IRS Management: Challenges Facing the National Taxpayer Advocate
(Testimony, 02/10/99, GAO/T-GGD-99-28).

Pursuant to a congressional request, GAO discussed the challenges facing
the Internal Revenue Service's (IRS) Office of the Taxpayer Advocate,
focusing on IRS' need to: (1) address complex staffing and operational
issues within the Advocate's Office; (2) strengthen efforts within the
Advocate's Office to determine the causes of taxpayer problems; and (3)
develop performance measures that the National Taxpayer Advocate needs
to manage operations and measure effectiveness.

GAO noted that: (1) IRS and the National Taxpayer Advocate need to
address staffing and operational issues while ensuring the independence
of the Advocate's Office; (2) a key staffing and operational issue is
developing an implementation plan for bringing all caseworkers into the
Advocate's Office that includes operational mechanisms that will give
the Problem Resolution Program (PRP) the potential benefits of both a
reliance on the functions and a separate operation; (3) another staffing
and operational issue is capturing information about resource usage that
advocates need to manage PRP; (4) providing appropriate training is also
an issue; (5) it is important that caseworkers and other staff receive
adequate training; (6) caseworkers should be trained in both functional
responsibilities and PRP operations; (7) it is important for the
Advocate's Office to develop mechanisms to ensure that qualified
caseworkers are selected so that the program goals are met; (8) as IRS
restructures the Advocate's Office, it must consider how best to handle
workload fluctuations; (9) IRS and the National Taxpayer Advocate need
to strengthen advocacy efforts within the Advocate's Office; (10) the
Advocate's Office has taken steps to promote advocacy, such as
implementing regional advocacy councils and identifying strategies to
increase awareness of advocacy within IRS; (11) the Advocate's Office
has encouraged the functions to play a greater role in assisting
taxpayers and improving procedures to reduce taxpayer compliance burden;
(12) IRS and the National Taxpayer Advocate need to develop performance
measures to be used in managing operations and assessing the
effectiveness of the Taxpayer Advocate and PRP; (13) management must
focus on the impact its programs have on its customers; (14) the
National Taxpayer Advocate has the formidable task of developing
measures that will provide useful data for improving program
performance, increasing accountability, and supporting decisionmaking;
and (15) to be comprehensive, these measures should cover the full range
of Advocate Office operations, including taxpayer satisfaction with PRP
services and the effectiveness of advocacy efforts in reducing taxpayer
compliance burden.

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

 REPORTNUM:  T-GGD-99-28
     TITLE:  IRS Management: Challenges Facing the National Taxpayer 
             Advocate
      DATE:  02/10/99
   SUBJECT:  Taxpayers
             Human resources utilization
             Tax administration
             Internal controls
             Customer service
             Performance measures
IDENTIFIER:  IRS Problem Resolution Program
             
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gg99028t IRS MANAGEMENT Challenges Facing the National Taxpayer
Advocate

Statement of Cornelia M. Ashby, Associate Director Tax Policy and
Administration Issues General Government Division

United States General Accounting Office

GAO Testimony Before the Subcommittee on Oversight

Committee on Ways and Means House of Representatives

For Release on Delivery Expected at 2: 30 p. m., EST on Wednesday
February 10, 1999




GAO/T-GGD-99-28

  GAO/T-GGD-99-28

Statement

Page 1 GAO/T-GGD-99-28

Mr. Chairman and Members of the Subcommittee: We are pleased to be
here today to assist the Subcommittee in its oversight of the
Internal Revenue Service's (IRS) Office of the Taxpayer Advocate.
Our testimony is based on our ongoing work for the Subcommittee.
Our work has included (1) interviewing IRS officials at the
National Office, all 4 regional offices, and 17 of the 43 district
offices and service centers; (2) reviewing numerous documents
relating to the work of the Advocate's Office; and (3) surveying
IRS staff who were doing Advocate's Office work as of June 1,
1998. We are currently drafting our report, which we expect to
issue later this year.

