CRS Reports on Implementation of Personnel Management in IRS Reform Bill

                       CRS REPORT FOR CONGRESS

[1] The Internal Revenue Service (IRS) has begun to implement the personnel management flexibility provisions of P.L. 105-206, the Internal Revenue Service Restructuring and Reform Act, enacted on July 22, 1998. The legislation was based on the report of the National Commission on Restructuring the IRS, which recommended that the IRS and the Department of the Treasury be given more flexibility to hire qualified personnel needed to implement modernization.

[2] The law provided personnel flexibilities relating to critical pay authority, recruitment, retention, and relocation, performance awards for senior executives, and limited appointments to career reserved Senior Executive Service positions. It also included provisions on demonstration projects for personnel management, performance management and evaluation, position classification and pay, and staffing. Voluntary separation incentive payments, termination of employees for misconduct, and employee training are also covered by the law.

[3] Proposed regulations to implement sections 1201 and 1204 of P.L. 105-206, relating to organizational and employee performance and evaluation, were published by the IRS in the January 5, 1999, Federal Register. A public hearing will be conducted on May 13, 1999. The regulations would establish a balanced measurement system comprised of performance measures on customer satisfaction, employee satisfaction, and business results. No IRS employee may use records of tax enforcement results to evaluate any other employee or to impose or suggest production quotas or goals for any employee. The IRS also submitted to Congress an employee training plan as required by section 1205.

CONTENTS

[4] The Internal Revenue Service (IRS) has begun to implement the personnel management flexibility provisions of P.L. 105-206, the Internal Revenue Service Restructuring and Reform Act, enacted on July 22, 1998. The legislation was based on the report of the National Commission on Restructuring the IRS, which recommended that the IRS and the Department of the Treasury be given more flexibility to hire qualified personnel needed to implement modernization. ¹

[5] The law provided personnel flexibilities relating to critical pay authority, recruitment, retention, and relocation, performance awards for senior executives, and limited appointments to career reserved Senior Executive Service positions. It also included provisions on demonstration projects for personnel management, performance management and evaluation, position classification and pay, and staffing. Voluntary separation incentive payments, termination of employees for misconduct, and employee training are also covered by the law.

BACKGROUND ²

[6] The Internal Revenue Service Restructuring and Reform Act, H.R. 2676, passed the House of Representatives, amended, by a 426-4 vote (Roll No. 577) on November 5, 1997. Earlier, the bill, which had been introduced by Representative Bill Archer, Chairman of the Ways and Means Committee, on October 21, 1997, was reported from the Ways and Means Committee on October 31, 1997 (H. Rept. 105-364 Part I). It was discharged from the Government Reform and Oversight and Rules Committees on the same day.

[7] The House Ways and Means Committee report accompanying H.R. 2676 stated that the bill "builds on the Commission's report and recommendations and the provisions of H.R. 2292." In discussing the need for personnel flexibilities, the committee report noted that existing personnel rules and procedures on hiring, evaluating, promoting, and firing employees are subject to extensive regulation. Further, according to the committee, the risk-averse nature of the IRS provides minimal incentive for managers or front-line employees to achieve the agency's mission, and stifles creativity, innovation, and quick problem resolution. The committee stated its intention that the personnel flexibilities lead to increased accountability by IRS managers and employees and to increased focus on IRS mission, goals, and objectives. ³

[8] The Senate passed its version of H.R. 2676, amended, by a 97 to 0 vote (Vote No. 126) on May 7, 1998. This action followed Finance Committee mark-up of the bill on March 31, 1998, during which Senator William Roth's amendment in the nature of a substitute, as amended was adopted, and reporting of the bill (S. Rept. 105-174), as amended, on April 22, 1998. According to the report accompanying the bill, the personnel flexibilities are needed because:

     The Committee believes that as part of restructuring the IRS,

[10] Among the tools provided to the Commissioner, said Senator Roth, are "the wherewithal to transform the agency's workforce by providing bonuses and other incentives, and to sufficiently discipline employees whose inappropriate actions are a plague on the agency." Another change in personnel law emphasized by Senator Roth was the legislation's prohibition on "the use of enforcement statistics to evaluate any IRS employee, not merely front line collection employees and their supervisors." Senator Roth identified the use of enforcement statistics as "one of the most troubling issues raised in our September hearings," noted that the IRS Chief Inspector had substantiated the Finance Committee's findings about their use, and said that their continued use "mocks Congress" and "demonstrates that the IRS believes it is above the law." ⁶

[11] Senator Richard Bryan also emphasized the improper use of enforcement statistics and referred to their use as a "so-called quota system." According to him, "in the district in Nevada, such quotas were in fact being used, although they were not described as quotas. From all appearances, those who are part of the evaluating process could, in my judgment, have reached no other conclusion but that their performance would be judged by the amount of money that would be extracted from each taxpayer who came to the office by reason of some conflict or disagreement as to the amount of revenue that the taxpayer owed." Saying that this "is inherently wrong and unfair," Senator Bryan said that "the IRS revenue officer looks at the taxpayer not as a consumer, one who has a problem that needs to be addressed, but basically as an individual that the revenue agent must collect a certain amount of taxes from in order to be evaluated positively by his or her superiors for purposes of tenure or promotion within the system." ⁷

