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IRS faces more heat from watchdog report amid Tea Party fracas

Committee Chairman U.S. Representative Darrell Issa (R-CA) holds a House Oversight and Government Reform Committee hearing on alleged target
Committee Chairman U.S. Representative Darrell Issa (R-CA) holds a House Oversight and Government Reform Committee hearing on alleged target

By Kim Dixon

WASHINGTON (Reuters) - The new chief of the Internal Revenue Service conceded on Friday there was "inappropriate" spending on a 2010 agency conference, a subject set to be the focus of one of three U.S. congressional hearings next week at which the IRS will likely face more criticism.

The IRS is already embroiled in a major political scandal over extra scrutiny it gave to conservative groups seeking tax-free status, and Republicans in the House of Representatives are likely to keep the White House on the defensive over the agency's actions.

Acting IRS Commissioner Danny Werfel said expenses associated with a conference held three years ago "should not have occurred."

The conference will be the focus of a report set for release on Tuesday from an IRS watchdog, Werfel said in a statement.

"This conference is an unfortunate vestige from a prior era. While there were legitimate reasons for holding the meeting, many of the expenses associated with it were inappropriate," said Werfel, named acting IRS commissioner two weeks ago.

The IRS has been under a spotlight for three weeks since a mid-level administrator publicly apologized at a conference for the extra scrutiny given to applications for tax-exempt status filed by conservative political groups.

The controversy that followed led to the ousting by President Barack Obama of the agency's top executive and an FBI investigation, and has become a major distraction for the White House.

The Treasury Inspector General for Tax Administration, a watchdog agency that monitors the IRS, is expected to issue a long-planned report on the agency's spending on conferences, travel and awards, next week.

Republican Representative Darrell Issa, among the lawmakers probing the IRS, will hold a hearing on the report on Thursday, a congressional aide said.

The panel will hear from watchdog agency head J. Russell George, who earlier this month issued an audit on the extra scrutiny by the IRS of Tea Party groups' applications.

The aide said the hearing would be about "an upcoming audit uncovering information about excessive spending at IRS conferences."

A spokesman for the watchdog agency said he could not comment on the matter.

Werfel said that a conference like the one that took place in 2010 would not happen today. "Sweeping new spending restrictions have been put in place at the IRS," he said.

Earlier this year, Representative Charles Boustany, a Republican in charge of a House oversight subcommittee, wrote the IRS about reports that it produced a video including a parody of the television show "Star Trek" as part of an employee training program.

Steve Miller, whose last day as acting IRS Commissioner was Friday after he was asked by Obama to resign, responded at the time that the video was part of worker education to reduce travel and other costs, according to Boustany.

Boustany on Friday released what he said was a video made by IRS employees, showing several in a mock dance lesson of "SB-SE" executives at "an undisclosed location." Those initials refer to the IRS small business-self employed division.

The earlier "Star Trek" video shows IRS workers dressed as characters from the show in a spaceship.

"Its never-ending mission is to seek out new tax forms, to explore strange new regulations, to boldly go where no government employee has gone before," a narrator says.

These two and a third video with a theme using the television show "Gilligan's Island" were all produced for an Anaheim, California, employee conference, according to a congressional aide.

Boustany said Miller acknowledged that the Star Trek and Gilligan's Island videos cost at least $60,000 to make.

THREE HEARINGS

Several congressional committees are probing the scandal involving extra scrutiny for the conservative groups, while others in the past week have raised other concerns.

Issa's House Government and Oversight Committee will hear from George on Thursday. The House Ways and Means Committee will hear from Tea Party groups on Tuesday, and Werfel will testify before the House Appropriations Subcommittee on Financial Services and General Government on Monday.

All are controlled by Republicans.

Obama tapped Werfel to take over as acting IRS head several days after an IRS official apologized for the scrutiny to a meeting of tax attorneys in Washington. The president said he first learned about the scrutiny when that official revealed it on May 10.

The watchdog agency report found no evidence that Obama administration officials directed the targeting of groups with "Tea Party" in their names. Still, many Republicans are skeptical and note that there seems to have been no corresponding list of names for liberal groups seeking tax-exempt status.

Agency officials say the rise of the Tea Party movement at the time led low-level officials to take shortcuts in processing a surge of new applications for tax-exempt statue.

The IRS is late in providing documents to three of the congressional committees that have sought internal emails and other correspondence.

The agency in a statement said it is "moving aggressively and taking the data requests very seriously. As a precautionary measure, the IRS is casting a wide net to capture any potentially related materials."

(Additional reporting by Patrick Temple-West; Editing by Nick Zieminski and Eric Walsh)

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