The US tax official who supervised the bureau that targeted conservative groups for extra scrutiny ahead of the 2012 election has been placed on leave, officials have said.
Lois Lerner's suspension came the day after she refused to testify at a congressional hearing on the matter.
Groups applying for tax-exempt status were singled out for extra screening if words like "Tea Party" and "patriot" appeared in their applications.
The practice has been widely condemned.
The Associated Press reported Ms Lerner had been replaced as the Internal Revenue Service (IRS) director of exempt organisations.
Two top officials at the IRS have already said they would resign over the matter.
Several congressional hearings have already been held as Republican lawmakers search for evidence the practice was directed or condoned by the administration of Democratic President Barack Obama.
Order to cease
On Wednesday, Ms Lerner told members of the House Oversight and Government Reform committee she had not broken any laws or given false information to Congress.
But Ms Lerner said she would not answer the congressmen's questions, citing her right under the US Constitution not to incriminate herself.
She learned of the targeting in 2011 and ordered staff to cease, though lower-level staff apparently resumed until May 2012, according to a treasury department report. Ms Lerner brought the affair to the public's attention on 10 May, when she disclosed the practice at a legal conference.
In 2010-12, the IRS says it was inundated with new applications from groups seeking tax-exempt status, after the US Supreme Court loosened restrictions on political spending by organisations unaffiliated with candidates' campaigns.
Under US tax law, "social welfare" groups may apply for tax-exempt status but cannot engage primarily in political activity.
Staff members at an IRS office in Cincinnati, Ohio are understood to have compiled a list that included keywords such as "Tea Party" and "patriot" to select organisations for extra scrutiny from the large number of applications.
IRS officials have denied any political motivation behind the practice, describing it as a way to handle the heavy workload. An inquiry by the US treasury department has found no evidence of any political influence from the Obama administration.
President Barack Obama has denounced the practice as unacceptable, and the FBI has launched a criminal inquiry.