Tax Administration: IRS' Implementation of the Restructuring Act's
Personnel Flexibility Provisions (Letter Report, 04/28/2000,
GAO/GGD-00-81).

Pursuant to a congressional request, GAO provided information on the
Internal Revenue Service's (IRS) Restructuring and Reform Act's
personnel flexibility provisions, focusing on: (1) IRS' implementation
of these provisions; and (2) any tax administration concerns that may
have arisen in relation to implementation.

GAO noted that: (1) IRS has implemented or begun to implement the
mandated personnel flexibility provisions in the Restructuring Act; (2)
specifically, the agency has: (a) begun implementing a new three-phase
performance management system; (b) been reviewing alleged employee
misconduct, and, as of March 1, 2000, had terminated 17 employees for
misconduct; (c) been working to eliminate enforcement statistics in
employee evaluations; and (d) implemented a new training program
emphasizing customer service; (3) IRS has also begun using some of the
discretionary personnel flexibility provisions permitted by the
Restructuring Act; (4) senior managers have been hired at critical pay,
a new pay-banding system for non-Senior Executive Service managers has
been adopted, and several streamlined demonstration projects and new
separation incentive payments are under development; (5) also, certain
recruitment, retention, and performance bonuses have been paid; (6) IRS'
implementation of the personnel flexibility provisions raises several
tax administration concerns; (7) as GAO's prior report and a Treasury
Inspector General for Tax Administration (TIGTA) report have noted, IRS
has had difficulty in eliminating the use of enforcement statistics in
employee evaluations; (8) another TIGTA report found that IRS has had
difficulty developing an accurate system for counting taxpayer
complaints of employee misconduct; (9) in addition, as GAO has
previously reported, IRS employees have taken significantly fewer
enforcement actions to collect delinquent taxes since passage of the
Restructuring Act; and (10) frontline employees GAO spoke to believed
that the decline was due to a lack of agency guidance on how to
interpret the provision concerning employee misconduct.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-00-81
     TITLE:  Tax Administration: IRS' Implementation of the
	     Restructuring Act's Personnel Flexibility Provisions
      DATE:  04/28/2000
   SUBJECT:  Tax law
	     Performance measures
	     Personnel evaluation
	     Federal employees
	     Tax administration
	     Personnel recruiting
	     Human resources training
	     Personnel management
	     Malfeasance

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************

United States General Accounting Office
GAO

Report to Congressional Requesters

April 2000

GAO/GGD-00-81

TAX ADMINISTRATION
IRS' Implementation of the Restructuring Act's

Personnel Flexibility Provisions

Ordering Copies of GAO Reports
The first copy of each GAO report and testimony
is free. Additional copies are $2 each. Orders
should be sent to the following address,
accompanied by a check or money order made out
to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards are
accepted, also. Orders for 100 or more copies to
be mailed to a single address are discounted 25
percent.
Order by mail:
U.S. General Accounting Office
P.O. Box 37050
Washington, DC 20013
or visit:
Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC
Orders may also be placed by calling (202) 512-
6000 or by using fax number (202) 512-6061, or
TDD (202) 512-2537.
Each day, GAO issues a list of newly available
reports and testimony. To receive facsimile
copies of the daily list or any list from the
past 30 days, please call (202) 512-6000 using a
touch-tone phone. A recorded menu will provide
information on how to obtain these lists.
Viewing GAO Reports on the Internet
For information on how to access GAO reports on
the INTERNET, send e-mail message with "info" in
the body to:
[email protected]
or visit GAO's World Wide Web Home Page at:
http://www.gao.gov

Reporting Fraud, Waste, and Abuse in Federal
Programs
To contact GAO FraudNET use:
Web site:
http://www.gao.gov/fraudnet/fraudnet.htm
E-Mail: [email protected]
Telephone: 1-800-424-5454 (automated answering
system)

United States
General Accounting Office
Washington, D.C. 20548-0001
Official Business
Penalty for Private Use $300
Address Correction Requested

                    Bulk Rate
               Postage & Fees Paid
                       GAO
                 Permit No. G100

(268902)

Contents
Page 121GAO/GGD-00-81 Restructuring Act's Personnel Flexibility
Provisions
Letter                                                                      1
Appendix I                                                                 14
Summary of Restructuring
and Reform Act
Provisions Authorizing
Personnel Flexibilities
Within IRS
Appendix II                                                                19
IRS Executive Positions
Filled, Hiring in
Process, or Recruiting
in Process Using
Streamlined Critical Pay
Authority
Appendix III                                                               20
Comments From the
Internal Revenue Service

Abbreviations

IRS       Internal Revenue Service
OPM       Office of Personnel Management
SES       Senior Executive Service
TIGTA     Treasury Inspector General for Tax
Administration

B-284218

Page 10GAO/GGD-00-81 Restructuring Act's Personnel
Flexibility Provisions
B-284218

April 28, 2000

The Honorable Bill Archer
Chairman, Committee on Ways and Means
House of Representatives

The Honorable Amo Houghton
Chairman, Subcommittee on Oversight
Committee on Ways and Means
House of Representatives

To help the Internal Revenue Service (IRS) improve
tax administration and service to taxpayers,
Congress included new requirements and more
flexibility for handling personnel issues in the
IRS Restructuring and Reform Act of 1998
(Restructuring Act).1 Some of the act's personnel
flexibility provisions are mandates requiring IRS
to create a new performance management system;
terminate employees for specified acts of
misconduct, such as lying under oath in a taxpayer
matter; eliminate the use of enforcement
statistics in employee evaluations; and develop a
new training plan that emphasizes customer
service. Other personnel flexibility provisions
give IRS discretionary authority in hiring,
paying, and recruiting staff.