[12] Senator Daniel Moynihan, Ranking Member on the Finance Committee, noted the various personnel flexibilities in the bill. Focusing on the critical pay authority, he said that it is "[i]n recognition of the great disparity between the salary structures in Government and those in the private sector on parallel activities," and "provides a streamlined process by which the Commissioner can appoint up to 40 individuals designated critical technical and professional positions for up to 4-year terms at an annual compensation equivalent to the pay of the Vice President, currently $175,400." Further explaining the provision, he said that, "The Commissioner can go out and find this person to do this particular job and make it a 4-year appointment. Persons who obviously are in the private sector will come into Government at not too large a sacrifice, and for most it would be a considerable one. I do not want to use the word "sacrifice" -- lachrymose, perhaps -- just a large reduction in income for the kinds of persons that will be sought after, but not so large that they cannot manage the transition." ⁸

[13] The conference committee report (H. Rept. 105-599) accompanying H.R. 2676 was filed on June 24, 1998. ⁹ The next day, the House agreed to the conference report by a 402-8 vote (Roll No. 273), exactly one year after the National Commission on Restructuring the IRS issued its report to Congress. The Senate agreed to the conference report by a 96-2 vote (Roll. No. 189) on July 9, 1998. President William Clinton, when signing the bill on July 22, 1998, said it would help the IRS to build for the 21st. Century. It became P.L. 105-206 (112 Stat. 685, 711-723).

[14] In remarks during the House consideration of the conference report, Representative Rob Portman, co-chairman of the National Commission, noted the following with regard to the personnel flexibilities provisions:

     Very importantly, the legislation also reforms the IRS

[17] Both the House and Senate versions of H.R. 2676 drew on two sets of identical bills, HR 2292/S. 1096 and H.R. 2428/S. 1174, which had been introduced earlier, for a number of their provisions. H.R. 2292, introduced by Representatives Rob Portman and Benjamin Cardin on July 30, 1997, was referred to the House Committee on Ways and Means and, in addition, to the Committees on Government Reform and Oversight, the Budget, and Rules. In his statement upon introducing the bill, Representative Portman said that, "We strengthen the ability of the commissioner to make real changes at the IRS by providing the hiring flexibility to recruit high-quality executives." ²⁴ S. 1096, introduced by Senators Robert Kerrey and Charles Grassley on July 31, 1997, was referred to the Senate Committee on Finance. Representative Portman and Senator Kerrey were co-chairmen of the National Commission on Restructuring the IRS. Senator Grassley was also a member of the commission.

[18] H.R. 2428, introduced by Representatives Charles Rangel, William Coyne, Steny Hoyer, Henry Waxman, and Robert Matsui on September 8, 1997, was referred to the House Committees on Ways and Means and Government Reform and Oversight. Representatives Coyne and Matsui were members of the National Commission on Restructuring the IRS. Representative Rangel, Ranking Member on the Ways and Means Committee, in introducing the bill, stated that it, "provides the Treasury Department and the IRS with the ability to put together and hire at the IRS one of the best management teams in the country. Highly skilled, top talent would be able to join the IRS at pay levels commensurate with experience and expertise. Performance-based incentive pay arrangements and new demonstration management systems could be set up at the IRS, as ways to insure that management goals are met, to hold employees accountable, and to reward quality service." ²⁵ S. 1174, introduced by Senator Daniel Moynihan, by request, on September 12, 1997, was referred to the Senate Committee on Finance.

PUBLIC LAW 105-206

[19] "The conference agreement followed the Senate amendment with modifications," according to the conference committee report. ²⁶ The provisions of Subtitle C of P.L. 105-206 are discussed below.

SEC. 1201. IMPROVEMENTS IN PERSONNEL FLEXIBILITIES

[20] This section amended Part III of title 5, United States Code, by adding a new Subpart I -- Miscellaneous, Chapter 95 -- Personnel Flexibilities Relating to the Internal Revenue Service.

[21] Section 9501. Internal Revenue Service personnel flexibilities. The personnel flexibilities shall be exercised in a manner consistent with 5 U.S.C. chapter 23 on merit system principles and prohibited personnel practices; provisions on veterans preference; and, except as otherwise specifically provided, 5 U.S.C. 5307 relating to the aggregate limitation on pay and 5 U.S.C. chapter 71 relating to labor-management relations. The flexibilities shall also be subject to 5 U.S.C. 1104(b) and (c) relating to delegation of authority for personnel management, as though such authorities were delegated to the Secretary of the Treasury. The Secretary shall provide OPM with any information that it requires in carrying out its responsibilities.

