By Kim Dixon and Patrick Temple-West
WASHINGTON (Reuters) - The Internal Revenue Service's inspector general said on Thursday he is expanding his probe of IRS treatment of political groups that applied for tax-exempt status to see if liberal groups were treated the same way as conservative ones.
Under attack from Democrats over his earlier inquiries, IRS watchdog Russell George said there is new evidence to study in the nine-week-old controversy about the IRS's handling of tax-exempt applications from "Tea Party" and other groups.
Left out of a May 14 report that George authored on the matter, the new evidence suggests that the IRS used not only conservative-sounding key words to select certain applications for extra scrutiny, but also liberal-sounding words.
"Progressive - we just learned about that recently - that that name was being used by the Internal Revenue Service," said George, the Treasury Inspector General for Tax Administration (TIGTA), at a congressional hearing.
"We just last week ... received new information that was disturbing," he told the U.S. House of Representatives Oversight and Government Reform Committee.
The hearing and George's comments marked the latest twists in a tale that has rocked the IRS since mid-May, prompting FBI and congressional probes, as well as the ouster of the IRS's chief by President Barack Obama.
The affair likely has some weeks left to play out, with George and congressional committees still investigating.
George, a Republican appointed by former President George W. Bush, said his initial audit focused on Tea Party-like applications because the IRS pointed his office in that direction with documents it provided.
The May TIGTA report found inappropriate targeting and poor management by the IRS in its enforcement of laws that allow some non-profit political groups to be tax-exempt, but limit their political involvement, depending on their tax status.
Some Republican lawmakers have said the IRS's review of tax-exemption applications from conservative groups, done largely at a branch office in Cincinnati, was somehow directed from Washington for political reasons.
For instance, Republican Representative Darrell Issa, who chairs the oversight committee, in May characterized the IRS's activities this way. "This was the targeting of the president's political enemies effectively," he said.
On Thursday, Issa said: "We are following the facts," which he said "undeniably now lead to Washington."
Democrats have struck back. On Tuesday, they released a 36-page memo containing excerpts of interviews with 15 IRS employees which they said showed no political motivation of White House involvement in the IRS's actions.
Two IRS employees who spoke to the committee on Thursday also said there was no evidence of political interference.
Democrats have released documents gathered during the probe showing that "Progressive" and "Occupy" were used as key words to search through applications.
"They went after progressives as well as conservatives," said Representative Gerald Connolly, a Virginia Democrat.
Democratic Representative Jackie Speier said, "If you are really impartial, if you really are, third party, unbiased, then you would be searching for all the terms, not just Tea Party."
Asked about harsh criticism leveled against him by Democrats, George said: "They don't know that I (attended) the 1980 Democratic convention; they don't know that I was a founder of the Howard University College Democrats."
Democratic and Republican congressional investigators have conducted more than a dozen private interviews with IRS staff. Two staffers spoke for the first time on Thursday.
Both Carter Hull, a Washington official involved in handling tax-exemption applications, and Elizabeth Hofacre, a Cincinnati office employee were handling Tea Party cases in 2010.
The Tea Party movement, which is fiercely anti-Obama and advocates for smaller government and lower taxes, was still a new force in U.S. politics at that time.
Hull told lawmakers that processing of these applications was delayed because higher-ups wanted more time to review them. He called that an unusual level of oversight in his experience with 48 years of service with the agency.
Hofacre also testified. "I was frustrated by what I perceived as micro-management," she said.
(Editing by Kevin Drawbaugh)