This report responds to your request that we
provide a status report on IRS' implementation of
these provisions. The report also discusses any
tax administration concerns that may have arisen
in relation to implementation.

To meet these objectives, we reviewed
documentation on the status of each personnel
flexibility provision and interviewed officials
from IRS organizational units, the Department of
the Treasury, and the Office of Personnel
Management (OPM). We also reviewed prior GAO and
Treasury Inspector General for Tax Administration
(TIGTA) reports that related to certain
provisions. As agreed with the Subcommittee
office, we did not assess the effectiveness of the
personnel flexibility provisions.

Results in Brief
IRS has implemented or begun to implement the
mandated personnel flexibility provisions in the
Restructuring Act. Specifically, the agency has
begun implementing a new three-phase performance
management system; has been reviewing alleged
employee misconduct and, as of March 1, 2000, had
terminated 17 employees for misconduct; has been
working to eliminate enforcement statistics in
employee evaluations; and has implemented a new
training program emphasizing customer service.

IRS has also begun using some of the discretionary
personnel flexibility provisions permitted by the
Restructuring Act. Senior managers have been hired
at critical pay;2 a new pay-banding system for non-
Senior Executive Service (SES) managers has been
adopted; and several streamlined demonstration
projects and new separation incentive payments are
under development. Also, certain recruitment,
retention, and performance bonuses have been paid.

IRS' implementation of the personnel flexibility
provisions raises several tax administration
concerns. As our prior report and a TIGTA report
have noted, IRS has had difficulty in eliminating
the use of enforcement statistics in employee
evaluations.3 Another TIGTA report found that IRS
has had difficulty developing an accurate system
for counting taxpayer complaints of employee
misconduct.4 In addition, as we have previously
reported, IRS employees have taken significantly
fewer enforcement actions to collect delinquent
taxes since passage of the Restructuring Act.
Frontline employees we spoke to believed that the
decline was due to a lack of agency guidance on
how to interpret the provision concerning employee
misconduct.5

Background
Following a series of hearings concerning the
treatment of taxpayers, Congress concluded that
IRS needed comprehensive reform. On July 22, 1998,
Congress enacted the Internal Revenue Service
Restructuring and Reform Act to balance IRS'
responsibility to collect taxes with its
responsibility to protect the rights of taxpayers
and serve the public.

The personnel flexibility provisions of the act
cover a wide range of personnel-related functions,
including

ï¿½    providing critical pay to attract senior
managers,
ï¿½    rewarding senior executives for meeting IRS
goals and objectives,
ï¿½    terminating employees for misconduct,
ï¿½    eliminating the use of enforcement statistics
in employee evaluations, and
ï¿½    developing a training program that emphasizes
customer service.

As we have reported, the Restructuring Act
mandated sweeping reforms at IRS.6 In addition to
the personnel flexibilities, the act included
other provisions to reorganize IRS and to provide
additional taxpayer protection and rights. In
response to the act, IRS changed its mission
statement to emphasize taxpayer service and is
restructuring its organization into four operating
divisions to serve different groups of taxpayers.
The status of implementation of the taxpayer
protection and rights provisions is the subject of
a forthcoming GAO report.7

Scope and Methodology
To meet our reporting objectives, we reviewed
documentation from various IRS organizations on
the status of each personnel flexibility provision
of the Restructuring Act. We interviewed officials
from the organizations responsible for
implementing the various personnel provisions,
including IRS' Chief, Management and Finance;
Chief, Human Resources; and National Director,
Complaint Processing Analysis Group. For those
provisions requiring Treasury or OPM approval, we
obtained the views of cognizant officials. We also
asked IRS and Treasury officials for their views
on any tax administration concerns or problems
they encountered in implementing the provisions of
the act. Finally, for some provisions, we reviewed
prior GAO and TIGTA reports. As agreed with the
Subcommittee office, we did not assess the
effectiveness of the personnel flexibility
provisions.

We did our work primarily at IRS headquarters in
Washington, D.C., between November 1999 and March
2000 in accordance with generally accepted
government auditing standards.

We requested comments on a draft of this report
from the Commissioner of Internal Revenue. The
comments are discussed at the end of this letter
and are reprinted in appendix III.