[22] Employees within a unit to which a labor organization is accorded exclusive recognition shall not be subject to any flexibility for demonstration projects, performance management, classification and pay, and staffing unless the IRS and the labor organization enter into a written agreement which specifically provides for the exercise of that flexibility. The written agreement may be imposed by the Federal Services Impasses Panel.

[23] In its report accompanying H.R. 2676, the House Ways and Means Committee expressed its belief that IRS employees should be involved in the reinvention of the bureaucracies in which they work. The extent of this involvement was characterized by the committee: "Accordingly, the bill provides that the flexibilities provided to the IRS must be negotiated between the IRS and the employees' union. Such negotiations need not address all of the flexibilities provided under this provision. The written agreement should be a consensus document, but is not a contract that can be appealed to the federal services impasses panel, or otherwise create additional appeal rights." ²⁷

[24] Section 9502. Pay authority for critical positions. When the Secretary of the Treasury seeks a grant of critical pay authority for one or more positions at the IRS, the Office of Management and Budget may fix the basic pay rate at any rate up to the Vice President's salary ($175,400 as of January 1999). No allowance, differential, bonus, award, or similar cash payment may be paid to any employee receiving critical pay at a rate fixed by the provision immediately above, in any calendar year, if, or to the extent that, the employee's total annual compensation would exceed the maximum amount of total annual compensation for the Vice President.

[25] Section 9503. Streamlined critical pay authority. The Secretary of the Treasury is authorized to establish, fix the compensation of, and appoint individuals to, designated critical administrative, technical and professional positions in the IRS until July 22, 2008 (ten years after enactment of P.L. 105-206). The positions require expertise of an extremely high level in an administrative, technical or professional field and are critical to the IRS's successful accomplishment of its mission. Exercise of the authority is necessary to recruit or retain an individual exceptionally well qualified for the position. The number of critical positions may not exceed 40 at any one time. Designation of critical positions are approved by the Secretary of the Treasury. The terms of such appointments may not exceed four years. Appointees to critical positions may not have been IRS employees prior to June 1, 1998. Total annual compensation for critical positions may not exceed the highest total annual compensation payable to the Vice President ($175,400, as of January 1999). Critical positions are excluded from the collective bargaining unit. Individuals appointed to critical positions will not be employees for purposes of removal, suspension for more than 14 days, reduction in grade or pay, or furlough for 30 days or less.

[26] Section 9504. Recruitment, retention, relocation incentives, and relocation expenses. The Secretary of the Treasury is authorized, subject to approval by the Office of Personnel Management, to provide for variations from current law on recruitment, relocation, and retention incentives until July 22, 2008 (ten years after enactment of P.L. 105-206). For any new appointee appointed to a position, for which pay is fixed under the critical pay authorities at sections 9502 or 9503, after June 1, 1998, the Secretary of the Treasury may pay allowable relocation expenses (5 U.S.C. 5724a) for employees transferred or reemployed and allowable travel and transportation expenses (5 U.S.C. 5723) for new appointees. The payment is made from IRS appropriations and the authority continues until July 22, 2008.

[27] Section 9505. Performance awards for senior executives. IRS senior executives with program management responsibility over significant IRS functions may be paid a performance bonus if the Secretary of the Treasury finds the award warranted by the executive's performance. This authority continues until July 22, 2008 (ten years after enactment of P.L. 105-206). The bonus is not subject to 5 U.S.C. 5384(b)(2) which limits senior executive service performance awards to no less than 5% nor more than 20% of basic pay. The executive's performance will be evaluated by the Secretary taking into account contributions toward the successful accomplishment of goals and objectives established by the 1993 Government Performance and Results Act, division E of the Clinger-Cohen Act of 1996, Revenue Procedure 64-22 (as in effect on July 30, 1997), taxpayer service surveys, and other performance metrics or plans established in consultation with the IRS Oversight Board. Any award that exceeds 20% of an executive's basic pay rate must be approved by the Secretary.

[28] The Secretary of the Treasury shall determine the aggregate amount of performance awards available to be paid in any fiscal year under this section and 5 U.S.C. 5384(b)(3) to career senior executives in the IRS. The amount may not exceed 5% of the aggregate amount of basic pay paid to career senior executives in the IRS during the preceding fiscal year. IRS will not be included in the 5 U.S.C. 5384(b)(3) determination of the aggregate amount of performance awards payable to career senior executives in the Department of the Treasury other than the IRS. A performance bonus award may not be paid to an executive in a calendar year if, or to the extent that, the executive's total annual compensation will exceed the maximum amount of total annual compensation payable to the Vice President ($175,400, as of January 1999).

