Watchdog report describes massive delays as IRS slow-walked Tea Party groups

A newly obtained watchdog report described how the "inappropriate" IRS program that flagged conservative groups for extra scrutiny led to massive delays, with some organizations stuck waiting years to find out about their applications.

The findings were contained in a highly anticipated and highly critical inspector general's report, obtained by Fox News, on a practice that IRS officials first acknowledged on Friday.

The report revealed that the program began as far back as 2010. The Treasury Inspector General for Tax Administration concluded that it was the result of "ineffective management" and "inappropriate criteria" which must be corrected.

Describing the impact of the IRS program, the report said the flawed criteria led to Tea Party and other groups being singled out and subjected to "substantial delays." More than 80 percent of the cases it reviewed were left open more than one year, and some were left in limbo for more than three years.

Separately, Reps. Darrel Issa, R-Calif., and Jim Jordan, R-Ohio, described these delays as a "state of purgatory" for conservative groups as they sought tax-exempt status.

More On This...

Republicans lawmakers already are investigating, and Attorney General Eric Holder announced Tuesday that the Justice Department would launch a probe into the IRS' activities.

The IG report, though, will likely serve as the starting point for any of those investigations.

In a statement Tuesday night, President Obama called the report's findings "intolerable and inexcusable."

"The federal government must conduct itself in a way that's worthy of the public's trust, and that's especially true for the IRS," he said.  "The IRS must apply the law in a fair and impartial way, and its employees must act with utmost integrity.  This report shows that some of its employees failed that test."

Treasury Secretary Jack Lew said in a statement that he is "deeply troubled" to learn of the IG findings.

"While the Inspector General found no evidence that any individual or organization outside the IRS influenced the decision to use these criteria, these actions were inappropriate and did not reflect the high standards which I expect and the public deserves," he said. "Like the American people, I have zero tolerance for any action that could undermine public confidence in the impartial and non-partisan administration of the tax code."

The internal investigation found that the "inappropriate criteria" -- which led to the IRS asking Tea Party and other groups about their donors and making other intrusive requests -- was allowed to stay in place for more than 18 months. During that time, conservative groups had their applications put on hold for months, even years.

The IG report said: "As of December 17, 2012, many organizations had not received an approval or denial letter for more than two years after they submitted their applications. Some cases have been open during two election cycles (2010 and 2012)."

Further, the report said this delay meant potential donors could have been "reluctant" to provide funding to the groups.

"In addition, some organizations withdrew their applications and others may not have begun conducting planned charitable or social welfare work. The delays may have also prevented some organizations from receiving certain benefits of the tax-exempt status," the report said.

The inspector general's office reiterated what has previously been reported -- that a unit in the agency began flagging groups with "political-sounding" names like "Tea Party" and "Patriots" starting in 2010. The first formal "be on the look out" listing was distributed in August of that year.

The report also found that the Determinations Unit requested "irrelevant (unnecessary) information because of a lack of managerial review, at all levels, of questions before they were sent to organizations seeking tax-exempt status." Among the list of unnecessary questions were those asking for donor names and the roles of audience members and participants in certain programs.

The report said: "After the letters were received, organizations seeking tax-exempt status, as well as members of Congress, expressed concerns about the type and extent of questions being asked."

The report included an official response from IRS official Joseph Grant. He acknowledged that the manner in which cases were screened was "inappropriate."

"The IRS recognizes that there were delays and, in some instances, information requests that were overbroad," he said in his statement.

But, as some Republicans question whether the effort was partisan, Grant insisted that "the front line career employees that made the decisions acted out of a desire for efficiency and not out of any political or partisan viewpoint."

The IRS has claimed the program was limited to staffers at the Cincinnati office, but other documentation suggests other offices were involved.

Issa and Jordan cited those concerns in response to the report's release Tuesday.

"We still do not know why the targeting began, how extensive it was, who initiated it and who knew about it. The IRS must be held accountable to the American people, which requires a full investigation of the circumstances surrounding the facts established in this audit," Jordan said.

An IRS statement Tuesday night said the agency welcomes the release of the IG report.

"The IRS 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," the statement said. "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.  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.  All centralized cases --including the minority of those with the specified names -- received similar treatment in which the facts and circumstances of each case determined the ultimate outcome.   It is also important to understand that the group of centralized cases included organizations of all political views."

According to the statement, flaws in the IRS' process were corrected last year based on its own review, but they were only recently discussed publicly as "there had been a concurrent ongoing TIGTA audit of the situation."

"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.