IRS Has Implemented or Begun to Implement the
Mandated Provisions
IRS has either implemented or begun to implement
the personnel flexibility provisions mandated by
the Restructuring Act. IRS has begun to overhaul
its performance management system and has
terminated employees for misconduct. In addition,
IRS has been working to eliminate the use of
enforcement statistics in employee evaluations and
has implemented a new customer service training
program.

Overhaul of IRS' Performance Management System Has
Begun
IRS officials believe that they have established a
new performance management system that conforms
with the requirements of the Restructuring Act.
Section 9508 of the U.S. Code, added by the
Restructuring Act,8 required that IRS establish a
performance management system that would maintain
individual accountability by establishing
retention standards, periodically determine
whether each employee met the standards, and take
action with any employee whose performance did not
meet the standards.

IRS has a three-phased approach for implementing
its new performance management system. IRS
officials believe that such an approach is needed
because of the complexity of developing a new
system while undergoing major organizational
change, promoting workforce diversity, and
maintaining cooperative labor relations. The three
phases are

ï¿½    Phase one: Establishment of a retention
standard for all employees (a level of performance
necessary to be retained in a job) that requires
the fair and equitable treatment of taxpayers was
accomplished on July 1, 1999. According to IRS'
Chief Human Resources Officer, phase one meets the
requirements of section 9508.
ï¿½    Phase two: Performance plans for managers
were implemented by January 31, 2000. Performance
plans for other employees are currently being
developed, beginning with those for newly created
positions.
ï¿½    Phase three: Integration with other human
resource systems is scheduled for some time during
fiscal year 2001.

IRS Has Terminated Employees for Misconduct
As of March 1, 2000, IRS had terminated 17
employees in accordance with this provision.
Section 1203 of the Restructuring Act required IRS
to terminate an employee if there was an
administrative or judicial determination that the
employee committed certain acts or omissions in
performance of official duties.9 Such acts include
lying under oath in a taxpayer matter and
falsifying documents to conceal employee mistakes
(see app. I). IRS has procedures in place for
receiving and investigating alleged violations. Of
over 400 allegations of employee misconduct, IRS
found that about 40 were probable violations of
the act, while about 70 were considered to be
misconduct not covered by the act.

IRS Has Been Working to Eliminate the Use of
Enforcement Statistics in Employee Evaluations
IRS has taken steps to meet the Restructuring
Act's section 1204 prohibition on using
enforcement statistics to impose or suggest
production quotas or goals for any employee or to
evaluate an employee based on such statistics.
However, IRS does not have the information
necessary to determine whether the implementation
steps have been sufficient.

IRS has taken several steps to implement section
1204. IRS has taken action on the recommendations
in our earlier report on IRS' use of enforcement
statistics, such as making the certification form
and associated guidance more specific about the
appropriate and inappropriate use of enforcement
results.10 Our current review showed that appraisal
forms had been revised in late 1998 to add
certification that enforcement statistics were not
used in evaluating employees. In addition, IRS has
issued a handbook on the appropriate use of
performance measures, conducted agencywide
training sessions, and planned to issue additional
guidance for supervisors on how to avoid the use
of enforcement statistics in setting employee
performance expectations and monitoring or
evaluating performance.

Information collected after passage of the
Restructuring Act, but before IRS' implementation
was complete, showed that enforcement statistics
continued to be used inappropriately. In a spring
1999 survey, IRS found that about 7 percent of its
employees in the Collection division and 9 percent
in the Examination division reported that their
supervisors had either discussed enforcement
statistics with them or used statistics to
evaluate their performance. A TIGTA report showed
that as of September 1999, about 2 percent of the
evaluation documents contained suggestions of
quotas.11

Neither we nor IRS have evaluated the
effectiveness of the steps it has taken. At
present, IRS has some, but not all, of the
performance information it needs to make such an
assessment. The results of IRS' next survey of
employees should provide comparative data to
assess whether the agency has made progress in
eliminating the use of enforcement statistics in
employee evaluations.

IRS' New Customer Service Employee Training
Program Is Now in Place
About 50,000 IRS employees had received the new
customer service training as of December 31, 1999.
Section 1205 of the Restructuring Act required IRS
to submit a plan for a new training program
emphasizing customer service to the House Ways and
Means and Senate Finance Committees. IRS did
develop and submit a new training plan to the
Committees on March 5, 1999. A pilot version of
the new training was not well received by
employees, and as a result, IRS revised the
course. Feedback on the revised course showed
improved employee satisfaction.

IRS Has Begun Using the Restructuring Act's
Discretionary Authority
IRS has begun using the discretionary personnel
flexibilities permitted by the Restructuring Act.
Senior executives have been hired using new
critical pay authority, a new pay-banding system
for non-SES managers has been approved, and
several streamlined demonstration projects and new
voluntary separation incentive payments for
employees are under consideration. Also, IRS has
paid retention allowances to certain service
center employees. As discussed below, some of the
personnel flexibility provisions have been used on
a limited basis; others have not been used.