As you are aware, IRS is changing its organizational structure in
response to the IRS Restructuring and Reform Act of 1998. My
statement highlights three key challenges facing IRS and the
National Taxpayer Advocate as decisions are made about
restructuring the Office of the Taxpayer Advocate. These
challenges are to

 address complex staffing and operational issues within the
Advocate's Office in a way that will ensure that it offers an
independent means for taxpayers to resolve their problems.
Specifically, while maintaining independence from IRS operations,
the National Taxpayer Advocate must, to some extent, depend on
other IRS units in developing a caseworker reporting structure,
establishing a resource control and tracking system, obtaining
caseworkers and providing them with appropriate training, and
determining how best to use available resources.

 strengthen efforts within the Advocate's Office to determine the
causes of taxpayer problems so that systemic causes can be
identified and corrected. In that regard, the Advocate's Office
needs to share information on these efforts throughout IRS and
conduct them in a systematic and coordinated way to reduce
duplication of efforts among its offices.

 develop the performance measures that the National Taxpayer
Advocate needs to manage operations and measure effectiveness.

IRS founded the Problem Resolution Program (PRP) in 1976 to
provide an independent means of ensuring that taxpayers'
unresolved problems were promptly and properly handled. Initially,
PRP units were established in IRS district offices and, in 1979,
PRP was expanded to include the service centers. In late 1979, IRS
created the position of Taxpayer Ombudsman to head PRP. In 1996,
Congress replaced the Ombudsman's position with what is now the
National Taxpayer Advocate. Background

Statement Page 2 GAO/T-GGD-99-28

The goals of PRP are consistent with IRS' mission of providing
quality service to taxpayers by helping them meet their tax
responsibilities and by applying the tax laws fairly. PRP's first
goal is to assist taxpayers who cannot get their problems resolved
through normal IRS channels or who are suffering significant
hardships. For example, local advocate offices can expedite tax
refunds or stop enforcement actions for taxpayers experiencing
significant hardships. During fiscal year 1998, PRP closed more
than 300,000 cases, of which about 10 percent involved potential
hardships. The second goal of PRP is to determine the causes of
taxpayer problems so that systemic causes can be identified and
corrected and to propose legislative changes that might help
alleviate taxpayer problems. IRS commonly refers to this process
as advocacy. The third goal of PRP is to represent the taxpayers'
interests in the formulation of IRS' policies and procedures.

IRS has a taxpayer advocate in each of its 4 regional offices and
has local advocates in its 33 district offices, 30 former district
offices, 1 and 10 service centers. The National Taxpayer Advocate
has responsibility for the overall management of PRP, and regional
and local advocates have responsibility for managing PRP at their
respective levels. The Office of the Taxpayer Advocate funds the
advocate positions; the staff in advocate offices at all levels; 2
and other resources for advocate offices.

PRP assistance to taxpayers who cannot get their problems resolved
through normal IRS channels is done by employees called
caseworkers, who are not part of the Advocate's Office. They are
in IRS' functional units mainly customer service, collection, and
examination in the district offices and service centers. Most PRP
resources, including caseworkers, are funded by the functions, and
about 80 percent of the caseworkers report to functional managers-
- not local advocates. Some offices, however, had a centralized
structure in which PRP casework was done by employees who were
funded by the functions, but reported to the local taxpayer
advocate.

Formerly, regional and local advocates were selected by and
reported to the director of the regional, district, or service
center office where they worked. However, in response to a
requirement in the IRS Restructuring

1 In 1996, IRS consolidated its regional and district offices and
reduced the number of its district offices from 63 to 33. The 30
former district offices continue to have staff and operations,
including local advocate staff.

2 Unless specifically noted, a reference to advocate's staff or
Advocate's Office staff refers to staff in the Advocate's Office
at all levels.

Statement Page 3 GAO/T-GGD-99-28

and Reform Act of 1998, regional advocates are now selected by and
report to the National Taxpayer Advocate or his or her designee;
and local advocates are now selected by and report to regional
advocates. Additionally, last October, IRS began moving to a more
centralized reporting structure for the caseworkers in which they
would report to local advocates instead of functional management.
IRS officially assigned those caseworkers who were already
reporting to local advocates about 20 percent of the caseworkers
to local advocate offices. In addition, IRS is developing an
implementation plan to have the remaining 80 percent of the
caseworker positions assigned to local advocate offices this year.
IRS plans to submit budget requests that reflect these staffing
changes by transferring funds for caseworkers to the Advocate's
Office.

