Poor management allowed low-level IRS employees to single out Tea Party and other conservative groups seeking tax-exempt status for extra review, and the agency continues to drag its heels on fixing things, according to an inspector general's report obtained Tuesday by NBC News.

The IRS said in its formal response that it had satisfactorily answered all of the complaints in the audit by the Treasury Department's inspector general for tax administration. But Acting Deputy Inspector General Michael McKenney made it clear in a cover letter accompanying the document that "we do not consider the concerns in this report to be resolved," noting that the IRS objected to two of his office's nine recommendations calling for clearer regulations, stricter processes and better documentation of what the IRS is doing and why.

President Barack Obama said in a statement Tuesday evening that the report's findings were "intolerable and inexcusable." He said he had ordered Treasury Secretary Jack Lew "to make sure that each of the Inspector General's recommendations are implemented quickly."

The audit blamed confusion by IRS administrators for the inappropriate reviews, which Attorney General Eric Holder said Tuesday would be focus of a federal criminal investigation.

The report found that mismanagement led the IRS to ask some groups for unnecessary information — in some cases, it asked groups to list the names and address of future donors — and delayed processing of some groups' requests, some for more than three years.

The average delay was 13 months, it said.

Two IRS offices — the Washington headquarters of its Exempt Organizations unit, which is responsible for processing applications for tax-exempt status, and an office in Cincinnati called the Determinations Unit — come in for the brunt of the blame in the 48-page report, parts of which are redacted.

The audit found that in June 2011, the Cincinnati office distributed an expanded "Be On the Look Out" list of criteria for identifying potential political cases. The so-called BOLO list identified four reasons for officers to give an application special attention:

• "Tea Party," "Patriots" or "9/12 Project" is referenced in the case file
• Issues include government spending, government debt or taxes
• Education of the public by advocacy/lobbying to "make America a better place to live"
• Statements in the case file criticize how the country is being run

"The criteria developed by the Determinations Unit gives the appearance that the IRS is not impartial in conducting its mission," the audit concluded. "The criteria focused narrowly on the names and policy positions of organizations instead of tax-exempt laws and Treasury Regulations."

In its response, the IRS acknowledged "the mistakes outlined in the report," saying they were caused by "the lack of a set process for working the increase in advocacy cases and insufficient sensitivity to the implications of some of the decisions made."

Related: As applications swell, IRS nonprofit division overloaded, understaffed

The agency blamed low-level "front line career employees" acting out of what it said was "a desire for efficiency and not out of any political or partisan viewpoint."

It also claimed that some of the political groups were at fault because their applications were "vague as to the activities the applicants planned to conduct."

Groups seeking 501(c)(4) tax-exempt status can advocate for particular general political positions, but their primary purpose must be "social welfare," and they are barred from intervening in political campaigns.

"A number of applications indicated that the organization did not plan to conduct political campaign activity," the IRS said. But elsewhere in their applications, they "described activities that in fact appeared to be such activities," it said.

Many of the groups "did not understand what activities would constitute political campaign intervention," it said, even as it noted in the same document that "there are no bright-line tests" for what constitutes such activity.

"As the report discusses, these issues have been resolved," the IRS declared.

But the audit disagreed, saying: "Although the IRS has taken some action, it will need to do more so that the public has reasonable assurance that applications are processed without unreasonable delay in a fair and impartial manner in the future."

In a statement late Tuesday, the IRS contended that it didn't act out of any political bias, saying the cases singled out for review in the Cincinnati office since 2010 "included organizations of all political views."

The audit didn't specifically address allegations that Acting IRS Commissioner Steven Miller misled Congress because he knew about the inappropriate procedures but kept quiet for months before they were made public.

In a speech on the Senate floor, John Cornyn of Texas, the Republican whip, thundered that Miller "should resign today" if it is established that he "willfully misled Congress when inquiries were made earlier about this sort of scandalous political activity."

Sen. Orrin Hatch, R-Utah, said that regardless of whether it acted out of political bias, the IRS had made a mess of things.

"This was either one of the greatest cases of incompetence that I've ever seen or it was the IRS willfully not telling Congress the truth," he said.

In its statement, the IRS said it never intended to hide the issue. Instead, it said, it waited to say anything until it could see the audit "and we reviewed their findings."

In what was described as a "tough meeting" Tuesday, Senate Finance Committee Chairman Max Baucus, D-Mont., told Miller that "he is in for some serious questioning" from the committee, sources in the meeting told NBC News' Kelly O'Donnell.