New Senior Executives Have Been Recruited
Section 9503 allowed IRS to hire as many as 40
critical pay managers for as long as 4 years at up
to the pay rate of the Vice President--$181,400.12
As of February 11, 2000, IRS had hired 12 such
managers13 and made preliminary offers to another
three using this provision. Additional
announcements have been prepared for eight more
positions. These positions were identified as
critical to IRS' success in improving tax
administration and customer service. Positions
filled to date include the Chief Information
Officer, National Taxpayer Advocate, and Chief,
Criminal Investigation Division. (See app. II for
a complete listing of positions.)

A Broad-Banded Pay System Has Been Approved
IRS has developed a senior manager broad-banding
plan in concert with its stakeholders, including
Treasury, OPM, and the National Treasury Employees
Union. Section 9509 authorized IRS to implement a
broad-banded pay system, also called pay banding,
to assist in its reorganization. Pay-banding
combines two or more pay grades. Using this
provision, IRS plans to combine former GS-14 and
GS-15 managers, which according to IRS' Office of
Human Resources would allow IRS to reduce staffing
imbalances. For example, IRS has 284 more managers
than it needs in some cities, while it has 132
unfilled positions in other cities. IRS has
received Treasury approval to begin placing
managers into the new pay band as early as April
2000.

Streamlined Demonstration Projects Are Under
Consideration
Our review of IRS documentation showed that IRS is
considering some streamlined demonstration
projects that are permitted by section 9507, but
it has not used this provision yet.14 Congress
intended that the demonstration projects would
allow the Commissioner to identify ways to improve
personnel management, provide increased individual
accountability, eliminate obstacles to
disciplining poor performers, expedite appeals
that arise from adverse actions, and promote pay
based on performance. Such projects would not be
subject to the current lengthy approval processes
generally applicable under title 5. Two
demonstration projects that IRS was considering as
of November 30, 1999, were modifying the rating
cycle for senior executives and authorizing team-
based awards.

A Strategy for New Separation Incentive Payments
Is Being Developed
Our review of IRS documentation showed that IRS is
developing a strategy for using the new separation
incentive payments, including an analysis of
personnel needs by location. Section 1202 of the
Restructuring Act allowed IRS to offer voluntary
separation incentive payments to employees to the
extent necessary to carry out the reorganization
plan. This statutory buyout authority was intended
to afford IRS additional flexibility in making the
personnel decisions needed for its reorganization.
Similar to other federal government buyout
programs, this provision would allow eligible
employees to receive up to $25,000 after voluntary
separation from IRS.

Recruitment, Retention, and Relocation Incentives
Have Been Used on a Limited Basis
IRS has made limited use of the recruitment,
retention, and relocation provisions in section
9504 because the agency has been able to use
existing legal authority to pay such expenses, and
new regulations are currently being drafted. As a
pilot project, new authority was granted to the
Memphis Service Center to pay a lump-sum retention
allowance to seasonal data transcribers who
returned for a subsequent season. IRS plans to
evaluate the results of this pilot for possible
use in other service centers.

IRS Has Made Either Limited Use or No Use of the
Remaining Provisions
IRS has made limited use or no use of the
remaining personnel flexibility provisions. For
example, section 9505 allowed senior executives
who have program management responsibility over
significant functions to receive performance
bonuses without regard to certain limits
established in current federal personnel law.
Since enactment, Treasury approved IRS' request to
pay a 25-percent bonus for one senior executive.
Other SES bonuses for fiscal years 1998 and 1999
were limited to no more than 20 percent, the rate
permitted by existing legislation.

Section 9506 broadens the definition of a "career
reserved position" to include certain positions
filled by limited term or limited emergency
appointees. As of March 1, 2000, IRS had filled
three career reserved positions with limited term
appointments. These positions were an assistant to
the Commissioner (3-year term), the Transition
Executive for Shared Services (2-year term), and
the Director of Exempt Organizations, Rulings, and
Agreements (3-year term).

Section 9510 provides general rules for workforce
staffing and has not been used. Section 9510(a)
provides rules for converting employees from term
appointments to permanent appointments, and
section 9510(b) authorizes IRS to establish
category rating systems for evaluating job
applicants rather than assigning numerical
ratings. Under this provision, IRS is authorized
to select any candidate in the highest quality
category, so long as veterans' preference rights
have been accorded.

Additional Tax Administration Concerns in
Implementing the Personnel Flexibility Provisions
IRS' implementation of the personnel flexibility
provisions of the Restructuring Act raises several
concerns. As already discussed, IRS has had
difficulty eliminating all references to
enforcement statistics in employee evaluations. In
addition, IRS has had difficulty developing an
accurate system for tracking taxpayer complaints
of employee misconduct and has experienced a
significant decline in enforcement actions, such
as liens, levies, and seizures, to collect
delinquent taxes.

Errors Could Exist With the Complaint Processing
System
IRS recognized that it needs a system for tracking
taxpayer complaints of employee misconduct as
defined in section 1203 of the Restructuring Act.
In September 1999, TIGTA reported that IRS did not
have an integrated complaint processing system for
identifying and reporting taxpayer complaints and
allegations of employee misconduct.15 Instead, IRS
used existing systems and procedures that were in
place before the Restructuring Act. Thus, IRS
cannot ensure that the complaints are not double-
counted because these systems are not linked with
one another.

