'Ineffective Management' at IRS to Blame for Tea Party Targeting, Report Finds

WASHINGTON, May 14, 2013— -- Ineffective management at the Internal Revenue Service led to certain groups being singled out for more than 18 months based on their names or mission statements, according to a Treasury Inspector General report obtained by ABC News.

IRS officials told IG investigators that their actions were not influenced by any outside officials or agencies. The use of inappropriate criteria to screen applicants resulted in significant delays for groups applying for tax exempt status, and also allowed unnecessary requests for information, the report found.

Among the criteria that IRS employees used to flag groups for extra scrutiny was having words like "tea party" or "patriots" in their names, focusing on issues like government spending, debt or taxes, and statements that criticized how the country is being run.

"Criteria for selecting applications for the team of specialists should focus on the activities of the organizations and whether they fulfill the requirements of the law," the IG report found. "Using the names or policy positions of organizations is not an appropriate basis for identifying applications for review by the team of specialists."

Read highlights of the IG report HERE.

As a result, most applications were not processed for more than 13 months, with some groups waiting more than three years for approval.

The IRS said in a statement this evening that it "welcomes" the report and "agrees that aspects of the original approach for handling the influx of tax-exempt applications were inappropriate, but it is important to clarify a few points."

"Inappropriate shortcuts" were used to identify groups that might be engaged in political activity, the IRS statement admitted, but said most of the groups would likely have been examined the same way regardless of whether those "shortcuts" were used to identify them.

"It is also important to understand that the group of centralized cases included organizations of all political views," the IRS statement said.

"There was no intent to hide this issue, but rather we waited until TIGTA completed their fact finding, made recommendations, and we reviewed their findings," the statement said.

Joseph Grant, the acting commissioner of tax exempt and government entities, wrote in response to the report that the decisions were made in an attempt to increase efficiency, not to target groups with a particular political view.

"The mistakes outlined in the report resulted from the lack of a set process for working the increase in advocacy cases and insufficient sensitivity to the implications of some of the decisions made," he wrote.

"We believe the front line career employees that made the decisions acted out of a desire for efficiency and not out of any political or partisan view point," he wrote.

According to the report, the practice emerged because of insufficient oversight and a lack of knowledge by IRS employees of the rules that governed tax exempt organizations.

"[T]he criteria developed showed a lack of knowledge in the Determinations Unit of what activities are allowed by I.R.C. § 501(c)(3) and I.R.C. § 501(c)(4) organizations," the report found, using the tax code designations for tax-exempt organizations. "Determinations Unit employees stated that they considered the Tea Party criterion as a shorthand term for all potential political cases."

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."