[Federal Register Volume 64, Number 2 (Tuesday, January 5, 1999)]
[Proposed Rules]
[Pages 457-464]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-110]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 801
[REG 119192-98]
RIN 1545-AW80
Establishment of a Balanced Measurement System
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations relating to the
adoption by the IRS of a balanced system to measure organizational
performance within the IRS. These proposed regulations further
implement a requirement that all employees be evaluated on whether they
provided fair and equitable treatment to taxpayers and bar use of
records of tax enforcement results to evaluate or to impose or suggest
goals for any employee of the IRS. These regulations implement sections
1201 and 1204 of the Internal Revenue Restructuring and Reform Act of
1998. These regulations affect internal operations of the IRS and the
systems that agency employs to evaluate the performance of
organizations within IRS and individuals employed by IRS. This document
also provides notice of public hearing on these proposed regulations.
DATES: Written comments and electronic comments must be received by
March 8, 1999. Outlines of oral comments to be presented at the public
hearing scheduled for Thursday, May 13, 1999 at 10 a.m. must be
received by Thursday, April 22, 1999.
ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-119192-98), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered Monday through
Friday between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-
119192-98), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue NW., Washington, DC. Alternatively, taxpayers may submit
comments electronically via the Internet by selecting the ``Tax Regs''
option on
[[Page 458]]
the IRS Home Page, or by submitting comments directly to the IRS
Internet site at http://www.irs.ustreas.gov/prod/tax__regs/
comments.html. The public hearing will be held in room 2615, Internal
Revenue Building, 1111 Constitution Avenue, NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Julie Barry (202) 401-4013; concerning submission of comments, the
hearing, or to be placed on the building access list to attend the
hearing, Michael Slaughter, (202) 622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed regulations to establish a Balanced
System for Measuring Organizational and Individual Performance Within
the Internal Revenue Service (26 CFR Part 801).
Section 1201 of the Internal Revenue Service Restructuring and
Reform Act of 1998 (RRA), Public Law 105-206 (112 Stat. 685, 713 et
seq. (1998)), requires the Internal Revenue Service to establish a
performance management system for those employees covered by 5 U.S.C
4302 that, inter alia, establishes ``goals or objectives for
individual, group, or organizational performance (or any combination
thereof), consistent with the Internal Revenue Service's performance
planning procedures, including those established under the Government
Performance and Results Act of 1993, division E of the Clinger-Cohen
Act of 1966 * * *, Revenue Procedure 64-22 * * *, and taxpayer service
surveys.'' It further requires the IRS to use ``such goals and
objectives to make performance distinctions among employees or groups
of employees,'' and to use ``performance assessments as a basis for
granting employee awards, adjusting an employee's rate of basic pay,
and other appropriate personnel actions * * *'' Finally, section 1201
expressly requires that any performance management system adopted by
the IRS conform to the requirements of section 1204 of RRA.
Section 1204 of RRA provides that the IRS shall not use ``records
of tax enforcement results'' in the evaluation of IRS employees or to
suggest or impose production goals for such employees. It further
provides that the IRS shall use the ``fair and equitable treatment of
taxpayers by employees as one of the standards for evaluating employee
performance.'' Finally, section 1204 requires that ``each appropriate
supervisor'' certify quarterly in a letter to the Commissioner
``whether or not tax enforcement results are being used in a manner
prohibited by'' that section.
Antecedents to Sections 1201 and 1204
Until the recent change, the Mission Statement for the IRS had
provided, in part: ``The purpose of the Internal Revenue Service is to
collect the proper amount of tax revenue at the least cost * * *''
Consistent with this Mission Statement, the IRS has long adhered to the
principle that all IRS officials with discretion to make decisions
regarding enforcement matters in individual cases should do so only on
the basis of the correct application of the law to the facts of each
individual case. It has also sought to give the taxpayers maximum
efficiencies in its day-to-day operations and has applied many modern
management techniques to measure and encourage such efficiencies.
In order to achieve these dual goals, the IRS has adopted a number
of systems by which it sets goals for and measures the success of its
various operating units, and directs the activities of its employees.
The ultimate objective of these measurement systems is to help the IRS
achieve its overall mission.
Measuring Organizational Performance
In General. The Government Performance and Results Act of 1993,
Public Law 103-62 (107 Stat. 285 (Aug. 3, 1993)) (GPRA), requires the
IRS and other federal agencies to establish a hierarchy of performance
measures and goals applicable to various organizational units within
their agencies. These performance measures and goals should be
expressed in objective, quantifiable and measurable forms to define the
level of performance to be achieved by a program activity.
As indicated by the General Accounting Office (``Executive Guide:
Effectively Implementing the Government Performance and Results Act,''
(GAO/GGD-96-118 at 24)):
[L]eading organizations * * * strive to align their activities
and resources to achieve mission-related goals[;] they also seek to
establish clear hierarchies of performance goals and measures. Under
these hierarchies, the organizations try to link the goals and
performance measures for each organizational level to successive
levels and ultimately to the organization's strategic goals. They
have recognized that without clear, hierarchically linked
performance measures, managers and staff throughout the organization
will lack straightforward roadmaps showing how their daily
activities can contribute to attaining organizationwide strategic
goals and mission.