The Finance Committee is expected to convene a hearing into the controversy, although one hasn't yet been scheduled. Baucus told Miller on Tuesday that the committee would accept nothing less than his "complete cooperation and transparency," one of the sources said.

Lisa Myers, Kelly O'Donnell and Richard Gardella of NBC News contributed to this report. Follow M. Alex Johnson on Twitter and Facebook.

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This story was originally published on Tue May 14, 2013 9:04 PM EDT

A proposed new tax in Cook County, Ill., home of violence-plagued Chicago, takes aim at guns, and gun rights activists aren't happy about it.

County President Toni Preckwinkle wants to introduce a "violence tax" on guns and ammunition to help plug a $115 million budget gap in 2013. Under the tax, guns and ammunition would cost more, according to the Chicago Sun-Times, but Preckwinkle isn't saying how much more just yet.

The aim of the proposal is to curb the number of guns in circulation, Preckwinkle's chief of staff, Kurt Summers, told the newspaper. Summers cited a report from last summer showing that nearly one-third of the guns recovered on the Chicago's streets were purchased in suburban gun shops. 

The idea follows a violent Chicago summer, when some weekends saw multiple people killed and dozens injured in shootings. The city's murder rate is up 25 percent and the Cook County Jail is near capacity, with 9,000-plus inmates.

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"If it's going to deal with crime, I'm all for it," said Vincent Fracassi, who says he is not a gun owner.

But some residents questioned how much this would raise for the county and whether the tax would really cut down on crime.

"If we can tax cigarettes, it seems we can tax bullets and guns," said Chicago resident Cathryn Taylor. "But at the same time, I get the point that if people are buying the stuff illegally, then the tax doesn't matter because they aren't going through legal channels anyway."

Brandi Swafford said she doesn't think it will be effective. "You can get this from anywhere. You can go outside the city. There's always a way to get something illegally."

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No such tax exists in Illinois, experts say, but two bills that would create an explicit tax on ammunition are in consideration in the Illinois Legislature.

Elsewhere in the country, Tennessee has an ammunition tax, the Chicago Sun-Times reported. And right now, guns and ammunition sold across the country are subject to a federal excise tax that funds conservation projects. In Illinois, the local sales tax rate is applied to such purchases. 

Preckwinkle's budget proposal is set to be unveiled Oct. 18, and an ammunition tax isn't the only potential money maker on the table. The board president reportedly wants to lease the top two floors of the County Building in Chicago's Loop for what she estimates could net at least $1 million a year for 10 years.

NBC News staff contributed to this report. 

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WASHINGTON - President Barack Obama will call on Monday for a one-year extension of Bush-era tax cuts for families earning less than $250,000 a year, according to a White House official, seeking to spare the economy the impact of taxes going up on January 1.

Obama, a Democrat, will make the request in a statement at the White House, said the official, who spoke on condition of anonymity. Republicans in Congress, however, are unlikely to be swayed, as they have consistently argued that the Bush tax cuts should be extended for everyone.

 Obama has made what he calls "tax fairness" a key feature of his campaign for re-election on November 6, repeatedly urging Congress to make the tax cuts permanent for families making less than $250,000 a year.

The tax cuts enacted by Obama's Republican predecessor, George W. Bush, will expire on January 1 without congressional action, part of a so-called fiscal cliff that potentially could hit the U.S. economy alongside deep automatic spending cuts.

Analysts warn the impact of rising taxes and lower federal spending could tip the economy back into recession.

The New York Times said Obama would announce the tax cut extension in the Rose Garden on Monday, citing un-named senior administration officials.

It reported that the proposal would mean another fight between the White House and Republicans, and could also “put him at odds with Democratic leaders like Representative Nancy Pelosi of California and Senator Charles E. Schumer of New York, who have advocated extending the cuts for everyone who earns up to $1 million”.

Its report said the announcement comes “as both parties and their presidential candidates head into the rest of the summer trying to seize the upper hand in a campaign that has been closely matched and stubbornly static”.

Representative Tom Price, a member of the House Republican leadership, said earlier on the "Fox News Sunday" program that the House would pass legislation before the end of July to preserve the Bush tax cuts for another year.

Republicans control the House of Representatives and Obama's fellow Democrats control the Senate.

Representative Xavier Becerra, a member of the House Democratic leadership, said Democrats would not support any measure that did not address the nation's fiscal challenges on a long-term basis.

