Mueller: IRS Probe a Top Priority

"It's a high-priority investigation and it needs to be handled with care, but it also needs to be pushed aggressively," he told the Senate Judiciary Committee at a hearing.

Mueller spoke as Tea Party conservatives rallied outside the U.S. Capitol in the sixth week of a controversy that prompted President Barack Obama to fire acting IRS Commissioner Steve Miller.

At least 1,000 protesters gathered at an "Audit the IRS" event organized by the Tea Party Patriots, an umbrella group of the anti-Washington movement whose members favor lower taxes and less government spending.

Republican Representative Dave Camp of Michigan told the crowd that the IRS investigation will take time, but it will get answers.

"We will hold those responsible accountable," he said.

Carol Bolling, a Tea Party organizer from Georgia, said the IRS should be abolished. "I want something done now. There's enough proof to know what they did," she said of IRS officials.

The IRS came under fire starting on May 10 when a Washington IRS official apologized for the handling by agency employees in Cincinnati of applications for tax-exempt status submitted by some Tea Party-aligned conservative groups.

The Cincinnati agents, before deciding whether to grant tax-exempt status, had sent some of the non-profit groups' applications to a special unit for closer scrutiny to see if the groups respected legal limits on political activity.

PARTISAN DISPUTE

Republicans have alleged that the IRS targeted the groups because of their politics and have tried to link the activity, without success so far, to officials in Washington.

Democrats have said the law on non-profit groups' political involvement needs clarifying and said there is no evidence of political involvement from Washington in the IRS doing its job.

Attorney General Eric Holder said last month the FBI had opened a criminal investigation. Holder said the investigation would be wide-ranging, examining whether the IRS violated civil rights laws or other protections.

The investigation is being run out of the FBI's Washington Field Office, Mueller said. He declined to say whether it could lead to charges against individuals at the IRS.

A report last month from the U.S. Treasury Inspector General for Tax Administration, an IRS watchdog, criticized the way the IRS screened the applications, picking out ones with words in their names such as "Tea Party."

This put the IRS' political impartiality at risk, said the audit report from the watchdog.

AGENCY EMBATTLED

Several congressional panels are looking into the matter. At least a half-dozen IRS employees, including at least two Washington officials, have sat down for lengthy interviews with investigators from the House of Representatives Oversight and Government Reform Committee, which is leading the probe.

Separately this week, two Republican senators blasted the IRS for paying bonuses to employees at a time of across-the-board spending cuts in the federal government.

In a letter dated on Tuesday, Chuck Grassley of Iowa and Orrin Hatch of Utah requested information from new IRS Commissioner Daniel Werfel on how the agency is handling merit pay.

The IRS in a statement said the agency is under a legal obligation to comply with its collective bargaining agreement with its union. Grassley contends that the union contract allows for reshuffling of funds in the event of a budget shortfall.