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U.S. lawmakers press for changes at scandal-plagued tax agency

By Kim Dixon and Matt Spetalnick

WASHINGTON (Reuters) - As Republican lawmakers stepped up their calls for top Internal Revenue Service officials to resign, President Barack Obama planned to meet with Treasury officials on Wednesday to discuss how to respond to the growing uproar over the IRS's targeting of conservative groups for extra scrutiny.

Several lawmakers set their sights on acting IRS Commissioner Steven Miller a day after a Treasury Department inspector general's report that described how poor management led to an "inappropriate" focus on claims by conservative groups for tax-exempt status.

Miller, who met with Senate Finance Committee Chairman Max Baucus on Tuesday, has not commented publicly on the scandal.

But on Wednesday, CNN quoted a congressional source as saying Miller had said that the IRS had pinpointed two "rogue" employees in the agency's Cincinnati, Ohio, office as being principally responsible for "overly aggressive" reviews of requests for tax-exempt status by groups associated with the conservative Tea Party movement.

The IRS revelations have added to a sense of a White House under siege.

Republicans continue to bash the administration's handling of the attack last year on the U.S. mission in Benghazi, Libya, and on Monday, the Justice Department came under fire for seizing phone records of journalists from the Associated Press as part of a criminal probe into intelligence leaks.

On Capitol Hill, House of Representatives Speaker John Boehner offered the most direct criticism of the IRS: "My question isn't about who is going to have to resign. My question is who is going to jail over this scandal."

All 45 Republican members of the U.S. Senate sent Obama a letter demanding that his Democratic administration fully comply with congressional requests for information in the scandal.

"The American people deserve to know what actions will be taken to ensure those who made these policy decisions at the IRS are being held fully accountable and more importantly what is being done to ensure that this kind of raw partisanship is fully eliminated from these critically important non-partisan government functions," the senators wrote.

The Justice Department has launched a criminal probe of the IRS, and on Wednesday a third congressional committee announced that it would begin its own investigation.

Obama on Tuesday called the findings of the Treasury Department report "intolerable and inexcusable" and directed his administration to hold those responsible for the agency's actions accountable.

On Wednesday, White House spokesman Jay Carney said that the president would meet with Treasury Department officials later in the day to discuss next steps in the IRS investigation.

HIGH STAKES

The audit issued on Tuesday by the Treasury Inspector General for Tax Administration (TIGTA) described a series of problems within the IRS that led the agency to use "inappropriate criteria" for evaluating tax-exempt groups, in part by singling out scores of conservative Tea Party and "Patriot" organizations for increased scrutiny.

For the IRS and the government, the stakes are particularly high because the tax agency is playing an increasingly significant role not only in vetting the tax status of non-profit groups that dabble in politics but also in enforcing parts of Obama's ongoing overhaul of the healthcare system.

Several Republicans opposed to the healthcare overhaul have seized upon the IRS scandal as a way to go after the tax agency and its role in the unfolding changes to the healthcare system.

Nevada Republican Senator Dean Heller is among those who plan to push legislation that would suspend $440 million of IRS funding intended to help enforce "Obamacare."

DEMANDS FOR RESIGNATIONS

In Washington the calls are increasing, especially among Republicans on Capitol Hill, for Miller and other top officials at the IRS to be ousted.

The IRS said on Monday that Miller, then the IRS deputy commissioner, was first informed in early 2012 that some groups seeking tax-exempt status had been "improperly identified by name" and subjected to extra scrutiny.

Several key lawmakers have said that neither Miller nor his predecessor, Douglas Shulman, ever made them aware of the targeting.

Baucus, the Senate Finance chairman and a Democrat from Montana, said on Wednesday that he did not believe Miller was forthcoming enough when they met on Tuesday.

"I told him, it's clearly in his best interest to be totally cooperative ... and just be totally straight with me and with everybody around," said Baucus, who has promised his committee will conduct its own investigation of the scandal. "And he said he would."

Lawmakers on Friday will grill Miller, who according to the inspector general's report knew of the targeting as early as March 8, 2012, days before then-Commissioner Shulman told lawmakers no extra scrutiny was applied to conservative groups.

"At one point, acting commissioner Miller knew about it and yet these practices were still going on," Republican Representative Charles Boustany of Louisiana told Reuters. He is a member of the House Ways and Means Committee, which on Friday will hold the first congressional hearing on the IRS scandal.

Senate Minority Leader Mitch McConnell of Kentucky and Senator Orrin Hatch of Utah, both Republicans, have said that Miller should resign.

There also have been calls for the removal of Lois Lerner, head of the IRS tax-exempt organizations office. Lerner apologized on behalf of the agency when she revealed the targeting of conservative groups last week.

Aides to key Republican lawmakers probing the issue said that as their bosses seek to determine whether the White House might have encouraged any targeting of conservative groups or known about it, another focus of their probe will be an Obama political appointee: IRS chief counsel William Wilkins.

He is the top legal adviser to the IRS and takes the lead on all litigation involving the agency, from Swiss banking probes to cases against tax protesters

Wilkins' office was made aware of the targeting as early as August 2011, according to the inspector general report.

The report does not make clear whether Wilkins - who reports to the Treasury Department's general counsel - himself knew of the targeting in 2011, or when he first learned of it.

Wilkins' office employs about 1,600 lawyers. The IRS issued a statement saying that Wilkins did not participate in the August 2011 meeting, which the agency said involved "staff attorneys several layers below Wilkins."

The inspector general report puts much of the blame for the targeting on incompetence by lower-level employees and dysfunction among managers, but Republicans are aiming higher.

"I refuse to believe that lower-level officials would be making those kinds of decisions," Boustany said, adding that it is too early to call for any particular official's ouster.

(Additional reporting by Thomas Ferraro, Richard Cowan, Kevin Drawbaugh; writing by Matt Spetalnick; Editing by David Lindsey and Jim Loney)

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