The legislative history underlying passage of GPRA indicates that
not only must performance goals be established on an hierarchal basis
throughout an organization, but those goals must reflect the full range
of the organization's objectives. As the Senate Report accompanying the
Act indicates (S. Rep. No. 103-58, 103d Cong., 1st Sess. at 29 (1993)):
The Committee believes agencies should develop a range of
related performance indicators, such as quantity, quality,
timeliness, cost, and outcome. A range is important because most
program activities require managers to balance their priorities
among several subgoals. * * * Reliance on any single one of these
measures could create a perverse incentive for managers to achieve
one subgoal at the expense of the others.
As a government agency responsible for collecting 95 percent of the
nation's revenues, the IRS adopted, pursuant to GPRA and other statutes
\1\, a number of performance measures that focus on the amount of
adjustments proposed by examination units or the dollars collected by
collection offices. For example, the budgets submitted by the IRS since
the mid-1990's have contained performance measures that were heavily
focused upon enforcement revenue collected or protected. The two
performance measures for field examination units contained in the FY
1997 budget request were examination dollars recommended and
examination dollars recommended per employee (FTE). A similarly
enforcement-focused set of measures applied to field collection
functions: dollars collected, dollars collected per FTE, and average
cycles per TDA/TDI (tax delinquency account/tax delinquency
investigation) disposition.
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\1\ Both the Chief Financial Officers Act of 1990, Pub. L. 101-
576, 104 Stat. 2838 (1990), and Division E, National Defense
Authorization Act for Fiscal Year 1996 (the Clinger-Cohen Act of
1996), Pub. L. 104-106, 110 Stat. 186, 679 (1996), also contain
requirements that federal agencies establish performance measurement
systems.
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Measures of Special Compliance Programs
The IRS, apart from requirements imposed upon it by statutes and
regulations of general applicability, has periodically been required by
Congress to establish and to report on other performance measures. For
example, in connection with expected additional funding promised for FY
1995 through FY 1999 pursuant to a Compliance Initiative, the IRS made
a commitment to generate $9.179 billion in additional enforcement
revenues. It was expected both to track how those additional funds were
employed and to provide
[[Page 459]]
``quarterly reports * * * identifying the progress being made through
these enhanced activities to collect taxes due.'' S. Rep. No. 103-286,
103d Cong., 2d Sess. at 40 (1994); see H.R. Rep. No. 103-534, 103d
Cong., 2d Sess. at 33 (1994); ``IRS FY 1995 Compliance Initiatives
Final Report,'' Document 9383 (Rev. 1-96), Catalog Number 21508R.
More recently, the appropriation for the IRS for FY 1998 provided
additional monies for ``funding essential earned income tax credit
compliance and error reduction initiatives.'' The Conference Report
accompanying that appropriation bill stated (H.R. Conf. Rep. No. 105-
284, 105th Cong.,1st Sess. at 64 (1997)) that ``the IRS should
establish a method to track the expenditure of funds and measure the
impact [of the additional funding] on compliance. The IRS shall submit
quarterly reports to the Committee on Appropriations which identify the
expenditures and the change in the rates of compliance.'' In the
absence of accurate information regarding compliance rates, the IRS has
attempted to comply with this congressional requirement by reporting,
inter alia, on amounts of revenue protected or collected by various
EITC compliance programs. See, e.g., ``IRS Tracking Earned Income Tax
Credit Appropriation,'' Document 9383 (Rev. 6-98), Catalog Number
21508R.
Measuring the Performance of Employees
The IRS also must comply with a variety of government-wide mandates
to measure the performance of individual employees. The civil service
rules require that the IRS evaluate the performance of employees on an
annual basis. Performance evaluations also figure in recommendations
for awards, incentives, allowances or bonuses, an assessment of an
employee's qualifications for promotion, reassignment or other change
in duties, and the ranking of other than full-time permanent personnel
for purposes of release/recall schedules. While these individual
performance ratings are based upon the elements set forth in various
workplans and job elements, a manager's success in achieving
organizational goals will inevitably play an important role in any
evaluation of his or her performance. Other employees' performance with
respect to items set forth in their job elements will be viewed in
light of these goals.
Past Criticisms
Over the years, the IRS has been repeatedly criticized for placing
too much reliance upon tax enforcement measures it has adopted. The
critics have charged that front-line personnel have felt pressured by
performance measures that were focused on tax enforcement outcomes,
such as dollars assessed per FTE or dollars collected per FTE, to take
inappropriate enforcement actions in order to achieve perceived
enforcement goals. The bulk of this criticism has focused on the impact
such tax enforcement measures have had upon field personnel in the
examination and collection functions.
For example, in 1955, a report by an advisory group appointed by
the Chairman of the Joint Committee on Internal Revenue Taxation (The
Internal Revenue Service: Its Reorganization and Administration, July
25, 1955, at 6) describes a 1954 initiative by the IRS to ``establish
specific office standards of production [for examination personnel in
regional and district offices], so that both supervisors and employees
know what is considered normal.'' This advisory group reported that
imposition of these standards ``appears to have caused a worsening of
the enforcement picture.''
