[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