TIGTA noted that IRS is taking significant actions
to improve its complaint processing procedures and
systems. IRS actions include the development of an
integrated database that will permit recognition
of duplicate complaints and identify trends.
During our work, IRS approved the first step in
this effort by contracting for an analysis of new
information system requirements. According to IRS'
National Director, Complaint Processing Analysis
Group, IRS anticipates having the new system
requirements in place by September 30, 2000.

Enforcement Actions Have Declined Since Passage of
the Restructuring Act
IRS' use of enforcement actions, such as liens,
levies, and seizures, to collect delinquent taxes
has declined significantly since passage of the
Restructuring Act. We noted in our February
testimony16 that comparing data on enforcement
actions before the Restructuring Act to fiscal
year 1999 data showed that lien filings were down
about 69 percent, levies down about 86 percent,
and seizures down about 98 percent. Moreover,
according to IRS, collections from delinquent
taxpayers were down about $2 billion from fiscal
year 1996 levels.

In our testimony, we concluded that while we do
not know the appropriate number of enforcement
actions IRS should take, the current number of
seizures is probably too low. We also heard
repeatedly from frontline employees about a lack
of guidance on when to make seizures in light of
section 1203, which requires termination of
employees for specified misconduct. Accordingly,
in our recent report on seizures,17 we made
recommendations aimed at (1) clarifying when
seizures ought to be made, (2) preventing
departures from process requirements established
to protect taxpayer interest, and (3) delineating
senior managers' responsibilities for ensuring
that seizures are made when justified. In
commenting on our report, IRS generally agreed
with our recommendations.

Agency Comments
We requested comments on a draft of this report
from the Commissioner of Internal Revenue. In a
letter dated April 20, 2000, the Commissioner said
that he was pleased with our characterization of
IRS' implementation of the Restructuring Act's
personnel flexibilities. He also said that IRS was
striving to be a model for the rest of the federal
government in the area of performance management.
A Strategic Assessment was attached to the letter,
summarizing IRS' strategies for managing its human
resource needs (see app. III).

As agreed with your office, unless you announce
its contents earlier, we plan no further
distribution of this report until 30 days from its
date of issue. At that time, we will be sending
copies to Senator William V. Roth, Jr., Chairman,
and Senator Daniel P. Moynihan, Ranking Minority
Member, Senate Committee on Finance;
Representative Charles B. Rangel, Ranking Minority
Member, House Committee on Ways and Means;
Representative William J. Coyne, Ranking Minority
Member, Subcommittee on Oversight, House Committee
on Ways and Means; the Honorable Lawrence H.
Summers, Secretary of the Treasury; the Honorable
Charles O. Rossotti, Commissioner of Internal
Revenue; and the Honorable Janice R. Lachance,
Director, Office of Personnel Management. We will
also make copies available to others upon request.

If you have any questions, please call me at (202)
512-9110 or Alton C. Harris at (404) 679-1900. A
key contributor to this report was John Gates.

James R. White
Director, Tax Policy and
 Administration Issues
_______________________________
1P.L. 105-206 was enacted on July 22, 1998. Title
I, Subtitle C, Personnel Flexibilities, sections
1201-05, list the provisions, which we summarize
in app. I.
2The act provides that up to 40 individuals may be
hired at a pay rate up to the Vice President's,
currently $181,400.
3IRS Personnel Administration: Use of Enforcement
Statistics in Employee Evaluations (GAO/GGD-99-11,
Nov. 30, 1998) and TIGTA, The IRS Should Continue
Its Efforts to Achieve Full Compliance With
Restrictions on the Use of Enforcement Statistics
(Sept. 29, 1999), Ref. No. 199910073.
4TIGTA, The IRS Can Further Improve Its Complaint
Processing Procedures and Systems (Sept. 29,
1999), Ref. No. 199910070.
5IRS Restructuring Act: Implementation Under Way
but Agency Modernization Important to Success
(GAO/T-GGD-00-53, Feb. 2, 2000).
6IRS Management: Formidable Challenges Confront
IRS as It Attempts to Modernize (GAO/T-GGD/AIMD-99-
255, July 22, 1999).
7Tax Administration: IRS' Implementation of the
Restructuring Act's Taxpayer Protection and Rights
Provisions (GAO/GGD-00-85, April 2000).
8Section 1201 amends title 5 of the U.S. Code,
adding a new chapter 95 (sections 9501-10).
9Section 1203(c)(1)-(2) provides the Commissioner
with nondelegable authority to (1) in his sole
discretion, take a personnel action other than
termination and (2) to set up a procedure that
would be used to determine whether an individual
should be referred to him for such a
determination.
10GAO/GGD-99-11, Nov. 30, 1998.
11TIGTA, 199910073, Sept. 29, 1999.
12The pay rate was $175,400 when the Restructuring
Act was passed. The new pay rate was effective
Jan. 1, 2000.
13Although 12 critical pay managers had been hired,
1 resigned effective June 26, 1999.
14Demonstration projects, like pilot programs, are
generally used to illustrate, demonstrate, or test
a proposed program using a limited population or
test group.
15TIGTA, 199910070, Sept. 29, 1999.
16GAO/T-GGD-00-53, Feb. 2, 2000.
17IRS Seizures: Needed for Compliance but Processes
for Protecting Taxpayer Rights Have Some
Weaknesses (GAO/GGD-00-4, Nov. 29, 1999).