[U]nder the established production quota system proper standards
of individual performance and proper standards of examination are
ignored in favor of number of returns examined. The established
production quota procedure has too frequently reduced the agent's
investigation to a cursory examination of readily available records
and a quick look for a few obvious items on which a change can be
made so as to close the case and meet the quota set.
In 1957 and again in 1959, questions were raised during hearings
before the House Ways and Means Committee regarding IRS production
quotas. ``Reorganization and Administration of the Internal Revenue
Service,'' Hearings before the Subcommittee on Internal Revenue
Taxation of the Committee of Ways and Means, 85th Cong., 1st Sess., at
118-119 (1957); ``Income Tax Revision, Panel Discussions before the
Committee on Ways and Means, House of Representatives,'' 86th Cong.,
1st Sess. at 805, 808 (1959); ``Compendium of Papers on Broadening the
Tax Base Submitted to the Committee of Ways and Means,'' 86th Cong.,
1st Sess. at 1527, 1533 (1959).
In November of 1959, the IRS issued a revised policy statement that
provided, in part:
If the duties of the position require the exercise of judgment
based on detailed knowledge of laws and regulations or involve
material factors of technical or professional judgment, performance
must be evaluated in the light of the actual cases or other
assignments handled, and no quantitative measurement may be utilized
which does not take such differences into account. Dollar production
shall not be used as the measurement of any individual's
performance.
Policy Statement P-1200-9, Approved Nov. 24, 1959
Questions regarding ``the rating of revenue agents on the basis of
numbers of examinations made and amounts of additional tax
recommended'' were again raised during the 1961 confirmation hearings
held for Commissioner-designate Caplin. Hearings Before the Committee
on Finance, United States Senate, 87th Cong., 1st Sess., at 14-15
(1961). Following his confirmation, Commissioner Caplin announced in
July of 1961 that the IRS was embarking on a ``New Direction,'' which
was designed to counter what he described as the ``undue emphasis''
placed upon production statistics and the ``adverse effect'' the
perception that production statistics formed the ``main basis'' for
evaluation of offices and individuals had upon examination quality.
Under this ``New Direction,'' production goals and statistics would be
de-emphasized, statistical data would be given more limited circulation
and qualitative measures of performance would be adopted. ``New Audit
Program Concepts: Views of Commissioner Caplin on Evaluation of
Individuals, Programs and Offices in the Audit Activity.''
The following year, Commissioner Caplin issued a Special Message to
All Audit Personnel, discussing some misunderstandings that had arisen
regarding the new audit program. The Commissioner indicated that while
supervisors were not allowed to evaluate performance on the basis of
statistics or to pressure agents to produce deficiencies at the cost of
inadequate audits or inequities to the taxpayer, nothing in the new
audit program prohibited supervisors from keeping track of the quality
and amount of work produced by agents. Indeed, ``this is exactly what
the supervisor of a group of agents is expected to do.'' The Message
went on to state ``Special Message from the Commissioner,'' dated
September 7, 1962, at 2:
More serious than these misunderstandings, is the fact that
enforcement results have fallen off very substantially. Despite
having 1,022 more agents and office auditors in FY 62 than in FY 61,
the number of returns examined decreased by 13,000, while additional
taxes and penalties recommended decreased by $66 million.
You can readily see how this drop-off endangers our Long Range
Plan for gradually increasing our manpower and doing our
[[Page 460]]
work more effectively. Under this plan, we have been allowed almost
10,000 additional people over the last three years, and it calls for
the addition of about 24,000 more by 1968. Yet, when a substantial
increase in staff is followed by this kind of a drop in our
enforcement results, the appropriating authorities naturally begin
to wonder about the wisdom of financing the rest of our proposed
expansion.
Issues regarding the IRS' use of production statistics also came up
during Commissioner Alexander's 1973 confirmation hearings before the
Senate Finance Committee. When questioned about his opinion toward
production quotas, Commissioner Alexander responded that he was
completely opposed to their use. Hearings Before the Committee on
Finance, United States Senate, 93d Cong., 1st Sess., at 4-5 (1973).
In November of 1973, the IRS adopted the current version of Policy
Statement P-1-20, revising its policies regarding the use of records of
tax enforcement results and prohibiting absolutely the use of
enforcement statistics to evaluate the performance of enforcement
personnel; this statement permitted the accumulation and use of
enforcement statistics only for ``long-range planning, financial
planning, allocation of resources, work planning and control, effective
functional management, or other related staffing utilization systems
and plans.'' In an accompanying Special Message to all Enforcement
Personnel, Commissioner Alexander stated that this prohibition was
applicable to all personnel who exercised judgment in determining tax
liability or the ability to pay. Commissioner Alexander further
declared, ``[i]ndividual case or dollar goals--formal, informal, or
implied--are not permitted and will not be tolerated.''
