[Federal Register Volume 64, Number 151 (Friday, August 6, 1999)]
[Rules and Regulations]
[Pages 42834-42837]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19769]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 801
[TD 8830]
RIN 1545-AW80
Establishment of a Balanced Measurement System
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations relating to the
adoption by the IRS of a balanced system to measure organizational
performance within the IRS. These regulations further prescribe rules
relating to the measurement of employee performance and implement
requirements 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.
DATES: These regulations are effective September 7, 1999.
FOR FURTHER INFORMATION CONTACT: Michael G. Gallagher, 202-283-7900
(not a toll free number).
SUPPLEMENTARY INFORMATION:
Background
On January 5, 1999, the IRS published in the Federal Register (64
FR 457) a notice of proposed rulemaking regarding the establishment of
a balanced system of measures for the IRS. Comments were received and a
public hearing on the proposed regulations was held on May 13, 1999.
This document adopts, with modifications, the proposed regulations
as final regulations.
Explanation of Revisions and Summary of Comments
A commentator suggested that certain organizational changes might
add clarity to the regulation. We have adopted this suggestion and have
reorganized the regulation to contain separate sections that describe
the system for measuring organizational performance and the system for
measuring employee performance. Consistent with the suggestion of the
commentator, we have revised the heading on the latter performance
measurement system to make it clear that it relates to measuring
``employee'' performance. The organizational changes required
incidental reordering within the regulation, as well as the renumbering
of additional sections.
A commentator suggested that the discussion of the performance
criteria applicable to Senior Executive Service (SES) employees make
explicit reference to 5 U.S.C. 4313, which contains certain performance
criteria. We have adopted this suggestion and included references to 5
U.S.C. 4313 in section 801.3. The same commentator also suggested that
the regulation be modified to provide that SES and managerial employees
of the IRS will be evaluated on the basis of organizational
performance, as measured under the balanced measurement system for
organizational performance. While the IRS will modify the performance
criteria for all employees to ensure that they support the
organizational measures adopted in this regulation, it will evaluate
employees on the basis of the performance criteria made applicable to
the positions those employees occupy. Accordingly, this suggestion was
not adopted.
A commentator suggested that, while it would be appropriate to
gather data regarding customer and employee satisfaction via
``questionnaires, surveys and other types of information gathering
mechanisms'' and a ``questionnaire,'' respectively, as the proposed
regulation provides, the IRS might in the future find other appropriate
means to gather such data and should not be confined by the regulation
from adopting such other information gathering techniques. Although the
IRS intends in the near term to gather such customer and employee
satisfaction data via questionnaires and surveys, it may in the future
determine that other methods of information gathering can provide
accurate data. Accordingly, we have adopted the commentator's
suggestion and made it clear that questionnaires and surveys are only
examples of the information gathering techniques the IRS may employ to
measure customer and employee satisfaction. Sections 801.4 and 801.5 of
the regulations reflect the changes. A commentator suggested that since
certain organizations within the IRS provide service to customers other
than taxpayers, the final regulation should make clear that information
gathered from persons other than taxpayers could be used in measuring
customer satisfaction. We have adopted this suggestion and modified
Sec. 801.5.
A commentator suggested that the quantity element of the business
results measure be eliminated because, in an attempt to improve
organizational performance with respect to that quantity element,
managers might exert pressure upon employees to dispose of taxpayer
cases too quickly or without regard to merits of the issues presented.
The fundamental premise of the balanced system of organizational
measures is that the presence of measures that evaluate the quality of
the work done by the unit, the satisfaction of customers served by the
unit (including taxpayers), and the satisfaction of employees working
in the unit will obviate the risk that managers place undue emphasis
upon the quantity of work completed. The absolute prohibitions (1) on
the use of tax enforcement results and (2) on the use of quantity data
to evaluate non-supervisory employees who exercise judgment with
respect to tax enforcement results operate as effective checks against
the overzealous use of enforcement authority. Accordingly, we have not
adopted this suggestion. We have slightly modified the description of
the quantity measure to include customer education, assistance and
outreach efforts.
A commentator suggested that taxpayers against whom collection
actions have been taken would be unable to provide objective
information regarding their interactions with IRS personnel and
therefore should not be included among the taxpayers requested to
provide information regarding customer satisfaction. IRS experience
with customer satisfaction surveys, including those taken at Problem
Solving Day events, indicates that this commentator's comments are not
well founded. Accordingly, the suggestion was not adopted.
Finally, a commentator suggested that IRS should limit the
authority delegated to lower-level employees. This suggestion was
beyond the scope of the current regulation and was not adopted.
[[Page 42835]]
Special Analyses
It has been determined that this Treasury decision 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, the notice of proposed
rulemaking preceding these regulations was submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment
on its impact on small business.
Drafting Information
The principal author of these regulations is Michael G. Gallagher,
Office of the Assistant Chief Counsel (General Legal Services).
However, other personnel from the Internal Revenue Service and Treasury
Department participated in their development.
List of Subjects in 26 CFR Part 801
Government employees, Organization and functions (Government
agencies).
Amendments to the Regulations
Accordingly, 26 CFR Chapter I is amended by adding part 801 to
Subchapter H to read as follows:
PART 801--BALANCED SYSTEM FOR MEASURING ORGANIZATIONAL AND EMPLOYEE
PERFORMANCE WITHIN THE INTERNAL REVENUE SERVICE
Sec.
801.1 Balanced performance measurement system; in general.
801.2 Measuring organizational performance.
801.3 Measuring employee performance.
801.4 Customer satisfaction measures.
801.5 Employee satisfaction measures.
801.6 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--(1) 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 (Public Law 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.
