By Patrick Temple-West and Kim Dixon
WASHINGTON, May 11 (Reuters) - A senior Republican senator condemned the Internal Revenue Service on Saturday for singling out conservative political groups for extra scrutiny, while the IRS described the incident as isolated and not politically motivated.
"When we start letting the IRS impose its will on people and doing it in a partisan, biased way, then we're exposing our country to some real problems," Senator Orrin Hatch told Reuters.
The Utah lawmaker spoke a day after an IRS official apologized for the practice, which has embarrassed the tax-collecting agency and could haunt the Obama administration.
"I suspect there are some whistleblowers ready to come out and expose this and that's why (the IRS) came out and apologized ... . Whoever did this ought to be exposed," Hatch said.
An investigative report on the issue is expected within days from the Treasury Department's inspector general for tax administration.
Representative Darrell Issa, a California Republican, requested the report last year after accusing the IRS of targeting conservative groups.
He has vowed to investigate, and the House committee he chairs has the power to issue subpoenas.
At least one other congressional panel intends to hold hearings, giving Republicans multiple opportunities to hammer the agency and the White House over the affair that had been brewing for months.
In an interview with Reuters before speaking at a legal conference, Hatch said the IRS should "come forth and quit acting like this was just some obscure number of employees in Cincinnati," an IRS paperwork processing center.
"I doubt seriously if it was just in Cincinnati," he said on the sidelines of the American Bar Association conference in Washington.
On Friday at the same conference, Lois Lerner, director of the IRS tax-exempt office, publicly apologized for subjecting conservative political groups to "inappropriate" scrutiny.
In a practice that drew complaints during the 2012 general election campaign, groups with the words "Tea Party" or "patriot" in their names were flagged for closer IRS review when they applied to the agency for tax-exempt status.
"We would like to apologize for that," said Lerner. She said the practice "was absolutely incorrect and it was inappropriate."
She also said the scrutiny was "absolutely not" influenced by the Obama administration.
White House spokesman Jay Carney said after Lerner spoke that the IRS action as they were reported were "inappropriate."
"And we would fully expect the investigation to be thorough and for corrections to be made in a case like this," he said.
Lerner said revenue agents in Cincinnati targeted the conservative groups "without talking to managers" and that politics had played no role in the screening.
The Cincinnati staffers were trying to deal with a crush of applications for tax-exempt status by using key words to get through the paperwork faster, she said.
About 300 applications were initially flagged for closer scrutiny. Of those, 75 were chosen for that treatment based on the presence of the key words in their names. Lerner said none of the applicants was denied tax-exempt status.
Each year the IRS reviews as many as 60,000 tax-exempt applications from groups ranging from charities to labor unions. Some are classified as 501(c)(4) groups after the section of the tax code that makes them tax-exempt. Such organizations can collect money from anonymous donors and spend it on advertising.
PRESERVING TAX-EXEMPT STATUS
To get and keep their tax-exempt status, 501(c)(4) groups cannot endorse a political candidate or a political party.
The number of groups seeking 501(c)(4) status more than doubled from 2010 to 2012, coinciding in part with the surge of Tea Party enthusiasm. In 2010 the U.S. Supreme Court issued its "Citizens United" decision lifting government limits on corporate spending in federal elections.
Consumer groups have been pushing the IRS to clarify the standards for "social welfare organizations," as they are known in Section 501(c)(4) of the tax code, to ensure that they are not abusing their tax-exempt status.
Last year then-IRS Commissioner Doug Shulman said there was no targeting of conservatives by the IRS.
Shulman stepped down at the end of the year when his term ended, and Steven Miller was named acting head of the agency that each year collects federal tax revenue and enforces the tax laws. (Editing by Kevin Drawbaugh and Xavier Briand)