tax-exempt office. bolo lists and long delays in processing applications were among the practices that prompted an investigation which found that the irs had targeted conservative groups for applying for tax-exempt status. a number of high ranking officials have been replaced since news of the targeting first came out. this is just over three hours. [inaudible conversations] >> okay. we all set? you ready? >> yeah. >> okay. >> do you -- [inaudible conversations] >> the committee will come to order. good morning. it's been six weeks since the irs first revealed that they were purposefully targeting conservative-leaning organizations, and this week additional irs documents revealed that the term progressive along with others were also included on the be on the lookout list or bolo. and i want to make one thing clear: no taxpayer should be unfairly targeted. it's wrong x this committee is working to insure that it will never happen again. the committee's welcomed all groups that feel they've been targeted for extra scrutiny to come forward. so far the evidence only shows conservatives being systematically targeted by the irs. not just flagged but the bolo, but actually targeted. these americans consistently had their applications delayed for nearly three years, were asked intrusive and inappropriate questions, had their donor information leaked and were even threatened by the irs with additional taxes. as i've long said, we're in the early stages of this investigation, and as we gather the facts, we'll follow those facts wherever they lead. again, if there are any additional groups of any political affiliation that feel they were mistreated, i urge them to come forward and share their story. from what we've already learned, it's clear that the irs is a broken agency that needs to answer to the american people. mr. werfel, in the interest of accountability and at the discretion of treasury secretary lew, you spearheaded a 30-day practice of discriminating against conservative groups. unfortunately, while i'm aware this is an initial report, it fails to deliver the accountability the american people deserve. this report doesn't answer even the most basic, significant questions; who started this practice, why has it been allowed to continue for so long, how widespread was it. in fact, this report is suggests that you haven't even asked anyone those questions. additionally, the report fails to address some of the most egregious offenses by the irs. i'm specifically talking about the intentional leaking of confidential taxpayer information and the irs threatening conservative donors with additional taxes. the review notes that it's important that the inspector general continues to identify inappropriate actions, but where is the internal oversight? where are the checks to prevent this behavior in the first place, how will the irs learn from these inexcusable actions and provide the american taxpayer with real proof and evidence it will not happen again. it will be with necessary to provide concrete reforms and assurances to rebuild the trust this agency has lost with the american people. a glaring recommendation is that congress fulfill the agency request of an additional billion dollars. and, frankly, it's insulting to taxpayers that the irs would ask for an additional billion dollars right after we find out the irs was targeting taxpayers for their beliefs, after they spent millions of taxpayer dollars on frivolous conferences, produced completely useless videos and put dinners and alcohol on irs credit cards. until the irs proves that it can responsibly manage its funds, the irs will not see one more dime in taxpayer funding. we need real reforms, and they must be implemented so the american people can have a restored faith that they have a government that works for them, not against them. that begins with instituting long-term and meaningful changes, changes to both how the agency operates and to the tax code that the agency is trying to enforce. and as i've stated before, i often hear there constituents in michigan about their fear of being audited by the irs. that fear used to stem from the fact that the tax code was so complicated, nobody really knew what was in it or if they had filed their taxes correctly. even when people paid someone else to do their taxes, they'd sign their return not really knowing what was in it and hoping the preparer got it right. and that is something this committee must and will fix. however, today americans fear an audit not just because the tax code is too complex, but because we have an agency that is out of control. we have managers in washington sitting on cases for years directing intrusive and inappropriate questions to be asked, and after a monthlong internal review, what you tell this committee is that a few people have been removed from their old jobs, but you cannot even assure us that they have been removed from the agency. it's my understanding that they either continue to be paid or are receiving full retirement benefits. and on top of those salaries and benefits, those employees have received over a quarter of a million dollars in woe us ins over -- bonuses over the last few years, and you've not identified structural changes within the irs that would prevent these abuses of power from happening again. congress will continue the investigation into the irs' actions and get to the bottom of this so we can insure that no american is targeted again, and with that, i yield to mr. levin for the purposes of his opening statement. >> thank you, mr. werfel. i'll go other my opening statement in just a moment. i want to urge you, you've heard the opening statement of the chairman. i know you mostly have been kind of a technician all your years in both the bush administration and in this administration. i hope, though, that you will -- if i might suggest -- respond very vigorously when the statements are made. i hope you will actively report on what you have done during your first 30 days. where mistakes have been made by the internal revenue service, we on the democratic side have been very, very clear. when inappropriate criteria were used, we were among the first to say that those who were in charge in the irs should be relieved of their duties. so i hope you'll respond very actively and vigorously to all the questions. i think we need to get the facts and not innuendos. we are here today to learn about the corrective action that the irs has taken to address mismanagement in processing of tax-exempt applications. so, mr. werfel, welcome to the ways and means committee. i'm not sure how warm it is, but