The report comes in response to requests from several members of Congress to look into whether the IRS had treated conservative or tea party groups unfairly based on their political affiliation.
By using criteria like "political sounding names" to select groups for additional scrutiny, the report says that the IRS actually failed to look closely at groups that should have been carefully scrutinized because of the volume of political activity they were engaged in.
Other groups that weren't engaged in much political activity were caught in the IRS's dragnet and their applications were severely delayed, the report found.
In 58 percent of cases, groups were asked to provide "irrelevant" information in response to inquiries from the IRS.
According to the report, Lois Lerner, the Director of Exempt Organizations, found out about the inappropriate criteria for screening groups in June 2011.
Lerner immediately changed the IRS's policy to make it more broad, but the team of specialists assigned to the cases changed the criteria again without approval from their superiors, the report found.
The report comes as Attorney General Eric Holder announced today that he has ordered an FBI investigation of the IRS's dealings with conservative groups seeking tax exempt status.
The order is likely to mean that IRS officials could be subject to FBI interrogation and, possibly, subpoenas.
Lawmakers in the House Ways and Means Committee today requested that the IRS provide Congress with documents related to the targeting of conservative groups by May 21.
The committee will hold a hearing on the subject on Friday.
Sen. Minority Leader Mitch McConnell, R-Ky., among other lawmakers, said he is committed to getting to the bottom of what he called the agency's "blatant and thuggish abuse of power."