During 1974, Senate Appropriations Committee hearings again focused
on allegations that taxpayers were being mistreated as a result of
production quotas (both case closings and dollar amounts). A number of
witnesses and the Committee chairman expressed concerns that individual
production statistics were being used to evaluate field employees,
notwithstanding the existing policy. Testimony during those hearings
also indicated that pressure to increase the number of cases closed in
Collection directly led to inappropriate seizures. Hearings Before the
Subcommittee on the Department of the Treasury, U.S. Postal Service,
and General Government Appropriations of the Committee on
Appropriations, United States Senate, 93d Cong., 2d Sess., at 2-25,
520, 543-546, 574-584, 586-601, 653-670 (1974); see also, ``Taxpayer
Assistance and Compliance Programs,'' Hearings before the Senate
Committee on Appropriations, 93d Cong., 1st Sess. at 41-46, 568-569,
642-643, 680-681 (1974).
In 1988, the Senate Appropriations Committee held hearings focusing
again on allegations that the IRS' use of enforcement statistics to
evaluate programs and personnel had led to inappropriate enforcement
actions. Treasury, Postal Service and General Government
Appropriations, Fiscal Year 1989, Before the Committee on
Appropriations, 100th Cong., 2d Sess. at 588-590 (1988). On November
10, 1988, the Technical and Miscellaneous Revenue Act of 1988, Public
Law 100-647 (102 Stat. 3734 (1988)) (TBOR 1) was enacted. Section 6231
of that measure prohibits the use of records of tax enforcement
results:
(1) To evaluate employees directly involved in collection
activities and their immediate supervisors, or
(2) To impose or suggest production quotas or goals [for such
employees and supervisors].
During the appropriation hearings for FY 1989, Commissioner Gibbs
testified about the TBOR 1 prohibition (Treasury, Postal Service and
General Government Appropriations, Fiscal Year 1989, Before the Senate
Committee on Appropriations, 100th Cong., 2d Sess. at 589 (1988)):
The problem that I have with our policy statement--that policy
statement, by the way, being in the taxpayer bill of rights--is that
it tells our people what not to do. It says, ``Don't use enforcement
statistics.'' * * * I don't think that this helps someone on the
front line very much to tell them what not to do.
What we have started, within the last 18 months that I have been
the Commissioner, is to begin to develop at the working level
criteria as to what constitutes a quality collection action, what
constitutes a quality examination action. It is an entirely
different approach to collection and examination, trying to train
the people as to how to approach what they are doing so that if they
do it the right way, the numbers will flow. The idea is to get away
from simply dollar amounts, comparing one another in terms of how
they are doing with respect to collections, or seizures, or anything
like that.
The General Accounting Office has expressed a somewhat different
view of the appropriate use of enforcement results to measure IRS
performance. Its December 10, 1991, report on ``IRS' Implementation of
the 1988 Taxpayer Bill of Rights'' stated (GAO/GGD-92-23 at 14-15):
In an October 1987 letter to the Chairmen of the House Committee
on Ways and Means and the Senate Committee on Finance, we commented
on various proposals to prohibit the use of collection statistics in
performance evaluations. Our position then and now is that
collection statistics should not be the only indicator of
performance but, along with other factors, could very well be a
useful tool in evaluating employees. We pointed out that relying on
a single factor can place more emphasis on that factor than on
overall performance. We said that it is not totally inappropriate to
generally consider the amount of revenues collected as part of an
employee's evaluation if that consideration is only one of several
factors under review. We added that setting arbitrary quotas for
amounts collected, property seized, or cases closed cannot be
justified in evaluating performance, particularly because of the
negative impact that trying to achieve those quotas can have on
taxpayers.
In its May 11, 1993, report on ``Tax Administration: New Delinquent Tax
Collection Methods for IRS'' (GAO/GGD093-67 at 9), GAO reiterated this
view:
As we have stated in the past, IRS should be able to use
collection performance as a criterion in determining compensation
and rewards for individual collectors. We believe that information
such as taxes collected is a reasonable basis on which to judge the
performance of employees whose job it is to collect taxes as long as
other criteria, such as fair and courteous treatment of taxpayers,
are also evaluated.
In a similar vein, a December 23, 1993, report by the GAO on the
offer in compromise program (``Tax Administration: Changes Needed to
Cope with Growth in Offer in Compromise Program'' (GAO/GGD-94-47 at 24)
indicated:
The Commissioner of Internal Revenue should develop the
indicators necessary to evaluate the Offer in Compromise Program as
a collection and compliance tool. The indicators should be based on
accurate data and include (1) the yield of the program in terms of
costs expended and amounts collected, (2) the amount of revenues
collected that would not have been collected through other
collection means. * * *
In September 1997, the Senate Finance Committee held three days of
widely-publicized oversight hearings on the Internal Revenue Service.
