“That was wrong. That was absolutely incorrect, it was insensitive and it was inappropriate. That’s not how we go about selecting cases for further review.”

In an unexpected move that surprised some and angered others, Lois Lerner, Director of Exempt Organizations of the Internal Revenue Service, publicly apologized for the IRS’s mishandling of exemption applications submitted during the last election cycle by organizations with “tea party” or “patriot” in their names during this morning’s ABA Tax Section Meeting in Washington, DC.

In doing so, Lerner confirmed conservative groups’ allegations that they were unfairly singled out for close examination during the application process, even though the IRS has previously denied the allegations.  She acknowledged that IRS agents asked questions that were inappropriate in most cases (e.g., IRS demands that the applicant organizations disclose their donors).  She also acknowledged that questions raised by IRS agents during the application process were sometimes pointless — some organizations were ultimately told to ignore the questions entirely, and some were told they’d be given different questions and more time to respond.

Lerner explained that the groups had been “inappropriately” targeted by low-level staff as part of a routine procedure that centralizes similar exemption applications for more efficient processing.  She made clear that any problem has been corrected.  From now on, centralization will require review at a high level, in this case by Holly Paz, Director of Rulings and Agreements.

In concluding her apology, Lerner stressed that the inappropriate targeting of “tea party” and “patriot” organizations was not politically motivated.  It was a mistake.

It remains to be seen what happens next.  A story of one-sided enforcement — even if only implemented by low-level agency staff — could complicate the message of those seeking more vigorous enforcement of the tax laws against politically oriented groups.  It could also complicate plans by those on the Permanent Subcommittee on Investigations to examine the IRS’s oversight of politically active non-profit organizations.  If those hearings proceed, this matter will no doubt also receive substantial attention.  In addition, some conservative groups are already demanding a full investigation.  And Sen. Hatch (R-Utah) has stated that he is not satisfied by the IRS’s acknowledgement.