Appendix I
Summary of Restructuring and Reform Act Provisions
Authorizing Personnel Flexibilities Within IRS
Page 17GAO/GGD-00-81 Restructuring Act's Personnel
Flexibility Provisions
Section 1201: Improvements in Personnel
Flexibilities
Title 5 of the U.S. Code provides personnel rules
and procedures that regulate hiring, evaluating,
promoting, and firing government employees,
including employees at the Internal Revenue
Service (IRS). Section 1201 of the Internal
Revenue Service Restructuring and Reform Act of
1998 (P.L. 105-206) amends title 5, adding a new
chapter 95 (sections 9501-10), to provide IRS with
certain personnel flexibilities.

Section 9501 Allows Internal Revenue Service
Personnel Flexibilities
Section 9501 allows IRS certain personnel
flexibilities (as provided by sections 9502-10) if
they are exercised consistently with certain
existing provisions in title 5 (e.g. provisions
relating to merit system principles and prohibited
personnel practices, preference eligibles,
aggregate limitations on pay, labor management
relations, and delegation of authority for
personnel management). Employees within a unit
with a recognized employee union will be affected
by the exercise of these personnel flexibilities
only if a written agreement between the union and
the IRS so specifies.

Section 9502 Authorizes Pay Authority for Critical
Positions
Section 9502 authorizes the Office of Management
and Budget (OMB) to approve requests from IRS for
critical position pay up to the rate of pay of the
vice president (3 U.S.C. 104), an increase from
what section 5377 allows.1

Section 9503 Allows Streamlined Critical Pay
Authority
Section 9503 allows the use of a streamlined
process in fixing the compensation and appointing
up to 40 individuals for terms of no more than 4
years to designated critical administrative,
technical, and professional positions needed to
carry out IRS functions. The positions must
require an extremely high level of expertise and
be critical to IRS' accomplishment of an important
mission. Exercise of the authority must be
necessary to recruit or retain an individual
exceptionally well qualified for the position and
may be used for a period of 10 years after the
provision's enactment. Appointees to such
positions must not have been IRS employees before
June 1, 1998. The total rate of pay authorized
under this provision (including performance and
recruitment bonuses) may not exceed the rate of
pay of the vice president. If these conditions are
met, the appointments are not subject to the
otherwise applicable requirements under title 5
governing appointments to the competitive or
Senior Executive Service or chapter 51, relating
to classification of positions, or chapter 53,
relating to pay rates and systems.

Section 9504 Allows Recruitment, Retention,
Relocation Incentives, and Relocation Expenses
Section 9504 allows IRS to vary from existing
provisions governing recruitment, relocation, and
retention incentives for a period of 10 years,
subject to OPM approval.2 This provision also
allows IRS to pay from appropriations allowable
relocation expenses (as set out in 5 U.S.C. 5724a)
for employees transferred or reemployed and
allowable travel and transportation expenses (as
set out in 5 U.S.C. 5723) for new appointees.

Section 9505 Provides Performance Awards for
Senior Executives
Section 9505 provides that for a period of 10
years, IRS senior executives who have program
management responsibility over significant
functions may be paid a performance bonus without
regard to the limitation in 5 U.S.C. 5384(b)(2).
Any award in excess of the 20 percent limitation,
however, must be approved by the Secretary of the
Treasury.3 Section 9505 further provides that
notwithstanding 5 U.S.C. 5384(b)(3), the Secretary
of the Treasury shall determine the aggregate
amount of performance awards available under this
provision to be paid during the fiscal year.4 This
amount may not exceed 5 percent of the aggregate
amount of basic pay paid to IRS career senior
executives during the preceding fiscal year. (A
performance award may not be paid to an executive
in a calendar year if that executive's total
annual compensation will exceed the rate of pay of
the vice president.)

