By Kim Dixon and Patrick Temple-West
WASHINGTON (Reuters) - The Internal Revenue Service official at the center of a scandal about extra tax scrutiny of conservative groups told Congress on Wednesday she had done nothing wrong but invoked her constitutional right not to answer questions.
Lois Lerner, who heads the IRS tax-exempt unit, angered lawmakers by reading a statement before refusing to testify, but she was dismissed from the hearing with a warning that she could be called back for another appearance before the House Oversight and Government Reform Committee.
"I have not done anything wrong. I have not broken any laws. I have not violated any IRS rules or regulations, and I have not provided false information to this or any congressional committee," Lerner told the panel.
"Because I am asserting my right not to testify, I know that some people will assume that I have done something wrong. I have not," she said.
House Oversight Chairman Darrell Issa, a California Republican, said Lerner appeared to have waived her right against self-incrimination by making the statement. Republican Trey Gowdy of South Carolina demanded that she stay to answer questions, drawing applause from the crowd in the hearing room.
After conferring with aides, Issa - who has accused Lerner of providing "false or misleading" information to Congress last year about the IRS's treatment of conservative groups seeking tax-exempt status - dismissed her from the hearing but said he might call her to testify in the future. Photographers swarmed Lerner as she left.
Lerner is at the center of a political scandal over the tax-collection agency's use of search terms such as "Tea Party" and "patriots," to select groups for additional scrutiny of their qualifications for tax-exempt status.
The tax agency's "inappropriate" targeting of conservative groups, as described in a Treasury inspector general report released last week, has set off a political firestorm and led Republicans to question whether Democratic President Barack Obama's administration was involved.
The scandal - along with others involving questions about the Justice Department's tracking of reporters in investigations into national security leaks and an ongoing probe about the administration's response to the deadly attack on the U.S. mission in Benghazi, Libya, in September - threatens to undercut Obama's second-term agenda.
The president is trying to negotiate a budget deal with Republicans and push a comprehensive immigration reform bill through Congress.
Congressional investigators have said Lerner was the Washington official who learned in June 2011 that workers in a Cincinnati, Ohio, office were using inappropriate criteria and ordered them changed.
Issa and other lawmakers have complained that Lerner and other IRS officials knew of targeting by the IRS but did not inform Congress.
'FALSE OR MISLEADING'
Lerner made the IRS targeting public on May 10, sparking investigations by three congressional committees and a criminal probe by the Department of Justice.
Her refusal to testify on Wednesday stymied attempts by Issa's panel to learn who was responsible for initiating the targeting and supervising the targeting.
At the hearing, frustrated lawmakers repeatedly criticized former IRS Commissioner Douglas Shulman and J. Russell George, who published a watchdog report on the practice last week, for not alerting Congress to the practice earlier.
Democratic Representative Stephen Lynch of Massachusetts warned their failure to be more forthcoming could require the appointment of a special prosecutor to look into the scandal.
Issa said an IRS internal review uncovered the policy of scrutinizing conservative groups in May 2012 and that top officials, including outgoing acting IRS Commissioner Steven Miller, were made aware of the findings but did not alert Congress for nearly a year.
He also questioned why George's investigators looking into the targeting allowed IRS officials to be present during investigative interviews with subordinates and criticized the inspector general for waiting 10 months to give the committee information on the targeting.
George said it would have been "impractical for us to give you partial information that may not be accurate."
Shulman repeated the testimony he gave a Senate hearing on Tuesday that he did not know the full details of the targeting for two years after it started in 2010. Issa told Shulman, "If you didn't know, you were derelict in your duty."
Representative Elijah Cummings of Maryland, the ranking Democrat on the panel, criticized Shulman for not alerting Congress to the practice after testifying in March 2012 without mentioning it. He said it would have been "common sense" to "come back, even if it were a phone call or a letter."
Issa said the employees in the IRS tax-exempt unit "could have and should have been a whistleblower" on the targeting.
Shulman said he never discussed the targeting with anyone at the White House. Republican Representative Jim Jordan of Ohio noted that Shulman visited the White House 118 times during 2010 and 2011 and said it was surprising the issue would not have come up.
Shulman said he mostly talked about budget and tax issues, with the healthcare overhaul another frequent topic.
(Writing by John Whitesides; Editing by Karey Van Hall, Doina Chiacu and Cynthia Osterman)