During these hearings, several IRS employees testified that IRS'
performance measurement system was creating an environment in which
they felt pressured to achieve certain quantitative goals for tax
enforcement results (such as dollars recommended or collected). In his
testimony at the conclusion of these hearings, the Acting Commissioner
responded to the concerns that had been raised about the negative
impact of the IRS performance measurement system by announcing a number
of immediate changes in the system. In particular, he announced that
IRS would suspend the comparative
[[Page 461]]
ranking of its 33 district offices and suspend distribution of any
goals related to revenue production to field offices. ``Practices and
Procedures of the Internal Revenue Service,'' Hearings before the
Committee on Finance, United States Senate, 105th Cong., 1st Sess., at
3, 105-106, 123-128, 153, 155-156, 162-163, 206-209, 212-213, 303-304,
310, 317-318, 320-322, 325-326, 330, 333, 351-356.
Following these hearings, the IRS Office of Chief Inspector
undertook three management audits to determine how enforcement
statistics were then being used as part of the IRS performance
measurement system. See, ``Review of the Use of Statistics and the
Protection of Taxpayer Rights in the Arkansas-Oklahoma District
Collection Field Function,'' Internal Audit Reference Number 380402
(December 5, 1997); ``Use of Enforcement Statistics in the Collection
Field Function,'' Internal Audit Reference Number 081904 (January 12,
1998); ``Examination Division's Use of Performance Measures and
Statistics,'' Internal Audit Reference Number 084303 (July 7, 1998).
These three inquiries generally confirmed that IRS performance measures
were focused largely on enforcement goals and productivity as defined
by statistics relating to dollars recommended, assessed or collected,
or other enforcement actions taken. They found a lack of corresponding
emphasis on quality casework, adherence to law, and protection of
taxpayer rights.
In order to deal with specific allegations of misconduct made
during the September hearings, or discovered in the course of the
management audits described above, the IRS Office of Chief Inspector
also undertook a number of individual investigations. The Commissioner
then established a Special Review Panel of career executives from
outside the IRS to review the evidence and to recommend appropriate
personnel actions. The Special Review Panel issued a Report to the
Commissioner in August 1998. In its Report, the Special Review Panel
agreed with earlier conclusions that IRS had responded to external
pressures to close the revenue gap through improved productivity by
shifting management emphasis to goals and measures that placed a heavy
emphasis on use of enforcement statistics. See also ``IRS Personnel
Administration: Use of Enforcement Statistics in Employee Evaluations''
(GAO/GGD-99-11, November 30, 1998).
Internal Revenue Service Restructuring and Reform Act of 1998
Sections 1201 and 1204 of the Internal Revenue Service
Restructuring and Reform Act of 1998 (RRA) represent the most recent
legislative action regarding performance measures used by the IRS.
Section 1201 directs the IRS, consistent with its current performance
planning procedures, including those established under the GPRA, to
establish a performance management system that will establish ``goals
or objectives for individual, group, or organizational performance.''
The IRS is directed to use this performance system in the evaluation of
employees or groups of employees, in determining salary adjustments and
awards, and in other personnel matters. The Conference Report
accompanying RRA (H. R. Conf. Rep. No. 105-599, 105th Cong., 2d Sess.,
at 228 (June 24, 1998) indicates that ``in no event would performance
measures be used which rank employees or groups of employees based
solely on enforcement results, establish dollar goals for assessments
or collections, or otherwise undermine fair treatment of taxpayers.''
Section 1204 of RRA repealed section 6231 of TBOR 1 and replaced
TBOR 1's prohibition on the use of ``records of tax enforcement
results'' to evaluate or to impose or suggest goals for personnel
directly involved in collection activity with a prohibition against
using such records of tax enforcement results to evaluate, or to impose
or suggest production quotas or goals for, any IRS ``employee.''
Explanation of Provisions
Proposed Effective Date
These regulations are proposed to be effective thirty days after
the date of publication in the Federal Register of the final
regulations.
Balanced Measurement System
These proposed regulations provide guidance and direction for the
establishment of a balanced performance measurement system for the
Internal Revenue Service. They also provide guidance for implementing
the restrictions on the use of ``records of tax enforcement results''
in evaluating, or imposing or suggesting goals for employees and for
establishing ``fair and equitable treatment of taxpayers'' as one of
the standards for evaluating employees.
These proposed regulations establish a new balanced system for
measuring the performance of and establishing performance goals for
various operational units within the Internal Revenue Service. The
three elements of this balanced measurement system are (1) Customer
Satisfaction Measures, (2) Employee Satisfaction Measures and (3)
Business Results Measures. These measures will, consistent with GPRA,
be based on ``quantifiable and measurable'' data, and will be
numerically scored.
The proposed regulations do not provide procedures for certifying
whether or not records of tax enforcement results have been used in a
manner prohibited by section 1204. Subsequent guidance will provide
that information.
a. Customer Satisfaction
To measure customer satisfaction, the IRS will develop data from
customer satisfaction surveys it receives from a statistically valid
sample of taxpayers with whom it has dealt. Among other things,
taxpayers will be asked to provide information regarding whether they
were treated courteously and professionally, whether they were informed
of their rights and whether they were given an opportunity to voice
their concerns and adequate time to respond to IRS requests. Using data
derived from these surveys, the IRS will derive quantitative indices of
customer satisfaction which will be used to measure progress in
achieving customer satisfaction goals.
b. Employee Satisfaction
To measure employee satisfaction, the IRS will utilize an employee
survey that permits employees to provide, on an anonymous basis, their
assessment of the wide variety of factors that determine whether
employees believe that the work environment permits them to perform
their duties in a professional manner. Among other items included in
the employee survey, the questionnaires should elicit information
regarding employees' assessment of the quality of supervision and the
adequacy of training and support services. As in the case of the
Customer Satisfaction measures, the goals and the accomplishments of
units subject to the balanced measurement system will be expressed in
quantified form.
c. Business Results
The IRS will employ two parallel avenues to measure business
results.
