked her constitutional right against self-incrimination after she denied any wrongdoing in a brief statement to the House Oversight Committee.

“I have not done anything wrong. I have not broken any laws. I have not violated any IRS rules and regulations and I have not provided false information to this or any other congressional committee.” Lerner said, adding that she refused to “answer any questions or testify about the subject matter of this committee’s meeting.”

The move set off a procedural debate, with some Republicans contending her statement amounted to testimony that effectively waived her Fifth Amendment protection.

Panel Chairman Rep. Darrell Issa dismissed Lerner but later said he might recall her to insist “that she answer questions in light of a waiver.” At the end, the California Republican declared the hearing in recess, rather than adjourned.

Republicans and Democrats expressed frustration with Lerner’s move and what they characterized as unsatisfactory testimony from other IRS officials who have testified in three congressional hearings so far into the targeting issue.

Democratic Rep. Stephen Lynch of Massachusetts warned that a failure by the IRS to be more cooperative would lead to a special prosecutor, adding that “there will be hell to pay if that is the route we chose to go down.”

White House officials discussed IRS communications plans

In addition to the inquiries by the three congressional panels, the Justice Department also has launched an investigation of whether laws were broken by IRS workers who used a list of criteria including names such as “tea party” to determine levels of scrutiny for groups 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 beyond the one that targeted conservative groups. He provided no further details, saying he would continue his review and it could expand to possible criminal activity.

Republicans contend the controversy is part of a pattern of a White House gone wild and repeatedly brought up other issues dogging President Barack Obama, such as the erroneous administration talking points in the days after the terrorist attack in Benghazi, Libya last September.

Democrats insisted that what happened – while unacceptable – was initiated within the IRS instead of being a practice called for or supported by the president or others in his administration.

In response to George’s report, which was made public on May 14, Obama demanded the resignation of the acting IRS commissioner, Steven Miller, and appointed Office of Management and Budget Official Danny Werfel to fill the post through September.

Werfel, a veteran of both Republican and Democratic administrations, began his new job Wednesday with a message to IRS staff that called for working together to restore public trust in the agency.

Noting his 30-day deadline to report back to Obama and Treasury Secretary Jack Lew, Werfel said he would begin by “meeting with many of you” in coming days.

What it means to take ‘The Fifth’

George told the House panel that he and Werfel would meet next week to discuss recommendations in his report for better training and management of the IRS tax-exempt unit.

At Wednesday’s hearing, questioning ranged from insistent attempts to figure out what officials knew when to partisan posturing.

Deputy Treasury Secretary Neal Wolin confirmed he first learned in the summer of 2012 that George was reviewing the IRS unit that handles requests for tax-exempt status, but he insisted he had no details of the substance of the issue.

Wolin repeatedly answered no when asked if he shared information about the matter with anyone else in the Obama administration or the president’s re-election campaign at that time.

“In 2012, you’re looking at this election year and you don’t pick up the phone and say to the, your contacts at the White House … say just as a heads up, this could actually hit the fan in a presidential year?” asked GOP Rep. Patrick McHenry of North Carolina.

When Wolin replied he didn’t, McHenry asked: “Okay. And you don’t tell anybody in the office of counsel in the White House?”

“I did not,” Wolin said.

Meanwhile, legislators expressed particular outrage with the testimony from former IRS Commissioner Douglas Shulman, who headed the agency during the 18 months that the targeting occurred from 2010 to May 2012.

Similar to responses he gave Tuesday to the Senate Finance Committee, Shulman rejected any personal responsibility for the targeting while expressing himself saddened about what happened.

In particular, he insisted he was unaware of the full details of the targeting when he was the top IRS official. He said he became aware of some aspects of the issue in the spring of 2012, and took what he called the correct action of ensuring the situation would be independently reviewed by George.

“I accept the fact that this happened on my watch and I am very sorry that this happened while I was at the IRS,” Shulman said in response to tough questioning by Rep. Tammy Duckworth, D-Illinois. “I feel horrible about this for the agency, for the people there, for the great public servants. I am not sure what else I can say.”

Duckworth, a military veteran, responded she was “deeply disappointed” by Shulman’s response, noting that soldiers serving in Afghanistan and elsewhere know “you can never delegate responsibility and that you are always responsible for the performance, the training, the actions of the men and women under you.”

Others panel members accused 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.

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.

IRS: By the numbers

On Tuesday, Miller – who succeeded Shulman as IRS commissioner last November – 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 planted question prompted Lerner to apologize at the event for the targeting, which was to be made public in coming days by the release of George’s report.

Miller 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.

Opinion: IRS scandal is about donors, not tax

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.

He argued Tuesday that the targeting resulted from 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.”

Republicans complained Wednesday that some conservative groups who sought tax exempt status still waited for an answer three years later.

George noted that one reason for such delays was the “inordinate amount of time” it took for IRS officials in Washington to provide requested guidance to workers in the agency’s Cincinnati office on interpreting the federal law and regulations regarding tax exempt status.

Democratic legislators focused on the ambiguity in the tax code and IRS regulations on the matter, saying it 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.

Opinion: What happened to Obama’s promise?

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 May 10 ABA meeting that led to Lerner’s public apology to pre-empt the upcoming report from George.

CNN Poll: Likability helps Obama survive brutal week

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 continuing to trickle out bolstered 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.

Opinion: We’re pointing a gun at our democracy

Worry about impact and public trust

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.

IRS official denies intentional political targeting, lying to Congress

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 counter-punches in effort to regain political balance

CNNMoney’s Jeanne Sahadi and CNN’s Lisa Desjardins and Jessica Yellin contributed to this report.