[29] The Senate Finance Committee, in its report accompanying H.R. 2676, stated its expectation "that the bonuses will not be available to more than 25 IRS senior executives annually." ²⁸

[30] Section 9506. Limited appointments to career reserved Senior Executive Service (SES) positions. In applying 5 U.S.C. 3132, "career reserved position" in the IRS means a position which may be filled only by a career appointee; or a limited emergency appointee or a limited term appointee who, immediately upon entering the career-reserved position, was serving under a career or career- conditional appointment outside the SES; or whose limited emergency or limited term appointment is approved in advance by OPM. The number of positions filled by limited emergency or limited term appointees may not exceed 10% of the total number of SES positions in the IRS. The term of a limited emergency or limited term appointee may not exceed three years. An appointee may serve two such terms, or two such terms in addition to any unexpired term applicable at the time of appointment.

[31] Section 9507. Streamlined demonstration project authority. The exercise of any of the flexibilities under sections 9502 through 9510 shall not affect the Secretary of the Treasury's authority to implement a demonstration project for the IRS, subject to 5 U.S.C. chapter 47. In applying current law to an IRS demonstration project, 5 U.S.C. 4703 is amended to provide that a plan be developed for the demonstration project which describes the project's purpose, the employees to be covered, the project itself, its anticipated outcomes, and the method for evaluating it. The plan will not be submitted to a public hearing. The notice period for informing employees likely to be affected by the plan and each house of Congress will be 30 days, and a final version of the plan will be provided to each house of Congress. No demonstration project may waive the current law provisions on family and medical leave (5 U.S.C. chapter 63, subchapter V) or on insurance and annuities (5 U.S.C. part III, subpart G). Current law limiting the size and duration of a demonstration project will not apply. Based on an evaluation of the demonstration project's results and its impact on improving public management, OPM and the Secretary of the Treasury may waive the termination date of a demonstration project. At least 90 days before the waiver, OPM will publish notice of its intention to waive the termination date in the Federal Register and inform both houses of Congress in writing.

[32] In its report accompanying H.R. 2676, the House Ways and Means Committee stated its expectation that the IRS will use the more flexible demonstration project authority to increase individual accountability. ²⁹

[33] Section 9508. General workforce performance management system. The Secretary of the Treasury shall establish, by July 22, 1999, a performance management system for the IRS in lieu of a system established under 5 U.S.C. 4302. The system will maintain individual accountability by establishing one or more retention standards for each employee related to his/her work and expressed in terms of individual performance. The standards will be communicated to employees. Periodic determinations of whether each employee does or does not meet his/her established retention standards will be made. With respect to any employee whose performance does not meet established retention standards, actions, including denying basic pay increases, promotions, and credit for performance during a reduction in force, could be taken. One or more of the following actions could also be taken: reassignment, an action under 5 U.S.C. chapter 43 on performance appraisal or 5 U.S.C. chapter 75 on adverse actions, and any other appropriate action to resolve the performance problem.

[34] The performance system will establish goals or objectives for individual, group, or organizational performance (or any combination thereof) that are consistent with IRS performance planning procedures, including those established under the 1993 Government Performance and Results Act, division E of the 1996 Clinger-Cohen Act, Revenue Procedure 64-22 (as in effect on July 30, 1997), and taxpayer service surveys. The performance system will also provide for communicating goals or objectives to employees and will use such goals and objectives to make performance distinctions among employees or groups of employees. Performance assessments will be used as a basis for granting employee awards, adjusting an employee's basic pay rate, and taking other appropriate personnel actions. Performance assessment means a determination of whether or not retention standards are met, and any additional performance determination made on the basis of performance goals and objectives. An employee's performance will be considered "unacceptable" if it fails to meet a retention standard.

[35] The Senate Finance Committee, in its report accompanying H.R. 2676, stated its intention "that in no event will performance measures be used which rank employees or groups of employees based on enforcement results, establish dollar goals for assessments or collections, or otherwise undermine fair treatment of taxpayers." ³⁰

[36] The House Ways and Means Committee, in its report accompanying H.R. 2676, stated its expectation that the performance management system refocus the IRS personnel system on the agency's overall mission and on how each employee's performance relates to the mission. The committee encouraged the IRS to redesign its performance measures to more appropriately align employee behavior with organizational goals. The design of internal measures to "encourage behavior which makes it easier for taxpayers to interact with the IRS" was identified as a necessary and significant effort for the IRS. IRS is expected to develop taxpayer service surveys to gauge the level of service that taxpayers actually receive. These surveys are to be used in evaluating organizational and group performance.

[37] The committee indicated how performance measures cannot be used:

     In no case should measures be used which rank employees or

[39] The Senate Finance Committee, in its report accompanying H.R. 2676, stated that, "These awards will be based on performance under the new performance management system, and in no case will awards be made (or performance measured) based on tax enforcement results." ³²

[40] With regard to the awards for senior managers, the House Ways and Means Committee report accompanying H.R. 2676 stated that it did not expect all of the eligible pool to receive awards each year, or that the full 50% of salary amount would be appropriate, except in cases of extraordinary performance. The committee encouraged the IRS to establish awards programs based on savings that encourage employee input into reorganizing business processes leading to efficiency gains, and share with employees the resulting savings. ³³

[41] Notice/Appeal. The notice period for actions based on unacceptable performance or adverse actions is 15 days. An IRS employee may not appeal the denial of a periodic step increase to the Merit Systems Protection Board.