1. Quality Measures
The first of these approaches will focus on the quality of the work
done in a sample of cases that were worked on by employees. Such
reviews will be conducted of a statistically valid sample of cases
worked on by units designated by the Commissioner, such as a
[[Page 462]]
collection or examination unit. A staff of personnel specially
dedicated to the task will review and numerically score the quality of
work done by IRS personnel. These reviews will focus on such factors as
whether IRS personnel provided proper and timely service to the
taxpayer, properly analyzed the facts, correctly applied the law,
protected taxpayer rights by following applicable IRS policies and
procedures, devoted an appropriate amount of time to the case, made
appropriate judgments regarding liability for tax and ability to pay
and provided accurate answers to tax law or account questions posed by
callers.
2. Quantity Measures
The quantity measures element of the business results measure will
focus exclusively on outcome-neutral production data. Accordingly, as
described in the regulation, data concerning the enforcement outcome in
cases, such as the dollar amount of audit adjustments, the numbers of
liens filed or levies served, and the number of referrals for criminal
investigation, would be excluded from the production data used in the
quantity measures. On the other hand, outcome-neutral production data,
such as cases closed, time per closing or cycle time, which do not
reflect the outcome produced by any IRS official's exercise of judgment
in determining liability for tax or the collection mechanism to be
employed may be used in determining the production element of the
business results measures. The IRS has determined, however, that as a
matter of policy such outcome-neutral production data may not be used
to set goals for or for evaluating any non-supervisory employee with
tax enforcement responsibilities.
Further, an organization with enforcement responsibilities may not
be given a goal or an evaluation based on enforcement-neutral
production data regarding matters calling for the exercise of judgment
with respect to tax enforcement results unless that goal or evaluation
constitutes only one element in a set of goals or one element in an
evaluation based also upon the balanced measurement system.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866. Therefore,
a regulatory assessment is not required. It also has been determined
that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regulations and, because these
regulations do not impose on small entities a collection of information
requirement, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does
not apply. Therefore, a Regulatory Flexibility Analysis is not
required. Pursuant to section 7805(f) of the Internal Revenue Code,
this notice of proposed rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment
on its impact on small business.
Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any electronic and written comments (a
signed original and eight (8) copies) that are submitted timely to the
IRS. The IRS and Treasury specifically request comments on the clarity
of the proposed regulation and how it may be made easier to understand.
All comments will be available for public inspection and copying.
A public hearing has been scheduled for Thursday, May 13, 1999,
beginning at 10 a.m. in room 2615 of the Internal Revenue Building,
1111 Constitution Avenue NW., Washington, DC. Due to building security
procedures, visitors must enter at the 10th Street entrance, located
between Constitution and Pennsylvania Avenues, NW. In addition, all
visitors must present photo identification to enter the building.
Because of access restrictions, visitors will not be admitted beyond
the immediate entrance area more than 15 minutes before the hearing
starts. For information about having your name placed on the building
access list to attend the hearing, see the FOR FURTHER INFORMATION
CONTACT section of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments at the hearing must submit comments and
an outline of the topics to be discussed and the time to be devoted to
each topic by Thursday, April 22, 1999. A period of 10 minutes will be
allotted to each person for making comments. An agenda showing the
scheduling of the speakers will be prepared after the deadline for
receiving outlines has passed. Copies of the agenda will be available
free of charge at the hearing.
Drafting Information
The principal author of these regulations is Julie A. Barry, Office
of Assistant Chief Counsel (General Legal Services). However, other
personnel from the IRS and Treasury Department participated in their
development.
List of Subjects in 26 CFR Part 801
Government employees, Organization and functions (Government
agencies).
Proposed Amendments to the Regulations
Accordingly, 26 CFR Chapter I is proposed to be amended by adding
part 801 to Subchapter H to read as follows:
PART 801--BALANCED SYSTEM FOR MEASURING ORGANIZATIONAL AND
INDIVIDUAL PERFORMANCE WITHIN THE INTERNAL REVENUE SERVICE
Sec.
801.1 Balanced performance measurement system; in general.
801.2 Balanced performance measurement system.
801.3 Customer satisfaction measures.
801.4 Employee satisfaction measures.
801.5 Business results measures.
Authority: 5 U.S.C 9501 et seq.; secs. 1201, 1204, Pub. L. 105-
206, 112 Stat. 685, 715-716, 722 (26 U.S.C. 7804 note).
Sec. 801.1 Balanced performance measurement system; in general.