"Those are bills to nowhere," Becerra said on "Fox News Sunday," referring to the House Republicans' legislation to extend the Bush tax cuts. 

Marion County Sheriff via AP

Krystle Marie Reyes, 25, is accused of tax evasion, theft, computer crime and methamphetamine possession.

PORTLAND, Ore. -- An Oregon woman was charged Wednesday with duping the state into giving her a $2.1 million tax refund that allowed her to go on a short-lived spending spree — an alleged scam that has prompted embarrassed state revenue officials to review how they process tax returns.

Krystle Reyes, 25, of Salem, filed an electronic return in January via Turbo Tax, reporting erroneous earnings of $3 million, authorities said. Her request for a $2.1 million refund was initially red-flagged by an automated system, but a subsequent manual review by Oregon revenue department workers OK'd the refund. Turbo Tax then loaded the full amount onto a debit card for Reyes.

Authorities say she spent $150,000 of the funds before reporting the card lost or stolen, at which point the ruse was discovered. The state has recovered roughly $1.9 million of the funds.

Reyes was arrested June 6, and now faces eight felony charges. In addition to tax evasion and theft charges, she is accused of computer crime and methamphetamine possession. She is scheduled to be arraigned on July 5.

Attempts by The Associated Press to reach Reyes, who is no longer in custody, have been unsuccessful and it was not clear if she has an attorney. Officials also have not released the allegedly falsified tax return because of confidentiality laws pertaining to tax matters.

Andrew Campbell, a senior assistant attorney general who filed the charges, has not responded to AP's requests for interviews.

A list of what Reyes purchased during the spending spree has not been provided, but police said video surveillance showed her swiping the debit card at various stores in the Salem area. Despite being a millionaire for a few months, Reyes paid $2,000 cash to buy a 1999 Dodge Caravan, the vehicle she had been seen driving in the month before her arrest.

'Human error'
The Revenue Department, which processes $7 billion in tax returns, is understaffed because of budget cuts and has an old computer system. But agency spokesman Derrick Gasperini said neither of those issues was to blame for what he described as a "human error."

The agency plans to release more details about its apparent blunder in the coming days, and how it plans to prevent a recurrence. There has been no evidence linking Reyes to anyone inside the agency, but officials want to make sure its internal controls limit the possibility of collusion.

"Catching this one, we all are concerned — here at the agency as well as the public — about 'is this part of a larger scheme, and who's involved in that larger scheme and does it involve anyone inside our walls?" Gasperini said.

State Sen. Ginny Burdick, D-Portland, the chairwoman of the Senate Revenue and Finance Committee, has said she plans to hold a hearing on the matter this summer.

"I'm not on a witch hunt, but I'm just very, very concerned that something this flagrant could have gotten through the process," she said. "We need to understand why it happened and what is going to be done differently."

State Rep. Vicki Berger, R-Salem, co-chair of the House Revenue Committee, told the Oregonian when Reyes was arrested that the revenue department "had some explaining to do."

"Is this is an anomaly? If so, let's make sure it never happens again," she said. "Or do we have a systematic problem in the way the Department of Revenue treats this and other transactions?"

Following the arrest, the agency reexamined the returns of 108 people who received a refund of at least $50,000 during the current processing season, and no new instances of fraud were uncovered.

According to the Oregonian, the state reported $559 million in delinquent taxes in 2010, primarily from unpaid personal and corporate income taxes.

The Associated Press contributed to this report.

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Tannen Maury / EPA

Members of National Nurses United rally in Daley Plaza on Friday, ahead of the NATO Summit in Chicago.

A coalition of nurses’ unions is calling for a “Robin Hood” tax on Wall Street, which they say could generate up to $350 billion a year, in the first major protest ahead of this weekend’s NATO summit in Chicago.

Their pitch: impose a tax of 50 cents on every $100 of trades of stocks, bonds, dividends and other financial transactions, which are not currently taxed. The U.S. would join more than a dozen other nations that already have a financial transaction tax, according to National Nurses United (NNU).

"I've been asked many, many times ... 'What are you doing here as nurses? ... What do you have to do with the economy?'" Karen Higgins, a registered nurse and co-president of NNU, said to the crowd in Chicago's Daley Plaza.  

"We're watching this every day. We're watching patients suffer," she said, noting that nurses were seeing people without insurance or others who can't afford their co-pays, as well as a spike in the number of children with adult diseases due to eating poorly because their parents can't afford healthy food. "This is serious and in some cases it is actually deadly."