welcome. i'm glad to see in your 30-day report that you have instituted management changes that span the entire irs management chain as needed. i see from your report that these changes reach into the exempt organization division, indeed, as necessary. and the team responsible for determinations on applications for tax-exempt status. we are also interested in your recommendations for obtaining greater e -- effectiveness within the irs with respect to better early warning systems and risk management. we look forward to hearing your testimony on your new enterprise racing management -- risk management program which i understand will improve irs accountability and responsiveness to stakeholders including this congress. as your report makes clear, there was clear mismanagement on the part of the irs exempt organizations division in processing these tax exemption applications. the additional assessment and plan of action appeared to be a solid road map to addressing the problems, and we encourage you, as i said at the beginning, to actively, to vigorously, to completely pursuing this plan. but for our committee which launched this investigation on a bipartisan basis, the backdrop for today's hearing is the troubling new information that has come to lht about the report issued by the treasury inspector general of tax administration. this week we learned for the first timeey items -- one, the screening list used by the irs included the term "progressives", two, progressive groups were among the applications that were reviewed in the audit and received heightened scrutiny and, three, the inspector general did not research how the term "progressives" was added to the screening lists or how those cases were handled by a different group of specialists in the irs. the failure of the ig's audit to acknowledge these facts is a fundamental flaw in the foundation of the investigation and the public's perception of this issue. i wrote to the ig and asked him to explain these omissions. and all committee democrats have asked you, mr. chairman, today that you ask mr. george to return to the committee to provide the appropriate context for his report and answer questions under oath regarding all of these matters. our committee in its oversight role has an obligation to fully understand the manner in which the ig conducted his audit and at what direction. deeply troubling is that when asked about the new information that has come to light, the treasury ig office initially said in media reports, and i quote: that our audit report answered questions it was asked to address, end of quote. and that the house oversight committee chairman, darrell issa, had specifically requested that investigators, in many quotes, narrowly focused on tea party organizations. we asked about this in a letter, and he responded, it responded in quotes, that many of the press reports are not accurate. if these or some of the reports were accurate,, the it, the a's initial investigation of the scope of the audit is inconsistent with the description of the ig's audit work in the 2013 audit plan, and the stated objective on the first page of the may 14, 203 audit report. the stated objective was, and i quote: to determine when allegations were founded that the irs, one, targeted specific groups applying for tax-exempt status; two, delayed processing of targeting groups' applications; and, three, requested unnecessary information from targeted groups. the ig's failure to be forthcoming in the audit and at congressional hearings even when asked directly if there was a screening list for progressives and whether progressive groups were included among the 298 applications reviewed by tigta has contributed to the distortion of the entire investigation including use of innuendo and totally unsubstantiated assertions of white house involvement. democrats have condemned the singling out of tea party by name. i hope our colleagues on the republican side of the aisle will now join us in condemning the use of the term "progressives" on the screening list and the failure of the ig to be forthcoming with this and other congressional committees. we have also been supportive of letting the facts lead where they may. none of us, including the acting irs commissioner, can describe how an application was processed once it was screened. i caution my colleagues from jumping to conclusions until we know all the facts. searching for the facts is the only way we are going to get back on the course that i hope is our mutual goal: the fixing of the problems, all of the problems at the irs, and restoring the trust of the american people. thank you, mr. chairman. >> thank you, mr. levin. now i'd like to introduce our witness, mr. daniel werfel, principal deputy commissioner of the internal revenue service. thank you for being with us today. the committee has received your report, and it will be made part of the formal hearing record. you will have five minutes for your oral remarks. you're now recognized. >> chairman camp, ranking member levin and members of the committee, thank you for the opportunity to appear before you today to discuss the progress we have made thus far in charting a path forward for the irs and what we hope to accomplish in the future. the report we released on monday describes a number of important findings, aggressive actions and next steps for the irs. the problems with the 501c4 application process that were uncovered by the treasury inspector general for tax administration have created significant concerns for taxpayers, and it is incumbent upon us to take swift action to insure accountability, fix the problems that occurred and thoroughly examine other aspects of irs operations. over the past month, an ongoing review of the events described in the tigta report have shed light on the management issues that occurred within the irs and the causes of those failures. there was insufficient action by irs leaders to identify, prevent, address and disclose the problems that emerged with the review of applications for tax-exempt status. our report outlines management deficiencies and the steps that must be taken to correct them. importantly, the report does not provide a complete and final set of answers. instead, it offers an official set of conclusions and action steps along with an explanation of the additional reviews and investigations underway. while fact gathering is still ongoing, we have not found evidence of intentional wrongdoing by anyone at the irs or involvement in these matters by anyone outside of the irs. furthermore, there is no current evidence of the use of inappropriate