[42] According to the House Ways and Means Committee report that accompanied H.R. 2676, employees can appeal denial of a step increase pursuant to internal agency procedures, including those in collective bargaining agreements or in the written agreements discussed under section 9301 of H.R. 2676 authorizing the use of personnel flexibilities. ³⁴

[43] Section 9509. General workforce classification and pay. The Secretary of the Treasury may, subject to OPM criteria, establish one or more broad-banded systems covering all or any portion of the IRS workforce. "Broad-banded system" means a system for grouping positions for pay, job evaluation, and other purposes that differs from the General Schedule classification system as a result of combining grades and related ranges of rates of pay in one or more occupational series. With OPM approval, a broad-banded system may either include or consist of positions that otherwise would be subject to classification for prevailing rate systems, or for senior- level positions. OPM may require the Secretary of the Treasury to submit information relating to broad-banded systems at the IRS. Except as otherwise provided, employees under a broad-banded system shall continue to be subject to the laws and regulations of the pay system that would otherwise apply to them.

[44] The OPM criteria shall, at a minimum: (A) ensure that the structure of any broad-banded system maintains the principle of equal pay for substantially equal work; (B) establish the minimum and maximum number of grades that may be combined into pay bands; (C) establish requirements for setting minimum and maximum rates of pay in a pay band; (D) establish requirements for adjusting the pay of an employee within a pay band; (E) establish requirements for setting the pay of a supervisory employee whose position is in a pay band or who supervises employees whose positions are in pay bands; and (F) establish requirements and methodologies for setting the pay of an employee upon conversion to a broad-banded system, initial appointment, change of position or type of appointment (including promotion, demotion, transfer, reassignment, reinstatement, placement in another pay band, or movement to a different geographic location), and movement between a broad-banded system and another pay system. With the approval of OPM and in accordance with his/her implementation plan, the Secretary of the Treasury may provide for variations from current law on grade and pay retention for IRS employees covered by a broad-banded system.

[45] SECTION 9510. GENERAL WORKFORCE STAFFING. PERMANENT APPOINTMENT IN THE COMPETITIVE SERVICE. An IRS employee may be selected for a permanent appointment in the competitive service in the IRS through internal competitive promotion procedures. The following conditions must be met: the employee has completed two years of current continuous service in the competitive service under a term appointment or any combination of term appointments; the term appointment or appointments were made under competitive procedures prescribed for permanent appointments; the employee's performance under the term appointment or appointments met established retention standards, or, if not covered by a performance management system established under section 9508, was rated at the fully successful level or higher (or equivalent thereof); and the vacancy announcement for the term appointment from which the conversion is made stated that there was a potential for subsequent conversion to a permanent appointment. An appointment may be made only to a position in the same line of work as a position to which the employee received a term appointment under competitive procedures.

[46] RATING SYSTEMS. The Secretary of the Treasury may establish category rating systems for evaluating applicants for IRS positions in the competitive service. Qualified candidates will be divided into two or more quality categories on the basis of relative degrees of merit, rather than assigned individual numerical ratings. Each applicant who meets the minimum qualification requirements for the position to be filled shall be assigned to an appropriate category based on an evaluation of his/her knowledge, skills, and abilities relative to those needed for successful performance in the job to be filled. Within each quality category, preference eligibles shall be listed ahead of other individuals. For other than scientific and professional positions at or higher than GS-9 (or equivalent), preference eligibles with a compensable service-connected disability of 10% or more, and who meet the minimum qualification standards, will be listed in the highest quality category. An appointing authority may select any applicant from the highest quality category. If fewer than three candidates have been assigned to the highest quality category, the individual may be selected from a merged category consisting of the highest and second highest quality categories. The appointing authority may not pass over a preference eligible in the same or a higher category from which the selection is made, unless the requirements of 5 U.S.C. 3317(b) or 3318(b) are satisfied.

[47] DETAILS. The Secretary of the Treasury may detail employees among IRS offices without regard to current law which limits details and renewals of details to 120 days.

[48] PROBATIONARY PERIODS. A probationary period of up to three years may be established by the Secretary of the Treasury for IRS positions that require a longer period for the incumbent to demonstrate complete proficiency.

[49] PROVISIONS THAT REMAIN APPLICABLE. The Secretary of the Treasury is not exempted from any employment priority established under the direction of the President for the placement of surplus or displaced employees, or any obligation under a court order or decree relating to IRS or Department of the Treasury employment practices.