During fiscal year 1998, the staffing level of the Advocate's
Office increased from 428 to 584 authorized positions. Our survey
showed that, as of June 1, 1998, the Advocate's Office had 508 on-
board staff. At the same time, there were about 1,500 functional
employees doing PRP casework in IRS' field offices. Advocate staff
worked on, among other things, sensitive cases; cases involving
taxpayer hardship; and advocacy work, such as identifying IRS
procedures that cause recurring taxpayer problems. Caseworkers
worked on resolving individual taxpayer problems as well as
participating in some advocacy efforts. During times of high
casework levels, many Advocate's Office staff are required to do
casework in addition to their other duties.

The first challenge facing IRS and the National Taxpayer Advocate
is the need to address staffing and operational issues while
ensuring the independence of the Advocate's Office. Staffing and
operational issues, such as resource allocation, training, and
staff selection, are commonplace in most organizations. However,
dealing with these issues could prove more challenging for the
Advocate's Office because of the need for PRP to be independent
from the IRS operations that have been unsuccessful in resolving
taxpayers' problems. Independence actual and apparent is important
because, among other things, it helps promote taxpayer confidence
in PRP.

A key staffing and operational issue is developing an
implementation plan for bringing all caseworkers into the
Advocate's Office that includes operational mechanisms that will
give PRP the potential benefits of both a reliance on the
functions and a separate operation. According to IRS officials,
having the caseworkers in the functions may have facilitated
caseworker training and the handling of workload fluctuations;
however, this arrangement may also have led to the perception that
PRP was not an Resolving Staffing and

Operational Issues While Maintaining Independence

Statement Page 4 GAO/T-GGD-99-28

independent program. In addition, as we will discuss later, this
organizational arrangement may have contributed to some of the
other PRP staffing and operational issues.

Another, but related, staffing and operational issue is capturing
information about resource usage that advocates need to manage
PRP. Some local advocates told us that the lack of control over
PRP resources, including staff, made it difficult to manage PRP
operations. Advocates do not know the full staffing levels or the
total cost of resources devoted to PRP, because IRS does not have
a standard system to track PRP resources. Instead, each function
tracks its resources differently. The absence of this type of
management information yields an incomplete picture of program
operations, places limitations on decision- making, and hinders
the identification of matters requiring management attention. In
addition, having this basic program information would improve the
National Taxpayer Advocate's ability to estimate the resources
needed in the restructured Advocate's Office.

Providing appropriate training is also an issue. It is important
that caseworkers and other staff receive adequate training if they
are going to be able to help taxpayers resolve their problems and
effectively work on advocacy efforts. Our survey of IRS staff who
were doing advocate office work showed that training has been
inconsistent throughout the Advocate's Office and among PRP
caseworkers. For example, as of June 1, 1998, more than half of
the PRP caseworkers had not completed a formal PRP training course
for their current position.

Caseworkers should be trained in both functional responsibilities
and PRP operations. Functional training, such as training in tax
law changes, is important because resolving taxpayer problems
requires that caseworkers understand the tax law affecting a
particular case. Historically, because caseworkers were usually
functional employees, they routinely received training in
functional matters. The National Taxpayer Advocate is faced with
ensuring that caseworkers continue to receive needed functional
training even if they are no longer functional employees. In this
regard, the National Taxpayer Advocate is considering whether to
implement a crossfunctional training program for caseworkers that
would provide training in multiple IRS functions. IRS officials
told us that this would broaden caseworker skills and might
provide faster and more accurate service to taxpayers.

Acquiring qualified PRP caseworkers has been an issue. In the
past, the quality of caseworkers depended on the office and the
function that

Statement Page 5 GAO/T-GGD-99-28

assigned the caseworkers to PRP. Local advocates told us that they
had no assurance that the functions would provide PRP with
qualified staff. It is important for the Advocate's Office to
develop mechanisms to ensure that qualified caseworkers are
selected so that program goals are met. Once the Advocate's Office
is no longer dependent upon the functions for its staff, it can
implement a competitive selection process for PRP caseworkers that
should help ensure that it gets the staff it needs.

