(Bloomberg) Douglas Shulman, the former commissioner of the Internal Revenue Service, said he was “dismayed” and “saddened” to learn that IRS employees had singled out small-government groups for tougher scrutiny.

In his first public statements on the matter, Shulman said in testimony Tuesday before the Senate Banking Committee that he didn’t have the full facts until an inspector general’s report came out May 14, though he did know last year that Tea Party groups received more attention. He also said mid-level officials who learned what was going on in 2011 should have “run it up the chain” and didn’t.

Pressed by Republican Senator John Cornyn of Texas to apologize, Shulman stopped short of that. “This happened on my watch,” he said. “And I very much regret that it happened on my watch.”

“The IRS must administer, and it must be perceived to administer, our tax laws fairly and impartially,” said Shulman, who was appointed by President George W. Bush and left the IRS in November 2012.

He noted that the IRS has been handed a difficult task in determining which groups engage in political activity. “If Congress could help clarify the law, that would be very helpful,” he said.

 

More testimony

The IRS acknowledged on May 10 that the agency had applied tougher scrutiny to groups with “Tea Party” and “patriot” in their names that were applying for tax-exempt status. Those groups got extensive and inappropriate questionnaires.

IRS employees continued using the criteria even after their managers told them to stop. Variations on the practice went on for months and it isn’t clear who reversed the decision from Washington, according to Treasury Inspector General for Tax Administration J. Russell George, who testified separately.

Senator Max Baucus, chairman of the committee, said a formal investigation by his panel will get to the bottom of who at the IRS selectively screened groups based in part on their ideology.

“We know that IRS officials in Washington tried to stop this behavior,” the Montana Democrat said as he opened the Senate’s first hearing on the work by the tax-exempt unit in Cincinnati. “But who in Cincinnati perpetuated this behavior?”

Shulman learned that small-government groups had been singled out last year. He never told Congress.

“Were they simply holding out until after the election?” asked Senator Orrin Hatch of Utah, the top Republican on the Finance Committee.

Also testifying on Tuesday were acting IRS commissioner Steven Miller, who will be leaving the agency after President Obama asked for his resignation. Miller and George had both testified on May 17 before the House Ways and Means Committee.

Hatch pointed to letters that Miller had sent the committee last year in which he didn’t say what he knew about the use of the term “Tea Party.” Republicans had been asking about the issue for months after complaints from Tea Party groups.

“That’s a lie by omission,” Hatch said. “There’s no question about that in my mind.”

Four separate congressional committees are investigating the IRS, and the Justice Department has started a criminal probe that could ensnare senior officials for lying to Congress and lower-level workers for other potential offenses.

 

Another hearing

Meanwhile, at a hearing of the Senate Banking Committee on Tuesday, U.S. Treasury Secretary Jacob J. Lew called IRS screening of Tea Party groups unacceptable, saying the administration of the nation’s tax system should stay free of political preferences.

“As the inspector general’s report indicates, while this conduct was not politically motivated, it was unacceptable and inexcusable,” Lew told the committee. “Administering the Tax Code without any hint of bias is a solemn obligation that must be carried out with the highest of standards.”

Lew has ordered agency officials to deliver within 30 days a plan to correct any “systemic” shortcomings.

 

‘Laughable’ indignation?

The scandal erupted May 10 when Lois Lerner, the IRS’s director of exempt organizations, apologized at a tax conference for singling out certain groups for further examination of their tax-exempt applications. The IRS wrote and planted the question that led to Lerner’s disclosure, Washington lawyer Celia Roady, who asked the question, said in a statement May 17.

Lew, in response to a question from Idaho Republican Mike Crapo, the committee’s ranking Republican, said he “would have advised against” planting the question. “But it was a decision for the IRS to make.”

Senator Bob Corker, a Tennessee Republican, called Lew’s “indignation” over the IRS scandal “kind of laughable.” He said the Obama administration has demonized Tea Party groups and may have created a culture that made IRS bureaucrats feel empowered.

Lew responded that Obama has never done anything “to condone this kind of behavior” and both he and the president were “outraged.”

Lew took office in February after serving as Obama’s chief of staff since January 2012.

The department first became aware of the inspector general’s draft audit findings in March this year, the Treasury said May 17. Inspector General George had a “short introductory meeting” with Lew on March 15 during which he told the secretary of the upcoming audit report.

George didn’t describe the audit’s contents and both Lew and Deputy Treasury Secretary Neal Wolin learned about the findings when they were reported publicly this month, according to the Treasury’s statement.