Storify: Scenes from the NATO summit protests

"We know the solution .. we are watching and seeing Wall Street throwing our money away as we see people suffer and die. It will not continue," she said. "We pay sales tax. It is time for Wall Street to start paying back what they owe the rest of the country and they need to pay sales tax."

The nurses’ call echoes last fall’s outcry by the Occupy Wall Street protesters over income equality, corruption and corporate greed. Proceeds from the Wall Street tax would support social services, education and healthcare.

The financial transaction tax is not a new concept. The U.S. had one from 1914 to 1966, and several politicians called for another one after the Wall Street crash in 1987, National Nurses United said.

Supporters include Nobel Laureate economists Paul Krugman, a New York Times columnist, and Joseph Stiglitz, the former World Bank chief economist -- both of whom have spoken out in favor of such a tax in the past.

A bill introduced last November by two U.S. Democratic lawmakers, Sen. Tom Harkin and Rep. Peter DeFazio, calls for a tax of 0.03 percent -- or 3 cents on every $100 -- on most non-consumer financial trading including stocks, bonds and other debts. It would raise more than $43 billion a year, according to DeFazio's office, which cited analysis from Congress' Joint Committee on Taxation.

Others, however, are against what has been called a “sin” tax on Wall Street.

“Our research shows unambiguously that higher trading costs depress the prices of stocks and bonds,” business school professors Yakov Amihud and Haim Mendelson  wrote in a Wall Street Journal op-ed. “A transactions tax will end up punishing Main Street, hurting the economy and reducing U.S. Treasury revenues in the next few years. It will thus exacerbate the effects of the financial crisis.”

The tax proposal protesters were initially targeting the G8 summit of global financial leaders that starts today. But when that meeting was moved from Chicago to Camp David in Maryland, they opted to carry on their demonstrations here anyway to take advantage of the large number of protesters converging on the city for the NATO summit.

Mary O'Sullivan, 72, came to the protest with her husband Chris Fogarty, 77. The retired married couple each held a sign, one reading "Honk To Indict Banksters" and the other "Stop Gov't Crimes."

"We're hoping that even at this late date the government will recognize that there is so much pain and suffering amongst the people that they will at least start paying attention," O'Sullivan said, noting she had recently spoken with a woman at a city mental health care facility that's being closed down. "She has no idea where she is going to go or how she is going to get there, and in the meantime, we're spending millions of dollars on drones to kill people."

Earlier this week, protesters demonstrated against the shuttering of local schools and mental health clinics, the loss of homes through foreclosures, and environmental issues surrounding the controversial “Tar Sands” pipeline, and they stormed the building that houses the headquarters of President Obama’s campaign.

Nam Y. Huh / AP

Demonstrators rally against the Keystone Pipeline and the Alberta Tar Sands outside of the Canadian Consulate in downtown Chicago on Thursday.

The city has assigned 3,100 officers plus hundreds from other cities to guard against the kind of violence that broke out in the streets of Seattle at the World Trade Organization meeting in 1999, NBCChicago.com reported, and officials have warned of massive travel disruptions.

They’ve also imposed limits on how close the protesters, which include dozens of unions and anti-war, environmental, education, healthcare and civil liberties’ groups, can get to the convention center where the summit is being held -- within “sight and sound” of it, according to the Chicago Tribune -- raising the ire of the demonstrators.

The National Lawyers Guild, which is sending out legal observers to the demonstrations and aiding those who are detained, said late Thursday that at least 20 people have been arrested so far this week. Occupy Chicago said 11 arrests occurred Wednesday night at an area home – though it’s not clear if those 11 were included in the guild’s tally. 

Organizers expect the biggest crowds at a rally led by anti-war activists on Sunday, in which a group of 9/11-era veterans plan to return their service medals to protest the "war on terror."

Todd Gitlin, a former leader of the 1960s-era group Students for a Democratic Society and a Columbia University sociology and journalism professor, said the Wall Street tax was an obvious focus for protesters.

“It’s concrete. It might be winnable. It has global resonance because you’ve got  … several national governments in Europe that support it,” he said, noting that it clearly distinguishes between the 99 percent and the 1 percent, and had an “intrinsic fairness” about it. “It’s a reform that rings sensible to large numbers of people but a lot of work has to be done… . Most people right now I think don’t get it.”

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