(2) 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) Effective date. This part 801 is effective September 7, 1999.
Sec. 801.2 Measuring organizational performance.
(a) 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) of 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 (Public Law 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)
(Public Law 104-106, 110 Stat. 186, 679); the Government Performance
and Results Act of 1993 (Public Law 103-62, 107 Stat. 285); and the
Chief Financial Officers Act of 1990 (Public Law 101-576, 108 Stat.
2838).
(b) Limitation. Quantity measures (as described in Sec. 801.6) 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. 801.6) except in conjunction with an
evaluation or goals based also upon Customer Satisfaction Measures,
Employee Satisfaction Measures, and Quality Measures.
Sec. 801.3 Measuring employee performance.
(a) In general. All employees of the IRS will be evaluated
according to the critical elements and standards or such other
performance criteria as may be established for their positions. In
accordance with the requirements of 5 U.S.C. 4312, 4313 and 9508 and
section 1201 of the Internal Revenue Service Restructuring and Reform
Act of 1998 (Public Law 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.
(b) 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.
(c) 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 4313 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.
(d) General workforce. The performance evaluation system for all
other employees will:
(1) Establish one or more retention standards for each employee
related to the work of the employee and expressed in terms of
individual performance--
(i) Require periodic determinations of whether each employee meets
or does not meet the employee's established retention standards; and
(ii) 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.
(2) Establish goals or objectives for individual performance
consistent with the IRS's performance planning procedures--
(i) Use such goals and objectives to make performance distinctions
among employees or groups of employees; and
(ii) 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.
(e) Limitations. (1) No employee of the Internal Revenue Service
may use records of tax enforcement results (as defined in Sec. 801.6)
to evaluate any other employee or to impose or suggest production
quotas or goals for any employee.
[[Page 42836]]
(i) For purposes of the limitation contained in this paragraph (e),
employee has the meaning as defined in 5 U.S.C. 2105(a).
(ii) For purposes of the limitation contained in this paragraph
(e), evaluate includes any process used to appraise or measure an
employee's performance for purposes of providing the following:
(A) Any required or requested performance rating.
(B) 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, (Public Law 105-206, 112 Stat.
685, 713-716 ).
(C) An assessment of an employee's qualifications for promotion,
reassignment or other change in duties.
(D) An assessment of an employee's eligibility for incentives,
allowances or bonuses.
(E) Ranking of employees for release/recall and reductions in
force.
(2) Employees who are responsible for exercising judgment with
respect to tax enforcement results (as defined in Sec. 801.6) 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.
(3) Performance measures based in whole or in part on Quantity
Measures (as described in Sec. 801.6) 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. 801.6).
Sec. 801.4 Customer satisfaction measures.
The customer satisfaction goals and accomplishments of operating
units within the Internal Revenue Service will be determined on the
basis of information gathered via various methods. For example,
questionnaires, surveys and other types of information gathering
mechanisms may be employed to gather data regarding customer
satisfaction. Information to measure customer satisfaction for a
particular work unit will be gathered from a statistically valid sample
of the customers served by that operating unit and will be used to
measure, among other things, whether those customers believe that they
received courteous, timely and professional treatment by the Internal
Revenue Service personnel with whom they dealt. Customers will be
permitted to provide information requested for these purposes under
conditions that guarantee them anonymity. For purposes of this section,
customers may include individual taxpayers, organizational units or
employees within Internal Revenue Service and external groups affected
by the services performed by the Internal Revenue Service operating
unit.
Sec. 801.5 Employee satisfaction measures.
The employee satisfaction numerical ratings to be given operating
units within the Internal Revenue Service will be determined on the
basis of information gathered via various methods. For example,
questionnaires, surveys and other information gathering mechanisms may
be employed to gather data regarding employee satisfaction. The
information gathered will be used to measure, among other factors
bearing upon employee satisfaction, the quality of supervision and the
adequacy of training and support services. All employees of an
operating unit will have an opportunity to provide information
regarding employee satisfaction within the operating unit under
conditions that guarantee them anonymity.
Sec. 801.6 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 Internal
Revenue Service 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 taxpayers will focus on such factors as whether
Internal Revenue Service 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 Internal Revenue Service
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 Internal Revenue Service
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, customer education, assistance and
outreach efforts undertaken, 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 Internal Revenue Service
employee's exercise of judgment recommending or determining whether or
how the Internal Revenue Service should pursue enforcement of the tax
laws.
(i) Examples of tax enforcement results. The following are examples
of a tax enforcement result: a lien filed; a levy served; a seizure
executed; the amount assessed; the amount collected; and a fraud
referral.
(ii) Examples of data that are not tax enforcement results. The
following are examples of data that are not tax enforcement results:
case closures; 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; number and type of
customer education, assistance and outreach efforts completed; and 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.
(2) 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 do not include tax enforcement
results of individual cases when used to determine whether an employee
exercised appropriate judgment in pursuing enforcement of the tax laws
based upon a review of the employee's work on that individual case.
(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:
[[Page 42837]]
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 evaluating the employee.
Example 2. When assigning a case, a supervisor may discuss with
the employee the merits, issues and development of techniques of the
case based upon a review of the case file.
Example 3. A supervisor may not establish a goal for proposed
adjustments in a future examination, based upon the tax enforcement
results achieved in other cases.
Example 4. A headquarters unit may use records of tax
enforcement results to develop methodologies and algorithms for use
in selecting tax returns to audit.
Approved: July 22, 1999.
Charles O. Rossotti,
Commissioner of Internal Revenue.
Dated: July 22, 1999.
Donald C. Lubick,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 99-19769 Filed 8-5-99; 8:45 am]
BILLING CODE 4830-01-U