By Matt Spetalnick and Kim Dixon
WASHINGTON (Reuters) - Washington's top tax official was fired on Wednesday as President Barack Obama sought to stem a rising tide of criticism over the Internal Revenue Service's improper targeting of conservative groups for special scrutiny.
With three congressional probes of the IRS looming and Republicans' calls for firings at the agency growing louder, Obama said he told Treasury Secretary Jack Lew to demand the resignation of Steven Miller, the acting IRS commissioner. Lew had done so, the president said.
"I'll do everything in my power to make sure nothing like this happens again by holding the responsible parties accountable, (and) by putting in place new checks and new safeguards," Obama told reporters in the White House's East Room.
Obama's remarks came on a day in which he tried to regain the initiative amid a series of controversies that have threatened his second-term agenda. The Democratic president said new leadership was needed at the IRS to restore public confidence in the tax agency, whose reputation for political independence has taken a hit because of scandal.
"Americans are right to be angry about it, and I am angry about it," Obama said. "I will not tolerate this kind of behavior in any agency, but especially in the IRS, given the power that it has and the reach that it has into all of our lives."
The IRS revelations have added to a sense of a White House under siege, and a president struggling to recover his political footing in the face of fast-moving events.
Republicans continue to attack the administration's handling of militants' deadly attack last year on the U.S. mission in Benghazi, Libya. 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.
Obama spoke after meeting with senior Treasury officials on ways to quell the growing uproar after a government report found that poor management led to an "inappropriate" focus on claims by conservative groups for tax-exempt status.
Obama, who had been accused by Republican critics of reacting too passively to the scandal, promised to work "hand in hand" with Congress to fix the IRS. But he acknowledged the realities of a politically divided Washington, and urged lawmakers to deal with the matter in a way that does not "smack of politics or partisan agendas."
Republicans signaled, however, they were not satisfied with Miller's resignation and that they were determined to find out whether the White House encouraged, or knew about, the effort within the tax agency to single out conservative groups for more scrutiny.
Several, including Representative Jim Jordan of Ohio, also complained they were misled by Miller and another top IRS official, Lois Lerner, over whether the agency had targeted conservative groups.
Many Republican lawmakers are sympathetic with groups associated with the conservative Tea Party movement, which have complained since 2010 about overly aggressive IRS agents.
"More than two years after the problem began, and a year after the IRS told us there was no problem, the president is beginning to take action," Senate Republican Minority leader Mitch McConnell said.
"If the president is as concerned about this issue as he claims, he'll work openly and transparently with Congress to get to the bottom of the scandal — no stonewalling, no half-answers, no withholding of witnesses," McConnell said in an apparent reference to congressional Republicans' frustration with what they view as the administration's lack of cooperation in the Benghazi probe.
WERE LAWMAKERS MISLED?
Obama's announcement of Miller's firing came at the end of a day in which Republicans stepped up their calls for action against the agency chief.
McConnell and other Republicans, pointing to the IRS' acknowledgement that Miller knew about the targeting of conservative groups in 2012, have said that neither Miller nor his predecessor, Douglas Shulman, ever told lawmakers about the problem.
Miller had been on Capitol Hill on Tuesday to meet privately with lawmakers about the IRS scandal.
Max Baucus, a Democrat who heads the Senate Finance committee and will lead one of the investigations, said he did not believe Miller was forthcoming enough when they met on Tuesday.
"At one point, Acting Commissioner Miller knew about it and yet these practices were still going on," Republican Representative Charles Boustany of Louisiana, a member of the Ways and Means Committee, told Reuters.
In a message to colleagues after Obama's announcement, Miller said that there was a "strong and immediate need" to restore public trust in the nation's tax agency.
"This has been an incredibly difficult time for the IRS given the events of the past few days," Miller wrote.
Miller, a veteran IRS bureaucrat who took over as the agency's temporary chief six months ago, was still scheduled to testify on Friday before the House Ways and Means Committee, the first of three congressional panels to hold hearings on the IRS scandal. The Justice Department has launched a criminal probe.
Underscoring Republicans' determination to press forward with the IRS investigation, Republican Representative Darrell Issa of California, chairman of the House Oversight and Government Affairs Committee, asked Miller earlier on Wednesday to make sure that five mid-level IRS employees would be available for questioning.
Before the announcement of Miller's firing, CNN quoted a congressional source as saying Miller had said the IRS had pinpointed two "rogue" employees in the agency's Cincinnati office as being principally responsible for "overly aggressive" reviews of requests for tax-exempt status by Tea Party groups.
Democrats also have expressed outrage over the IRS' actions, but mostly have avoided chastising the Obama administration.
Sander Levin, the leading Democrat on the House Ways and Means Committee, called Obama's announcement a "vital first step in achieving accountability" for the IRS and urged officials to impose a series of recommendations made in the report by the Treasury Department's inspector general.
Earlier, House of Representatives Speaker John Boehner summed up many Republicans' attitude toward the IRS scandal, saying: "My question isn't about who is going to have to resign. My question is who is going to jail over this scandal."
The audit issued on Tuesday by the Treasury Inspector General for Tax Administration 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.
But the audit did not find evidence the IRS actions were motivated by partisan interests - a conclusion some Republicans do not accept. The notion of a federal agency targeting conservatives based on ideology feeds into a Republican narrative of growing government intrusion under Obama.
For the IRS and the administration, the stakes are particularly high in the scandal because the tax agency has an increasingly significant role in checking the tax status of non-profit groups that dabble in politics, and in enforcing parts of Obama's overhaul of 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."
MORE RESIGNATIONS TO COME?
Republicans have also called for the removal of 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 Republican lawmakers probing the IRS said that as their bosses seek to determine whether the White House acted improperly, another focus of congressional investigators will be an Obama political appointee: IRS chief counsel William Wilkins.
He is the top legal adviser to the IRS, which has a quasi-independent status within the U.S. government. Wilkins takes the lead on all litigation involving the IRS, from Swiss banking probes to cases against tax protesters.
Wilkins' office was made aware of the targeting of conservative groups 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.
Another question is whether Wilkins, whose office employs about 1,600 lawyers, might have taken the matter elsewhere within the Obama administration.
The IRS issued a statement saying 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 it was too early to call for any particular official's ouster.
Attorney General Eric Holder, who announced on Tuesday he was opening an FBI probe into the scandal, said the criminal investigation could include looking into possible violations of the Hatch Act, a law prohibiting political activity by federal employees.
(Additional reporting by Mark Felsenthal, Roberta Rampton, John Whitesides, Thomas Ferraro, Richard Cowan, Kevin Drawbaugh, Patrick Temple West, Dena Aubin and Nanette Byrnes; Editing by David Lindsey and Peter Cooney)