(a) In general. The regulations in this part 801 implement the
provisions of sections 1201 and 1204 of the Internal Revenue Service
Restructuring and Reform Act of 1998 (Pub. L. 105-106, 112 stat. 685,
715-716, 722) and provide rules relating to the establishment by the
Internal Revenue Service of a balanced performance measurement system.
(b) Effective date. This part 801 is effective thirty days after
the date these regulations are published as final regulations in the
Federal Register.
Sec. 801.2 Balanced performance measurement system.
(a) In general. Modern management practice and various statutory
and regulatory provisions require the IRS to set performance goals for
organizational units and to measure the results achieved by those
organizations with respect to those goals. To fulfill these
requirements, the IRS has established a balanced performance
measurement system, composed of three elements: Customer Satisfaction
Measures; Employee Satisfaction Measures; and Business Results
Measures. The IRS is likewise required to establish a performance
evaluation system for individual employees.
(b) Measuring organizational performance--(1) In general. The
performance measures that comprise the balanced measurement system
will, to the maximum extent possible, be stated in objective,
quantifiable and measurable terms and, subject to the limitation set
forth in paragraph (b)(2) of
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this section, will be used to measure the overall performance of
various operational units within the IRS. In addition to implementing
the requirements of the Internal Revenue Service Restructuring and
Reform Act of 1998, Pub. L. 105-206, 112 Stat. 685, the measures
described here will, where appropriate, be used in performance goals
and performance evaluations established, inter alia, under Division E,
National Defense Authorization Act for Fiscal Year 1996 (the Clinger-
Cohen Act of 1996), Pub. L. 104-106, 110 Stat. 186, 679; the Government
Performance and Results Act of 1993, Pub. L. 103-62, 107 Stat. 285; and
the Chief Financial Officers Act of 1990, Pub. L. 101-576, 108 Stat.
2838.
(2) Limitation--quantity measures (as described in Sec. 801.5) will
not be used to evaluate the performance of or to impose or suggest
production goals for any organizational unit with employees who are
responsible for exercising judgment with respect to tax enforcement
results (as defined in Sec. 801.5) except in conjunction with an
evaluation or goals based also upon Customer Satisfaction Measures,
Employee Satisfaction Measures, and Quality Measures.
(c) Measuring individual performance. All employees of the IRS will
be evaluated according to the critical elements and standards or other
performance criteria established for their positions. In accordance
with the requirements of 5 U.S.C. 4312 and 9508 and section 1201 of the
Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L.
105-206 (112 Stat. 685), (as is appropriate to the employee's
position), the performance criteria for each position will be composed
of elements that support the organizational measures of Customer
Satisfaction, Employee Satisfaction and Business Results; however, such
organizational measures will not directly determine the evaluation of
individual employees.
(1) Fair and equitable treatment of taxpayers. In addition to all
other criteria required to be used in the evaluation of employee
performance, all employees of the IRS will be evaluated on whether they
provided fair and equitable treatment to taxpayers.
(2) Senior Executive Service and special positions. Employees in
the Senior Executive Service will be rated in accordance with the
requirements of 5 U.S.C. 4312 and employees selected to fill positions
under 5 U.S.C. 9503 will be evaluated pursuant to workplans, employment
agreements, performance agreements or similar documents entered into
between the Internal Revenue Service and the employee.
(3) General workforce. The performance evaluation system for all
other employees will:
(i) Establish one or more retention standards for each employee
related to the work of the employee and expressed in terms of
individual performance; and--
(A) Require periodic determinations of whether each employee meets
or does not meet the employee's established retention standards; and
(B) Require that action be taken, in accordance with applicable
laws and regulations, with respect to employees whose performance does
not meet the established retention standards.
(ii) Establish goals or objectives for individual performance
consistent with the IRS's performance planning procedures; and--
(A) Use such goals and objectives to make performance distinctions
among employees or groups of employees; and (B) Use performance
assessments as a basis for granting employee awards, adjusting an
employee's rate of basic pay, and other appropriate personnel actions,
in accordance with applicable laws and regulations.
(4) Limitations. (i) No employee of the IRS may use records of tax
enforcement results (as defined in Sec. 801.5) to evaluate any other
employee or to impose or suggest production quotas or goals for any
employee.
(A) For purposes of the limitation contained in this paragraph
(c)(4), employee has the meaning as defined in 5 U.S.C. 2105(a).
(B) For purposes of the limitation contained in this paragraph
(c)(4), evaluate includes any process used to appraise or measure an
employee's performance for purposes of providing the following:
(1) Any required or requested performance rating.
(2) A recommendation for an award covered by Chapter 45 of Title 5;
5 U.S.C. 5384; or section 1201(a) of the Internal Revenue Service
Restructuring and Reform Act of 1998, Pub. L. 105-206 (112 Stat. 685,
713-716).
(3) An assessment of an employee's qualifications for promotion,
reassignment or other change in duties.
(4) An assessment of an employee's eligibility for incentives,
allowances or bonuses.
(5) Ranking of employees for release/recall and reductions in
force.
(ii) Employees who are responsible for exercising judgment with
respect to tax enforcement results (as defined in Sec. 801.5) in cases
concerning one or more taxpayers may be evaluated with respect to work
done on such cases only on the basis of information derived from a
review of the work done on the taxpayer cases handled by such employee.
