(Bloomberg) The Internal Revenue Service has replaced Lois Lerner, the official at the center of the controversy over the agency’s scrutiny of small-government groups seeking tax-exempt status.

Lerner was placed on paid administrative leave after she refused to resign, Senator Charles Grassley, an Iowa Republican, said in a statement. The IRS named an acting replacement to oversee tax-exempt groups.

“The IRS owes it to taxpayers to resolve her situation quickly,” Grassley said. “She shouldn’t be in limbo indefinitely on the taxpayers’ dime.”

Lerner refused to answer questions May 22 at a hearing of the House Committee on Oversight and Government Reform. She invoked her constitutional right against self-incrimination after giving a short statement in which she denied wrongdoing.

Over the past two weeks, Lerner moved from semi-obscurity into the middle of a national scandal. She became the third person at the IRS to step aside or be pushed into leaving, joining former acting commissioner Steven Miller and Joseph Grant, who was one level above Lerner.

The IRS announced that Ken Corbin, a deputy director in another division of the tax agency that processes individual and business returns, will be acting director of exempt organizations.

Corbin, who has been at the IRS since 1986, is a “proven leader during challenging times,” acting IRS commissioner Danny Werfel wrote in a message to employees yesterday.

‘Strong Management’

“He has strong management experience inside the IRS handling a wide range of processing issues and compliance topics as well as taxpayer service areas,” Werfel wrote. “Combined with his track record of leading large work groups, these skills make him an ideal choice to help lead the Exempt Organizations area through this difficult period.”

Werfel became acting commissioner May 22, assigned by President Barack Obama and Treasury Secretary Jacob J. Lew to come up with a strategy for improving the agency within 30 days.

“In naming Ken Corbin as acting director to replace Lois Lerner, the administration has taken a strong step to address serious mistakes made by the IRS Exempt Organization Division,”

Representative Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, said in a statement. “This and further corrective action are vital in restoring the confidence of the American people.”

Lerner’s Apology
At a tax conference on May 10, Lerner disclosed—in response to a question she planted—that the IRS had singled out for extra scrutiny groups with “Tea Party” and “patriot” in their names when applying for tax-exempt status. Lerner, a former Federal Election Commission official, apologized on behalf of the IRS.

According to an inspector general’s report released May 14, Lerner discovered what her employees were doing in June 2011 and ordered them to stop and use more neutral criteria. Employees then started using different though still problematic criteria, according to the report.

The report cited ineffective management and poor guidance as among the main reasons why the partisan criteria were used and why delays in processing occurred.

Lawmakers have heaped scorn on Lerner over the past two weeks, calling for her to resign and accusing her of misleading or lying to them in staff briefings over the past year. It’s a federal crime to make false statements to Congress.

Public Trust
“Ms. Lerner’s continued tenure in the office she holds, where she is responsible for overseeing 1.6 million tax-exempt organizations, would erode public trust and confidence in the IRS and its professional integrity,” Senators John McCain and Carl Levin wrote to Werfel just before Lerner’s replacement became public.

“We believe that the immediate removal of Ms. Lerner from office would be a vital step in helping to restore public trust in the agency,” wrote McCain, an Arizona Republican, and Levin, a Michigan Democrat.

Lerner’s former boss, then-Commissioner Douglas Shulman, questioned during his testimony this week why mid-level managers who knew of the problem didn’t run it up the chain of command.
As a federal civil servant, Lerner can’t be summarily fired.

The IRS will be closed Friday, the first of five days when employees will have unpaid furloughs because of government-wide spending cuts. The tax agency will reopen May 28 after the Memorial Day holiday.

Called Back
Lerner may be called back to testify at the oversight committee. Chairman Darrell Issa, a California Republican, said she may have waived her constitutional rights by making an opening statement.

“I am very proud of the work that I have done in government,” she said May 22. “I have not done anything wrong. I have not broken any laws.”

National Review Online, which first reported her move, quoted an e-mail Lerner sent Thursday to some of the 900 people who work for her in which she said she was going on administrative leave.

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