As IRS restructures the Advocate's Office, it must consider how
best to handle workload fluctuations. Over the past 18 months, the
Advocate's Office and PRP's workloads have increased. Factors that
have affected and could continue to affect workload include
increased media attention, the introduction of a toll- free
telephone number for taxpayers to call PRP, and Problem Solving
Days. 3 Historically, PRP has relied on the functions to provide
additional staff to cover workload increases. However, as the
office is moving toward a structure that would place all
caseworkers in the Advocate's Office, this source of additional
caseworkers may no longer be available. Many local advocates told
us that it would be difficult to handle workload fluctuations
without the traditional ability to obtain additional caseworkers
from functional units.

Workload increases may also make it necessary for the Advocate's
Office to decide which cases to address with PRP resources. That
is, some taxpayers who seek help from PRP may have to be referred
to other IRS offices. Local advocates told us that workload
increases could compromise PRP's ability to help taxpayers. For
example, an increase in the number of PRP cases could negatively
affect the timeliness and quality of PRP casework.

IRS has three criteria for deciding what qualifies as a PRP case.
The first two criteria are specific( 1) any contact by a taxpayer
on the same issue at least 30 days after the initial contact and
(2) no response to the taxpayer by a promised date. However, the
third criterion any contact that indicates established systems
have failed to resolve the taxpayer problem, or when it is in the
best interest of the taxpayer or IRS to resolve the problem in PRP
is broad enough to encompass virtually any taxpayer contact. We
understand why the Advocate's Office would not want to turn away
any taxpayer. However, if PRP accepts cases that could be handled
elsewhere in IRS, the program could be overburdened, potentially
reducing

3 Beginning in November 1997, IRS began holding a series of
monthly Problem Solving Days in each of its 33 districts. The
purpose is to give taxpayers with unresolved tax problems the
opportunity to meet face- to- face with IRS staff in an effort to
resolve those problems.

Statement Page 6 GAO/T-GGD-99-28

PRP's ability to help taxpayers who have nowhere else to go to
resolve their problems.

The second challenge facing IRS and the National Taxpayer Advocate
is to strengthen advocacy efforts within the Advocate's Office.
Advocacy efforts are key to the success of the Advocate's Office
because the improvements they generate can reduce the number of
taxpayers who ultimately require help from PRP. Ideas for advocacy
efforts are generated at the national, regional, and local levels.
These efforts are aimed at eliminating deficiencies in IRS'
processes and procedures that cause recurring problems. Through
advocacy efforts, the National Taxpayer Advocate can recommend
changes to the Commissioner, IRS functions, and Congress to
improve IRS operations and address provisions in law that may be
causing undue burden to taxpayers.

The Advocate's Office has taken steps to promote advocacy, such as
implementing regional advocacy councils and identifying strategies
to increase awareness of advocacy within IRS. The Advocate's
Office has encouraged the functions to play a greater role in
assisting taxpayers and improving procedures to reduce taxpayer
compliance burden. For example, the Advocate's Office is working
with functional management through an executive level group called
the Taxpayer Equity Task Force-  to develop ways to strengthen
equity and fairness in tax administration. The Task Force consists
of a cross section of executives from IRS' functions and staff
from the Advocate's Office. It was established to fasttrack
potential administrative changes and legislative proposals
recommended to the National Taxpayer Advocate.

However, the Advocate's Office staff and PRP caseworkers told us
that they were spending only a minimal amount of time on advocacy.
In that regard, our survey showed that as of June 1, 1998,
advocates and their staffs were spending about 10 percent of their
time on advocacy, and PRP caseworkers were spending less than 1
percent of their time on advocacy. Advocate office staff and PRP
caseworkers told us that increased casework limited the time they
could spend on advocacy.

We understand the need to give priority to casework over advocacy
when there is not enough time to do both. The National Taxpayer
Advocate's ability to deal with these competing priorities is
hampered, however, by the absence of (1) a systematic and
coordinated approach for conducting advocacy efforts and (2) data
with which to prioritize potential advocacy work. Using Advocacy
to

Prevent Problems From Recurring

Statement Page 7 GAO/T-GGD-99-28

To provide information on advocacy to field offices, the
Advocate's Office has developed a list of ongoing advocacy
projects. However, the list includes only national- level
projects; there is no corresponding list of local efforts, even
though those efforts could be addressing issues with agencywide
implications. Advocacy staff told us that because there is no
system for sharing information on local advocacy efforts, there is
some duplication of effort among field offices. Additionally,
field staff told us that there is no system that provides feedback
on the status of advocacy recommendations. For example, in one
district, staff told us that they forwarded the same
recommendations to the Advocate's Office over the course of
several years but never received feedback on what actions, if any,
were taken on those recommendations.

