Obama named longtime civil servant Daniel Werfel as the acting IRS commissioner. Werfel, 42, currently serves as controller of the Office of Management and Budget, making him a key player in implementing recent automatic spending cuts known as the sequester.
"Throughout his career working in both Democratic and Republican administrations, Danny has proven an effective leader who serves with professionalism, integrity and skill," Obama said in a statement. "The American people deserve to have the utmost confidence and trust in their government, and as we work to get to the bottom of what happened and restore confidence in the IRS, Danny has the experience and management ability necessary to lead the agency at this important time."
Werfel replaces Steven Miller as acting IRS commissioner. Miller was forced to resign Wednesday amid the growing scandal, though he is still scheduled to testify Friday at a congressional hearing.
Also Thursday, Joseph Grant, one of Miller's top deputies, announced plans to retire June 3, according to an internal IRS memo. Grant is commissioner of the agency's tax exempt and government entities division, which includes the agents that targeted tea party groups for additional scrutiny when they applied for tax-exempt status.
Grant joined the IRS in 2005. Before that he was a top official at the Pension Benefit Guaranty Corporation.
Werfel agreed to head the IRS through the end of September, the White House said. Presumably, Obama will nominate a new commissioner by then.
IRS commissioners serve five-year terms and must be confirmed by the Senate. Werfel won't need Senate approval because he is a temporary appointment. The Senate, however, confirmed Werfel for his current position without opposition in 2009.
Werfel served has had several jobs at the Office of Management and Budget. He has also been a trial attorney in the Justice Department's Civil Rights Division.
"He is an immensely talented and dedicated public servant who has ably served presidents of both parties," Treasury Secretary Jacob Lew said in a statement. "Danny has a strong record of raising his hand for and excelling at tough management assignments."
Werfel takes over an agency in crisis and under investigation. The IRS apologized last week for improperly targeting conservative political groups for additional, sometimes burdensome scrutiny when they applied for tax-exempt status. The practice went on more than 18 months, diminishing the ability of these groups to raise money during election cycles in 2010 and 2012, said an inspector general's report released this week.
The report did not indicate that Washington initiated the targeting of conservative groups. But it did blame ineffective management in Washington for allowing it to happen.
On Thursday, Obama dismissed the idea of a special prosecutor, saying probes by Congress and the Justice Department should be able to figure out who was responsible.
"Between those investigations I think we're going to be able to figure out exactly what happened, who was involved, what went wrong, and we're going to be able to implement steps to fix it," Obama said at a Rose Garden press conference.
Obama promised to work with Congress in its investigations, and he reiterated that he did not know that conservative groups were targeted until it became public last Friday.
"I promise you this, that the minute I found out about it, then my main focus was making sure that we get the thing fixed," Obama said.
Don't look for the controversy to subside.
Three congressional committees are investigating, and the FBI has launched a criminal probe.
On Friday, Miller is scheduled to testify before the House Ways and Means Committee. Also testifying is J. Russell George, the Treasury inspector general for tax administration.
Ways and Means Committee members are expected to grill Miller over why he failed to tell lawmakers that conservative groups were targeted, even after the agency said he was briefed in May 2012.
At least twice after the briefing, Miller wrote letters to members of Congress to explain the process of reviewing applications for tax-exempt status without disclosing that tea party groups had been targeted. On July 25, 2012, Miller testified before the House Ways and Means oversight subcommittee but again was not forthcoming on the issue despite being asked about it.
"The IRS has demonstrated a culture of cover up and has failed time and time again to be completely open and honest with the American people," said Rep. Dave Camp, R-Mich., chairman of the Ways and Means Committee. "The committee and the American people deserve honest answers from Mr. Miller at our hearing this Friday."
The groups were applying for tax-exempt status as social welfare organizations. Unlike other charitable groups, social welfare organizations can engage on politics but it is not supposed to be their primary mission.
It is up to the IRS to make the determination.
The inspector general's report said that if agents saw the words "Tea Party" or "Patriots" in an application, they automatically set it aside for additional scrutiny. The agents did not flag similar progressive or liberal labels, though some liberal groups did receive additional scrutiny because their applications were singled out for other reasons, the report said.
Miller, a 25-year career civil servant at the IRS, took over the agency in November, when the five-year term of Commissioner Douglas Shulman ended. Shulman was appointed by President George W. Bush.
At the time when tea party groups were targeted, Miller was a deputy commissioner and Grant's supervisor.
Miller was to return to his job as a deputy commissioner when he was finished being the acting head of the agency. But he announced his resignation from that position Wednesday.
The Senate Finance Committee said it will hold a hearing on the matter Tuesday. The House Oversight Committee is to hold a hearing Wednesday.
On Thursday, Senate Republicans called for yet another investigation into whether agents in the same Cincinnati office that targeted conservative groups released confidential taxpayer information from some of those groups.
The Journalism website ProPublica reported this week that the IRS had released nine pending confidential applications of conservative groups to ProPublica late last year.
The IRS said in a statement that the inspector general already had investigated the matter, and "found these instances to be inadvertent and unintentional disclosures by the employees involved."
Associated Press writer Jim Kuhnhenn contributed to this report.