(iii) Performance measures based in whole or in part on Quantity
Measures (as described in Sec. 801.5) will not be used to evaluate the
performance of or to impose or suggest goals for any non-supervisory
employee who is responsible for exercising judgment with respect to tax
enforcement results (as defined in Sec. 801.5).
Sec. 801.3 Customer satisfaction measures.
The customer satisfaction goals and accomplishments of operating
units will be determined on the basis of data derived from
questionnaires, surveys and other types of information gathering
mechanisms. Surveys designed to measure customer satisfaction for a
particular work unit will be distributed to a statistically valid
sample of the taxpayers served by that operating unit and will be used
to measure whether those taxpayers believe that they received
courteous, timely and professional treatment by the IRS personnel with
whom they dealt. Taxpayers will be permitted to provide information
requested for these purposes under conditions that guarantee them
anonymity.
Sec. 801.4 Employee satisfaction measures.
The numerical ratings to be given operating units within the IRS
for employee satisfaction will be determined on the basis of
information derived from a questionnaire which will be distributed to
all employees of the operating unit; the employees will be permitted to
provide information on an anonymous basis. Data from these surveys will
measure, among other factors bearing upon employee satisfaction, the
quality of supervision and the adequacy of training and support
services.
Sec. 801.5 Business results measures.
(a) In general. The business results measures will consist of
numerical scores determined under the Quality Measures and the Quantity
Measures described elsewhere in this section.
(b) Quality measures. The quality measure will be determined on the
basis of a review by a specially dedicated staff within the IRS of a
statistically valid sample of work items handled by certain functions
or organizational units determined by the Commissioner or his delegate
such as the following:
(1) Examination and collection units and Automated Collection
System units (ACS). The quality review of the handling of cases
involving particular
[[Page 464]]
taxpayers will focus on such factors as whether IRS personnel devoted
an appropriate amount of time to a matter, properly analyzed the issues
presented, developed the facts regarding those issues, correctly
applied the law to the facts, and complied with statutory, regulatory
and IRS procedures, including timeliness, adequacy of notifications and
required contacts with taxpayers.
(2) Toll-free telephone sites. The quality review of telephone
services will focus on such factors as whether IRS personnel provided
accurate tax law and account information.
(3) Other workunits. The quality review of other workunits will be
determined according to criteria prescribed by the Commissioner or his
delegate.
(c) Quantity measures. The quantity measures will consist of
outcome-neutral production and resource data, such as the number of
cases closed, work items completed, hours expended and similar
inventory, workload and staffing information, that does not contain
information regarding the tax enforcement result reached in any case
involving particular taxpayers.
(d) Definitions--(1) Tax enforcement result. A tax enforcement
result is the outcome produced by an IRS employee's exercise of
judgment recommending or determining whether or how the IRS should
pursue enforcement of the tax law with respect to any assessed or
unassessed tax.
(i) Examples of data containing information regarding tax
enforcement results. The following are examples of data containing
information regarding tax enforcement results: number of liens filed;
number of levies served; number of seizures executed; dollars assessed;
dollars collected; full pay rate; no change rate; and number of fraud
referrals.
(ii) Examples of data that do not contain information regarding tax
enforcement results. The following are examples of data that do not
contain information regarding tax enforcement results: number of cases
closed; time per case; direct examination time/out of office time;
cycle time; number or percentage of overage cases; inventory
information; toll-free level of access; talk time; and data derived
from a quality review or from a review of an employee's or a workunit's
work on a case, such as the number or percentage of cases in which
correct examination adjustments were proposed or appropriate lien
determinations were made.
(iii) Records of tax enforcement results. Records of tax
enforcement results are data, statistics, compilations of information
or other numerical or quantitative recordations of the tax enforcement
results reached in one or more cases, but does not include information,
including the tax enforcement result, regarding an individual case to
the extent the information is derived from a review of an employee's or
a workunit's work on individual cases.
(e) Permitted uses of records of tax enforcement results. Records
of tax enforcement results may be used for purposes such as
forecasting, financial planning, resource management, and the
formulation of case selection criteria.
(f) Examples. The following examples illustrate the rules of this
section:
Example 1. In conducting a performance evaluation, a supervisor
may take into consideration information showing that the employee
had failed to propose an appropriate adjustment to tax liability in
one of the cases the employee examined, provided that information is
derived from a review of the work done on the case. All information
derived from such a review of individual cases handled by an
employee, including time expended, issues raised, and enforcement
outcomes reached may be considered in setting goals or evaluating
the employee.
Example 2. A supervisor may not establish a goal for proposed
adjustments in a future examination, even though the goal was
derived from analyses of previously-handled cases, because such
enforcement goals are not based upon an analysis of the newly-
assigned case.
Example 3. A headquarters unit may use records of tax
enforcement results to develop methodologies and algorithms for use
in selecting tax returns to audit.
Charles O. Rossotti,
Commissioner of Internal Revenue.
[FR Doc. 99-110 Filed 1-4-99; 8:45 am]
BILLING CODE 4830-01-U