The Advocate's Office also has not identified its top advocacy
priorities, and it has no way to determine the actual impact of
its advocacy efforts. Without such information, the National
Taxpayer Advocate does not know which advocacy efforts have the
greatest potential to reduce taxpayers' compliance burden.

The third challenge facing IRS and the National Taxpayer Advocate
is to develop performance measures to be used in managing
operations and assessing the effectiveness of the Office of the
Taxpayer Advocate and PRP. Developing measures of effectiveness is
a difficult undertaking for any organization because it requires
that management shift its focus away from descriptive information
on staffing, activity levels, and tasks completed. Instead,
management must focus on the impact its programs have on its
customers.

Currently, the Advocate's Office uses four program measures, but
they do not produce all of the information needed to assess
program effectiveness. The first two measures-- the average length
of time it takes to process a PRP case and the currency of PRP
inventory describe program activity. While these two measures are
useful for some program management decisions, such as the number
of staff needed at a specific office, they do not provide
information on how effectively PRP is operating.

The third measure, PRP case identification and tracking, attempts
to determine if potential PRP cases are properly identified from
incoming service center correspondence and subsequently worked by
PRP. This measure is an important tool to help the National
Taxpayer Advocate know whether PRP actually serves those taxpayers
who need and qualify for help from the program. However, a recent
review of this measure by IRS' Office of Internal Audit found,
among other things, that inconsistent Developing Measures

of Effectiveness

Statement Page 8 GAO/T-GGD-99-28

data collection for the measure could affect the integrity and
reliability of the measure's results. Also, the measure is
designed for use only at service centers; there is no similar
measure for use at district offices, resulting in an incomplete
picture of whether taxpayers are being properly identified and
subsequently referred to PRP.

PRP's fourth measure designed to determine the quality of PRP
casework provides some data on program effectiveness. This measure
is based on a statistically valid sample of PRP cases and provides
the National Taxpayer Advocate with data on timeliness and the
technical accuracy of PRP cases. Among other things, selected PRP
cases are checked to determine whether the caseworker contacted
the taxpayer by a promised date, whether copies of any
correspondence with the taxpayer appeared to communicate issues
clearly, and whether the taxpayer's problem appeared to be
completely resolved. Caseworkers and advocate staff in the field
told us that the quality measure was helpful because the elements
that are reviewed provide a checklist for working PRP cases.
According to staff, this helps ensure that most cases are worked
in a similar manner in accordance with standard elements.

The quality measure, however, does not have a customer
satisfaction component. The Advocate's Office is piloting a method
for collecting customer satisfaction data, but the results of this
effort are unknown. Because IRS does not collect customer
satisfaction data from taxpayers who contacted PRP, the National
Taxpayer Advocate does not know if taxpayers are satisfied with
PRP services or whether taxpayers considered their problems
solved.

The National Taxpayer Advocate has the formidable task of
developing measures that will provide useful data for improving
program performance, increasing accountability, and supporting
decisionmaking. To be comprehensive, these measures should cover
the full range of Advocate Office operations, including taxpayer
satisfaction with PRP services and the effectiveness of advocacy
efforts in reducing taxpayer compliance burden.

In summary, the responsibilities of the Office of the Taxpayer
Advocate helping taxpayers who have not been able to resolve their
tax problems through normal IRS channels, helping taxpayers
experiencing financial hardship, and promoting advocacy require
the office to become involved in most, if not all, of IRS' varied
operations. These broad responsibilities must be fulfilled if IRS
is to provide the level of customer service envisioned in its
mission statement. As the Office of the Taxpayer Summary

Statement Page 9 GAO/T-GGD-99-28

Advocate restructures, it will be faced with many challenges.
Addressing these challenges is pivotal to the National Taxpayer
Advocate's success.

Mr. Chairman, this concludes my prepared statement. I would be
happy to answer any questions that you or the Members of the
Subcommittee may have.

(268872)

Page 10 GAO/T-GGD-99-28

Page 11 GAO/T-GGD-99-28

Page 12 GAO/T-GGD-99-28

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