Section 9506 Provides Limited Appointments to
Career Reserved Senior Executive Service Positions
Section 9506 broadens the definition of a "career
reserved position" with regard to IRS to include
certain positions filled by "limited emergency
appointees" and "limited term appointees" (see 5
U.S.C. 3132(a)(5)-(6)). Section 9506 limits the
number of appointees under this provision to up to
10 percent of the number of SES positions
available to IRS. Notwithstanding provisions in
section 3132 regarding limited term and limited
emergency appointees, the term of such an
appointment is limited to 3 years, and an
appointee is allowed to serve two such terms.5

Section 9507 Authorizes Streamlined Demonstration
Project Authority
Section 9507 authorizes IRS to conduct streamlined
demonstration projects under 5 U.S.C. 4703 when
certain requirements contained therein are
inapplicable.6

Section 9508 Provides General Workforce
Performance Management System
Section 9508 provides that in lieu of a
performance appraisal system, IRS must, within 1
year, establish a "performance management system"
that would maintain individual accountability by
(1) establishing one or more retention standards
for each employee related to the work of that
employee, (2) making periodic determinations of
whether each employee meets the established
retention standards, and (3) taking actions with
respect to any employee whose performance does not
meet the established retention standards.7

Section 9509 Authorizes General Workforce
Classification and Pay
Section 9509 authorizes IRS, subject to criteria
prescribed by OPM, to establish one or more broad-
banded pay systems covering all or any portion of
its workforce. For the purposes of this provision,
the term "broad-banded pay system" means any
system for grouping positions for pay, job
evaluation, and other purposes that is different
from the system established under chapters 51 and
53 of title 5 as a result of combining grades and
related ranges of pay into one or more
occupational series.

Section 9510 Provides General Workforce Staffing
Section 9510 is the final provision added by
section 1201 of the Restructuring and Reform Act,
and it provides general workforce staffing rules.
Section 9510(a) provides rules for converting
employees from term appointments to permanent
appointments. Section 9510(b) authorizes IRS to
establish category rating systems for evaluating
job applicants under which qualified candidates
are divided into two or more quality categories on
the basis of relative degrees of merit rather than
assigned individual numerical ratings. Under this
provision, IRS is authorized to select any
candidate in the highest quality category, as long
as veterans' preference rights are accorded.

Section 1202: Voluntary Separation Incentive
Payments
Section 1202 of the act authorizes IRS to use
Voluntary Separation Incentive Pay (buyouts) to
the extent necessary to carry out the plan to
reorganize IRS under section 1001 of the act.
Under the provision, eligible employees could
receive a lump sum up to $25,000 after voluntary
separation from IRS.8

Section 1203: Termination of Employment for
Misconduct
Section 1203 of the act mandates that IRS
terminate the employment of an IRS employee if
there is a final administrative or judicial
determination that the employee committed certain
acts or omissions in the performance of official
duties. There are 10 acts or omissions listed in
this provision that require termination, as
follows:

ï¿½    "willful failure to obtain the required
approval signatures on documents authorizing the
seizure of a taxpayer's home, personal belongings,
or business assets;
ï¿½    "providing a false statement under oath with
respect to a material matter involving a taxpayer
or taxpayer representative;
ï¿½    "with respect to a taxpayer, taxpayer
representative, or other employee of the Internal
Revenue Service, the violation of . . . any right
under the Constitution of the United States or any
civil right established under [certain existing
legislation];
ï¿½    "falsifying or destroying documents to
conceal mistakes made by any employee with respect
to a matter involving a taxpayer or taxpayer
representative;
ï¿½    "assault or battery on a taxpayer, taxpayer
representative, or other employee of the Internal
Revenue Service, but only if there is a criminal
conviction, or a final judgment by a court in a
civil case, with respect to the assault or
battery;
ï¿½    "violations of the Internal Revenue Code of
1986, Department of Treasury regulations, or
policies of the Internal Revenue Service
(including the Internal Revenue Manual) for the
purpose of retaliating against, or harassing, a
taxpayer, taxpayer representative, or other
employee of the Internal Revenue Service;
ï¿½    "willful misuse of the provisions of section
6103 of the Internal Revenue Code of 1986 for the
purpose of concealing information from a
congressional inquiry;
ï¿½    "willful failure to file any return of tax
required under the Internal Revenue Code of 1986
on or before the date prescribed therefor
(including any extensions), unless such failure is
due to reasonable cause and not to willful
neglect;
ï¿½    "willful understatement of Federal tax
liability, unless such understatement is due to
reasonable cause and not to willful neglect; and
ï¿½    "threatening to audit a taxpayer for the
purpose of extracting personal gain or benefit."

Section 1204: Basis for Evaluation of Internal
Revenue Service Employees
Section 1204 of the act prohibits IRS from using
records of tax enforcement results to evaluate
employees or to impose or suggest production
quotas or goals for employees. This provision
repealed section 6231 of the Technical and
Miscellaneous Revenue Act of 1998, P.L. 100-647,
which prohibited the use of records of tax
enforcement results to evaluate employees directly
involved in collection activities and their
immediate supervisors or to impose or suggest
production quotas or goals for these employees.

Section 1205: Employee Training Program
Section 1205 of the act requires IRS to implement
an employee training program within 180 days of
the act's enactment. The plan, with details as
specified by this provision, must be submitted to
the Senate Finance Committee and the House Ways
and Means Committee.

