A day after the hearing she was placed on paid leave at the age of 62.
Lerner's retirement came as a review board was set to propose that she be fired, said a statement by Rep. Sander Levin of Michigan, the top Democrat on the tax-writing House Ways and Means Committee.
The board found "neglect of duties" during her tenure as director of the agency's exempt organizations division, and mismanagement consistent with an inspector general's report issued in May, Levin's statement said. The board, however, did not issue any findings of political bias or willful misconduct.
Lerner's lawyer did not respond Monday to a request for comment.
Republicans in Congress have repeatedly called for her to be fired. The IRS confirmed Lerner's retirement but said in a statement that privacy laws prevented it from commenting further about an individual employee.
Lerner is an attorney who joined the IRS in 2001. In brief remarks before she invoked her right not to testify before the House Oversight committee, Lerner expressed pride in her 34-year career in federal government, which has included work at the Justice Department and Federal Election Commission.
As director of the exempt organizations division, she oversaw 900 workers and a budget approaching $100 million.
Lerner's revelation at the May 10 tax conference set off a firestorm at the agency. President Barack Obama forced the acting commissioner to resign and much of the agency's top leadership was replaced. Three congressional committees and the Justice Department launched investigations.
"Just because Lois Lerner is retiring from the IRS does not mean the investigation is over. Far from it," said Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee. "In fact, there are many serious unanswered questions that must be addressed so we can get to the truth."
Lerner initially said the targeting was limited to agents working in a Cincinnati office that handled applications for tax-exempt status. Congressional investigations have since discovered evidence that IRS supervisors in Washington were aware that tea party applications were being delayed for years in some cases while the groups endured sometimes burdensome scrutiny.
However, investigators have released no evidence showing that anyone outside the IRS ordered the targeting or knew it was happening.
Levin said Lerner is "being held responsible for her gross mismanagement of the IRS tax-exempt division, which led to improper handling of applications for tax-exempt status, whether conservative and progressive."
"As has been the case in all aspects of the current IRS investigation, the IRS internal Review Board found no evidence of political bias in her neglect of duties," Levin said. "The basic overreaching premise of the Republicans that the IRS had an 'enemies list' and was being influenced from the outside has been proven wrong again, as it has again and again."
On Monday, the IRS released a statement outlining some of the actions the agency has taken since the scandal erupted.
"Since May, the IRS has taken decisive actions to correct failures in exempt organizations management, replacing top leadership throughout the chain of command," the statement said. "In addition, IRS acting commissioner Danny Werfel created an accountability review board to fully review information to ensure proper oversight in handling personnel issues."
"The IRS is making important progress on fixing the underlying management and organizational deficiencies," the statement said. "Our goal is to restore the public's faith and trust in the tax system. We have sent nearly 400,000 pages of documents to Congress and facilitated dozens of employee interviews. We look forward to continuing to cooperate with Congress and other investigations."