SEC. 1202. VOLUNTARY SEPARATION INCENTIVE PAYMENTS

[50] The IRS Commissioner is authorized to pay voluntary separation incentive payments (VSIP) to any employee to the extent necessary to carry out the plan to reorganize the IRS. "Employee" means an employee (as defined by 5 U.S.C. 2105) who is employed by the IRS and serving under an appointment without time limitation, and has been currently employed for a continuous period of at least three years. It does not include a reemployed annuitant; an employee having a disability on the basis of which the employee is or would be eligible for disability retirement; an employee who has received a specific notice of involuntary separation for misconduct or unacceptable performance; an employee, who upon completing an additional period of service, would qualify for a VSIP under section 3 of the Federal Workforce Restructuring Act of 1994; an employee who has previously received any VSIP by the federal government and has not repaid the payment; an employee covered by statutory reemployment rights who is on transfer to another organization; or any employee who, during the 24-months preceding the separation date, has received a recruitment or relocation bonus, or who, within the 12- months preceding the separation date, received a retention allowance.

[51] A voluntary separation incentive payment shall be paid in a lump sum after the employee's separation, shall be paid from appropriations or funds available for the payment of employee basic pay, and shall be equal to the lesser of (1) an amount equal to the amount of severance pay the employee would be entitled to receive, or (2) an amount determined by an agency head not to exceed $25,000. A VSIP may be made to a qualifying employee who voluntarily separates (whether by retirement or resignation) before January 1, 2003; shall not be a basis for payment, and shall not be included in the computation, of any other type of government benefit; and shall not be taken into account in determining the amount of any severance pay to which the employee may be entitled, based on any other separation.

[52] In addition to any other payments which it is required to make, the IRS shall remit to OPM for deposit in the U.S. Treasury to the credit of the Civil Service Retirement and Disability Fund an amount equal to 15% of the final basic pay of each employee who is covered by the Civil Service Retirement System or the Federal Employees Retirement System, to whom a voluntary separation incentive has been paid. "Final basic pay" of an employee means the total amount of basic pay which would be payable for a year of service by the employee. It is computed using the employee's final rate of basic pay, and, if last serving on other than a full-time basis, with appropriate adjustment therefor.

[53] An individual who has received a VSIP and accepts any employment for compensation with the federal government, or who works for any federal agency through a personal services contract, within five years after the separation date on which the payment is based, shall be required to pay the entire amount of the VSIP to the IRS. Payment must be made prior to the first day of employment.

[54] Voluntary separations are not intended to necessarily reduce the total number of full-time equivalent (FTE) positions in the IRS. The IRS may redeploy or use the FTE positions vacated by voluntary separations to make other positions available to more critical locations or more critical occupations.

SEC. 1203. TERMINATION OF EMPLOYMENT FOR MISCONDUCT

[55] The IRS Commissioner is authorized to terminate any IRS employee if there is a final administrative or judicial determination that the employee committed any act or omission in performing his/her official duties. The termination shall be a removal for cause on charges of misconduct. The acts or omissions which would result in termination are the following.

     o (1) willful failure to obtain the required approval signatures

[57] The acts or omissions numbered (8), (9), and (10) which would result in termination were contained in an amendment offered by Senator Phil Gramm which was agreed to by the Senate by voice vote on May 7, 1998. Senator Robert Kerrey, in commenting on the amendment, said that, "In general, this legislation is attempting to change the culture by saying here are some things that, if you do it, there are going to be severe penalties. . . . so that there is a new seriousness given to actions taken by the IRS." ³⁵

[58] The IRS Commissioner may take a personnel action other than termination for an act or omission. The exercise of this authority shall be at the sole discretion of the Commissioner and may not be delegated to any other officer. The Commissioner, in his sole discretion, may establish a procedure which will be used to determine whether an individual should be referred to the Commissioner for a determination on a personnel action. Any determination of the Commissioner may not be appealed in any administrative or judicial proceeding.

SEC. 1204. BASIS FOR EVALUATION OF INTERNAL REVENUE SERVICE EMPLOYEES

[59] The IRS shall not use records of tax enforcement results to evaluate employees or to impose or suggest production quotas or goals with respect to such employees. ³⁶ The IRS shall use the fair and equitable treatment of taxpayers by employees as one of the standards for evaluating employee performance. Each appropriate supervisor shall certify quarterly by letter to the IRS Commissioner whether or not tax enforcement results are being used in a manner prohibited by this section. This provision shall apply to evaluations conducted on or after July 22, 1998, the enactment date of P.L. 105- 206. Section 6231 of the Technical and Miscellaneous Revenue Act of 1988 (Public Law 100-647; 102 Stat. 3734) is repealed.

SEC. 1205. EMPLOYEE TRAINING PROGRAM

[60] The IRS Commissioner is required, not later than 180 days after enactment of the act, to implement an employee training program and submit an employee training plan to the Senate Committee on Finance and the House Committee on Ways and Means. The training plan shall:

     o detail a comprehensive employee training program to ensure

SECTIONS 1201 (SECTION 9508) AND 1204

[61] The IRS published proposed regulations to implement sections 1201 and 1204 of P.L. 105-206, relating to organizational and employee performance and evaluation, in the January 5, 1999, Federal Register. ³⁷ (A public hearing will be conducted on May 13, 1999; outlines of oral comments to be presented at the hearing must be submitted by April 22, 1999.) Chapter I of Tide 26, Code of Federal Regulations, would be amended by adding Part 801 to Subchapter H. The regulations would become effective 30 days after publication as final regulations in the Federal Register. They would establish a balanced measurement system comprised of performance measures on customer satisfaction, employee satisfaction, and business results, as discussed below.

