IRS performance measures.

October 1, 1999

On October 1, 1999, Tax Executives Institute submitted the following comments to the Internal Revenue Service concerning the development of performance measures for employees in the IRS's Coordinated Examination Program. The comments, which were directed to Richard W. Teed, acting National Director, Corporate Examinations, were prepared under the aegis of TEI's IRS Administrative Affairs Committee, whose chair is Robert J. McDonough, Jr. of Wang Global, Inc. Also participating in the development of the comments was Sandra A. Carroll of Nortel Networks, Inc. On November 3, Mr. Teed, together with Thomas J. Smith, who is the executive in charge of the IRS's "balanced measures" initiative, met with Mr. McDonough and other representatives of the Institute to discuss TEI's comments and recommendations. That meeting is discussed elsewhere in this issue.

On August 5, 1999, the Internal Revenue Service promulgated final regulations to establish a balanced performance measurement system within the IRS. The regulations implement the changes in performance measures mandated by the Internal Revenue Service Restructuring and Reform Act of 1998 and provide the general outline for measuring performance on both an organizational (program) and employee-by-employee basis. In respect of the evaluations of individual employees, the next step in the process will be the development of the job elements and standards that are critical to the successful completion of an examination.

Tax Executives Institute's interest in IRS performance measures has a long history, with the topic being a mainstay at the Institute's liaison meetings with the Commissioner and other National Office, regional, and district officials for many years. During previous discussions there has been agreement that, in order to succeed, the IRS must adapt to the ever-evolving business environment and become more taxpayer-service oriented. Experience teaches that reliance on measurements such as the dollars proposed for adjustment will not produce overall solid results. The new measurements established by the final regulations are a good start toward achieving a better balanced, more efficient administration of the tax laws.

Background

Section 1201 of the IRS Restructuring Act requires the IRS to establish a performance measurement system to set goals and objectives for individual and operational unit performance. These performance measures are to be used in granting employee awards, setting merit pay increases, and taking other personnel actions. Section 1204 of the Act expressly prohibits the use of tax enforcement results to evaluate IRS employees or to set production goals. TEI has previously submitted comments to the IRS affirming our belief that tax enforcement results (particularly the use of proposed adjustments) should not be emphasized in the measurement of agent performance. Thus, TEI welcomes the opportunity for change provided by the new legislation and we applaud the IRS's efforts to eliminate reliance on enforcement results.

In enacting the IRS Restructuring Act, Congress expressed concern that an evaluation system based on quantitative goals or tax enforcement statistics -- even if only applied at the management level -- may result in examinations unduly focused on raising revenue, rather than the verification of return information. This concern grew out of congressional hearings at which IRS employees testified that the agency's performance measurement system had created an environment that promoted achievement of certain quantitative goals, especially in respect of collection matters. Although the IRS cannot turn a blind eye to its responsibility to collect taxes, the Institute strongly...