screeners or other types of criteria in other irs operations beyond those discuss canned in the ig report. -- discussed in the ig report. we recognize, however, there is public concern regarding the criteria used for tax-exempt status and more needs to be done to evaluate our screening criteria and procedures. we will, therefore, establish a review process by which screening criteria and procedures across the irs will be periodically assessed to safe a guard against any risks of inappropriate criteria. in addition to this important review, i also want to briefly mention some of the actions that we have taken and will take to address the problems we have found. first, we have installed new leadership at all five levels of the irs senior executive managerial chain that had responsibility over the activities identified in the ig report. in addition, we have impaneled an accountability review board to provide recommendations within 60 days and later, if needed, on additional personnel actions that should be taken. next, immediately upon learning that be on the lookout or bolo lists with inappropriate criteria were still in list, we suspended the use of any such lists in the application process for tax-exempt status. next, we've established a new, voluntary process for certain taxpayers who have been in our backlog for more than 120 days to gain expedited approval to operate as a 501c4 tax-exempt entity. this is a self-certification process which allows them a stream hughed path to -- streamlined path if they agree they will operate within thresholds of political and social welfare activities. next, we will establish an enterprise risk management program across the irs to provide a common framework for capturing, reporting and addressing risk. this is intended to insure that such information is brought to the anticipation of the irs commissioner -- attention of the irs commissioner and other leaders and external take holders in a timelier manner. next, we will initiate additional external and internal education and outreach about the role of the national taxpayer advocate in assisting taxpayers in resolving problems with the irs. i also want to point out that our pursuit of broad-based reforms in the irs does not mean that we believe the specific challenges and concerns identified in the ig report on 501c4s are necessarily present in other parts of the organization. in fact, i believe that any comprehensive review of irs operations must recognize that many, the many critical successes that the irs has had in carrying out its mission over the last several years. the irs is committing, is committed to correcting its mistakes, holding individuals accountable as appropriate and establishing control elements that will help us mitigate the risks we face. the employees of the irs are committed to our mission and to operating with integrity and fairness to all. the irs serves a vital purpose for this country, and we need to earn and maintain the trust of the american people in order to accomplish our mission. we are firmly moving in that direction, and we will continue to report on our progress on a regular basis as we fulfill our commitments. mr. chairman, ranking member levin, that concludes my statement. i would be happy to answer your questions. >> well, thank you very much, mr. werfel. for the purposes of preparing your report, did you speak to former commissioner doug shulman? >> i did not. >> with did you speak to former acting commissioner steve miller? >> can i did not. >> and did you talk with joseph grant, the former deputy commissioner for tege? >> no, i did not. >> did you talk with chief counsel william wilkens? >> yes. >> what were the basic summaries of those conversations? >> i, as a first matter, there were three things i set out to do which are in the report. first, understand where the wrongdoing was so i can hold people accountable. second, understand where the management failures and process mistakes are in the exempt organizations unit so we can fix them. and, third, a broader understanding of irs risks and operations. and i spoke to many people within the irs. in fact, my whole senior leadership team engaged in an ongoing series of discussions, and bill well kins is one of -- wilkins is one of the senior leaders. >> did you talk to the deputy commissioner? >> i have spoken to sarah, yes. >> for the purposes of preparing the report, did you speak to her? >> i'm not sure how to answer that question. i spoke to her as part of my overall understanding of the situation on the ground can with the irs so, yes, i guess they all connect. >> and did you speak with lois lerner, the former director -- >> i did not. >> well, i would say your initial conclusion given the number of key players that you did not talk to i think is not necessarily an initial conclusion, but an incomplete one. i really don't see how you're able to reach that. we know in 2011 lois lerner directed the since natty -- cincinnati office. do you think this was an intentional attempt to cover up the targeting? >> i don't know, i don't know the answer to that question. i think more work needs to be done to evaluate the circumstances. >> again, i find it difficult then to make the conclusion that no evidence of intentional wrongdoing by irs personnel was r was done. >> well, what i'm suggesting is there's no evidence in the record to suggest there was an intentional cover-up -- >> but you didn't even speak to her. >> each point that i've made the point -- >> mr. werfel, i control the time, and my question is after she directed this change, cincinnati intentionally went back to targeting tea party groups. do you know who is responsible for this? >> do i know who was -- well, i challenge the premise of your question. >> after the change was made to advocacy groups, the cincinnati office went back to targeting tea party groups. do you know who was responsible for that activity beginning again? >> we are looking into the facts and circumstances that arose. there's a lot of questions to be asked and answered that haven't been asked and answered yet, and i'm not going to reach a definitive conclusion before the investigation is complete. >> if you don't know, it's fine to say you don't know. >> yeah. >> i think the answer is you don't know. do you know who in washington, d.c. directed the lawyers at the exempt organization's technical office to hold up the tea party applications? >> i do not know the answer to that question. >> is the irs interviewing employees who were directly involved with the tea party discrimination at this point? >> right now the irs is relying on the jus