[62] Section 801.2. Balanced performance measurement system. The performance measures will, to the maximum extent possible, be stated in objective, quantifiable and measurable terms. They will be used to measure the overall performance of various operational units within the IRS. Where appropriate, the measures will also be used in performance goals and performance evaluations established under Division E of the 1996 Clinger-Cohen Act, the 1993 Government Performance and Results Act, and the 1990 Chief Financial Officers Act.

[63] All IRS employees will be evaluated according to the critical elements and standards or other performance criteria established for their positions. The performance criteria for each position will be composed of elements that support the organizational measures of customer satisfaction, employee satisfaction, and business results. These organizational measures will not directly determine the evaluation of individual employees. All IRS employees will be evaluated on whether they provided fair and equitable treatment to taxpayers.

[64] Senior Executive Service employees and employees in critical pay positions (under section 9503) will be evaluated pursuant to work plans, employment agreements, performance agreements, or similar documents entered into between the IRS and the employee.

[65] For all other employees, the performance evaluation system will establish one or more retention standards for each employee related to their work and expressed in terms of their individual performance. Periodically, determinations will be made as to whether the employee meets or does not meet the retention standards; for those whose performance does not, action authorized by law or regulations will be taken. The performance evaluation system will also establish goals or objectives for individual performance which are consistent with the IRS's performance planning procedures. The goals and objectives will be used to make performance distinctions among employees or groups of employees. Performance assessments will be used to grant awards, adjust basic pay, and take other appropriate personnel actions as authorized by law or regulations.

[66] No IRS employee may use records of tax enforcement results to evaluate any other employee or to impose or suggest production quotas or goals for any employee. The term "evaluate" includes any process used to appraise or measure an employee's performance for purposes of providing any required or requested performance rating; an award recommendation; an assessment of an employee's qualifications for promotion, reassignment or other change in duties; an assessment of an employee's eligibility for incentives, allowances, or bonuses; and ranking employees for release/recall and reductions in force. The proposed regulations state that, "Over the years, the IRS has been repeatedly criticized for placing too much reliance upon tax enforcement measures it has adopted." ³⁸ The history of this issue is presented at pages 459 through 461 of the proposed regulations. According to IRS, subsequent guidance will be provided on procedures for certifying whether or not records of tax enforcement results have been used in a manner prohibited by section 1204.

[67] Evaluations of employees who are responsible for exercising judgment with respect to tax enforcement results in cases concerning one or more taxpayers may be conducted with respect to work done on such cases only on the basis of information derived from a review of the work done. Performance measures based in whole or in part on quantity measures 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.

[68] Section 801.3. Customer satisfaction measures. Data derived from questionnaires, surveys, and other types of information gathering mechanisms will be used to determine customer satisfaction goals and accomplishments of IRS operating units. Customer satisfaction surveys for a particular work unit will be distributed to a statistically valid sample of taxpayers served by the unit and will measure whether the treatment of taxpayers was courteous, timely, and professional. Taxpayers responding to surveys will be guaranteed anonymity.

[69] Section 801.4. Employee satisfaction measures. Employee satisfaction with IRS operating units will be based on results of a questionnaire distributed to all employees of the unit. Employee anonymity will be permitted. Among other factors, the surveys will measure the quality of supervision and the adequacy of training and support services.

[70] Section 801.5. Business results measures. These measures will consist of numerical scores determined by quality and quantity measures. (The proposed regulations provide three examples applying the rules for business results measures.) The quality measures will be determined by a review of a statistically valid sample of work items handled by certain functions or organizational units as determined by the IRS Commissioner or his delegate. The review will be conducted by a specially dedicated staff within IRS.

[71] For examination and collection units and automated collection system units, the quality review will focus on factors such 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. The quality review of toll-free telephone sites will focus on factors such as whether IRS personnel provided accurate tax law and account information. Other work units will be reviewed according to criteria prescribed by the IRS Commissioner or his delegate.

[72] Outcome-neutral production and resource data will make-up the quantity measures. Such data will include the number of cases closed, work items completed, hours expended and similar inventory, and workload and staffing information that does not contain information on the tax enforcement result of cases involving particular taxpayers.

[73] Tax enforcement result. This 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. Examples of data containing information regarding tax enforcement results are the number of liens filed, number of levies served, number of seizures executed, dollars assessed, dollars collected, fall pay rate, no change rate, and number of fraud referrals.

[74] Data which do not contain information regarding tax enforcement results include 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, and talk time. Also not containing tax enforcement result information are data derived from a quality review or from a review of an employee's or a work unit'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.