_______________________________
1Under 5 U.S.C. 5377, at the request of an agency
head, OMB, in consultation with the Office of
Personnel Management (OPM), may grant authority to
fix the rate of basic pay for a "critical
position" up to the rate payable for level I of
the Executive Service. Section 5377(b) limits this
grant of authority to those positions that require
expertise in an extremely high level in a
scientific technical, professional, or
administrative field and that are critical to the
agency's successful accomplishment of an important
mission.
2Under 5 U.S.C. 5753, OPM may authorize the head
of any agency to pay a bonus to an employee if OPM
determines that an agency would be likely, in the
absence of such a bonus, to encounter difficulty
in filling the position. The amount of the bonus
under this section may not exceed 25 percent of
the annual rate of basic pay of the position to
which the employee is being appointed (or
relocated to). Under 5 U.S.C. 5754, OPM may
authorize the head of an agency to pay an
allowance to an employee if the unusually high or
unique qualifications of the employee or special
need of the agency for the employee's services
make it essential to retain the employee and the
agency has determined that the employee would be
likely to leave in the absence of a retention
allowance. A retention allowance may not exceed 25
percent of the employee's rate of basic pay.
35 U.S.C. 5384 provides rules for performance
awards in the Senior Executive Service. Section
5384(b)(2) provides that a performance award may
not be less than 5 percent nor more than 20
percent of the career appointee's rate of basic
pay.
4Section 5384(b)(3) provides that the aggregate
amount of performance awards paid by an agency
during any fiscal year may not exceed the greater
of 10 percent of the aggregate basic pay paid to
all career appointees in the agency during the
preceding fiscal year or 20 percent of the average
of the annual rates of basic pay paid to all
career appointees during the preceding fiscal
year.
55 U.S.C. 3132 provides definitions and other
related provisions for the Senior Executive
Service. Section 3132(a)(8) defines a "career
reserved position" as a position that is required
to be filled by a career appointee. Section
3132(b)(1) provides that a position shall be
designated as a career reserved position only if
the filling of the position by a career appointee
is necessary to ensure impartiality or the
public's confidence in the impartiality of the
government.
6Under 5 U.S.C. 4703, OPM is authorized, either
directly or through agreement or contract with one
or more agencies, to conduct and evaluate
personnel demonstration projects. (Demonstration
projects, like pilot programs, are generally used
to illustrate, demonstrate, or test a proposed
program using a limited population or test group.)
7Under 5 U.S.C. 4302, each agency is to develop
one or more performance appraisal systems that
provide for periodic appraisals of job performance
of employees.
8This provision is very similar to other buyout
provisions in previous legislation. See, e.g., the
Omnibus Appropriations Act of 1997, P.L.104-208,
section 663, authorizing voluntary separation
incentives for employees at certain federal
agencies.

Appendix II
IRS Executive Positions Filled, Hiring in Process,
or Recruiting in Process Using Streamlined
Critical Pay Authority
Page 20GAO/GGD-00-81 Restructuring Act's Personnel
Flexibility Provisions

Position                                    Status as of     Appointment date
                                           February 11,
                                           2000
Chief Financial Officer                     Hireda           August 16, 1998
Chief Information Officer                   Hired            August 11, 1998
National Taxpayer Advocate                  Hired            September 1, 1998
Deputy Commissioner, Modernization          Hired            September 6, 1998
Director, Government Program Management     Hired            November 2, 1998
Office
Assistant Commissioner, Management and      Hired            May 9, 1999
Financial Systems
National Director, Account Management       Hired            July 19, 1999
Division
Chief, Agencywide Shared Services           Hired            October 3, 1999
Commissioner, Large and Mid-Sized Business  Hired            November 28, 1999
Division
Chief Criminal Investigation Division       Hired            December 6, 1999
Director, Program Control (Enterprise       Hired            December 19, 1999
Program
Management Office)
Commissioner, Small Business and Self-      Hired            January 10, 2000
Employed Division
Director, Real Estate and Facilities        In process       
Management
Deputy Commissioner, Wage and Investment    In process       
Division
Exempt Organizations Rulings and Agreements In process       
Senior Technical Advisor, Large and Mid-    Recruiting       
Sized Business Division (Financial Services
and Healthcare)
Senior Technical Advisor, Large and Mid-    Recruiting       
Sized Business Division (Food, Retail, and
Pharmaceutical)
Senior Technical Advisor, Large and Mid-    Recruiting       
Sized Business Division (Energy and
Chemical)
Senior Technical Advisor, Large and Mid-    Recruiting       
Sized Business Division (Communications,
Technology, and Media)
Senior Technical Advisor, Large and Mid-    Recruiting       
Sized Business Division (Manufacturing,
Construction, and Transportation)
Director, International, Large and Mid-     Recruiting       
Sized Business Division
Director, Strategy, Research, and Program   Recruiting       
Planning Large
and Mid-Sized Business Division
Director, Strategic Planning and Client     Recruitingb      
Services, Information Services
aThe Chief Financial Officer resigned effective
June 26, 1999.
bThis position is also being paneled for standard
SES consideration.

Appendix III
Comments From the Internal Revenue Service
Page 23GAO/GGD-00-81 Restructuring Act's Personnel
Flexibility Provisions

*** End of Document ***