Miller was aware since a year ago, when he was deputy commissioner, that IRS employees were stonewalling requests from conservative groups seeking tax-exempt status, according to the agency.
However, Miller didn't tell Congress about it when he testified before an oversight committee in July -- despite being questioned on the issue. He was named acting commissioner in November.
Miller, who will leave the agency next month, is expected to testify Friday at the first congressional hearing on the controversy, which will be held by the GOP-led House Ways and Means Committee.
Miller assumed the role of acting head of the IRS last November. The previous commissioner, Douglas Shulman, was appointed by President George W. Bush.
Shulman testified at a March 2012 congressional hearing that his agency did not target conservative groups for political reasons.
He will testify before the House Oversight Committee next week, according to a House GOP aide. Shulman, who is no longer in the government, agreed to come voluntarily, the source said.
Holder, who has ordered a criminal investigation into the situation, told legislators that investigators will look at the conduct of IRS offices nationwide.
"The facts will take us where ever they take us," he said, adding that possible charges could include lying to Congress about what happened.
According to the report by the IRS inspector general, the agency developed and followed a faulty policy to determine whether the applicants were engaged in political activities, which would disqualify the groups from receiving tax-exempt status.
The controversial move began in early 2010 and continued for more than 18 months, the report said, declaring that "the IRS used inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based upon their names or policy positions instead of indications of potential political campaign intervention."
IRS officials, according to the report, did not consult anyone beyond the agency about the development of the additional screening criteria. They believed that the criteria they came up with were a screening shortcut meant to help with the influx of applications, the report said.
The IRS scrutiny began after the 2010 Supreme Court ruling in the Citizens United case that greatly expanded the ability of corporations, unions and other organizations to participate in election spending, though not through direct contributions to candidates or parties.
Following the ruling, the number of politically oriented groups seeking tax exempt status as social welfare organizations under section 501 (c) (4) of the federal tax code increased greatly at a time when the federal government, including the IRS, was dealing with austerity measures that reduced or stagnated personnel and resources.
However, the IRS watchdog found that the criteria used to flag potential political applications resulted in substantial delays and the request of unnecessary information from the groups.
The investigation by the Treasury inspector general for tax administration was initiated after congressional complaints began to surface in the media in 2012 that the IRS was targeting conservative groups and holding up applications.
In a written response included in the report, the IRS commissioner of the Tax Exempt and Government Entities Division said there was no criminal behavior behind the actions of the agents, but rather inefficient management.
"We believe the front-line career employees that made the decisions acted out of a desire for efficiency and not out of any political and partisan viewpoint," the commissioner wrote.
Among the recommendations made by the Treasury inspector general: The IRS must better document reasons why applications are chosen for review, develop a process to track requests for assistance, develop and provide training to employees before each election cycle and immediately resolve outstanding cases.
The report also called on Treasury to develop guidelines to explain social welfare activity -- the primary factor in obtaining tax-exempt status.
In the case of subpoenaed phone records, Holder said Wednesday that his decision to remove himself from the Justice Department investigation into a leak that led it to the surreptitious move left him unable to respond to questions about it.
"I don't know what happened there with the intersection between the AP and the Justice Department," Holder told the House Judiciary Committee. "I was recused from the case."
Asked about the AP case Thursday, Obama said he was unable to discuss specifics because of an ongoing investigation.
He added that he doesn't apologize for cracking down on leaks of classified information that can jeopardize U.S. troops and intelligence officers, but emphasized support for consideration of a new "shield law" for the media. The president also expressed full confidence in Holder.
Democratic Sen. Charles Schumer of New York previously introduced the proposed shield law that passed the Senate Judiciary Committee in 2009 but never advanced.