[75] Records of tax enforcement results are data, statistics, and compilations of information or other numerical or quantitative recordations of the tax enforcement results reached in one or more cases. Not included in such records is information, including the tax enforcement result, in an individual case to the extent the information derives from review of an employee's or a work unit's work on individual cases. Records of tax enforcement results may be used for purposes such as forecasting, financial planning, resource management, and the formulation of case selection criteria.

SECTION 1205

[76] The IRS, as required by P.L. 105-206, submitted an employee training plan to Congress.

² A discussion of the testimony presented at Senate and House hearings on the legislation appeared in the July 24, 1998 version of this report and is available from CRS.

³ U.S. House Committee on Ways and Means, Internal Revenue Service Restructuring and Reform Act of 1997, Report to Accompany H.R. 2676, H. Rept. 105-364 Part 1, 105th Cong., 1st Sess., (Washington: GPO, Oct. 31, 1997), pp. 45-46. (Hereafter referred to as Ways and Means Committee Report.)

⁴ U.S. Senate Committee on Finance, Internal Revenue Service Restructuring and Reform Act of 1998, Report to Accompany H.R. 2676, S. Rept. 105-174, 105th Cong., 1st Sess., (Washington: GPO, Apr. 22, 1998), pp. 34-35. (Hereafter referred to as Finance Committee Report.)

⁵ Congressional Record, daily edition, vol. 144, May 4, 1998, pp. S4182-S4183.

⁶ Ibid., p. S4183.

⁷ Ibid., p. S4189.

⁸ Ibid., p. S4185.

⁹ U, S. House Internal Revenue Service Restructuring and Reform Act of 1998, Conference Report to Accompany H.R. 2676, H. Rept. 105-599, 105 h Cong., 2d Sess., (Washington: GPO, June 24, 1998), 368p. (Hereafter referred to as Conference Report.)

¹⁰ Congressional Record, daily edition, vol. 144, June 25, 1998, p. H5354.

¹¹ Congressional Record, daily edition, vol. 144, July 8, 1998, pp. S7622-S7623.

¹² Ibid., p. S7625.

¹³ Ibid., p. S7629.

¹⁴ Ibid., p. S7635.

¹⁵ Ibid., pp. S7641-S7642.

¹⁶ Ibid., p. S7644.

¹⁷ Ibid., p. S7648.

¹⁸ Ibid., p. S7649.

¹⁹ Ibid., p. S7666-S7667.

²⁰ Congressional Record, daily edition, vol. 144, July 9, 1998, p. S7719.

²¹ Ibid., p. S7721.

²² Congressional Record, daily edition, vol. 144, July 8, 1998. See: Senator Reid at p. S7633, Senator Bryan at p. S7635, Senator Enzi at p. S7648, Senator Kyl at p. S7658, Senator Leahy at p. S7664, Senator Snowe at p. S7665, Senator Mack at p. S7666, and Senator Kerry at p. S7667.

²³ Ibid. See: Senator Roth at pp. S7622-S7623, Senator Gramm at pp. S7629-S7630, Senator Kerrey at p. S7631, Senator Reid at p. S7633, Senator Grassley at p. S7646, and Senator Snowe at p. S7665. Congressional Record, daily edition, vol. 144, July 9, 1998. See: Senator Domenici at p. S7718, Senator Dodd at p. S7722, and Senator Kohl at p. S7722.

²⁴ Hon. Rob Portman, Introduction of H.R. 2292 -- The Internal Revenue Service Restructuring and Reform Act of 1997, Congressional Record, daily edition, vol. 143, Aug. 1, 1997, p. E1606.

²⁵ Remarks of Representative Charles Rangel on The Internal Revenue Service Improvement Act of 1997, Congressional Record, daily edition, vol. 143, Sept. 8, 1997, p. H6999. The remarks of Representative William Coyne appear on the same page.

²⁶ Conference Report, p. 233.

²⁷ Ways and Means Committee Report, p. 46.

²⁸ Finance Committee Report, p. 36.

²⁹ Ways and Means Committee Report, p. 49.

³⁰ Finance Committee Report, p. 37.

³¹ Ways and Means Committee Report, p. 47.

³² Finance Committee Report, p. 37.

³³ Ways and Means Committee Report, p. 48.

³⁴ Ways and Means Committee Report, p. 48.

³⁵ Congressional Record, daily edition, vol. 144, May 7, 1998, p. S4486.

³⁶ For an evaluation of the compliance of IRS managers with this prohibition, see: U.S. General Accounting Office, IRS Personnel Administration; Use of Enforcement Statistics in Employee Evaluations, GAO Report GGD-99-11 (Washington: Nov. 1998).

³⁷ U.S. Department of the Treasury, Internal Revenue Service, "Establishment of a Balanced Measurement System," Federal Register, vol. 64, Jan. 5, 1999, pp. 457-464.

³⁸ Ibid., p. 459.