Congress should enable the IRS to recruit and train a first class workforce that is able to work with taxpayers to solve problems.
Although the IRS has problems, many of the individual business units are staffed by competent professionals who execute their discrete functions as well as can be expected under existing organizational constraints. The Commission's staff conducted over 300 field interviews with IRS employees, and came away with an overall impression of competent, hardworking people who want to deliver a high quality product to the American taxpayer, but are constrained within the current IRS structure. Many of them agree with the Commission's findings of serious deficiencies in governance, management, performance measures, training, and culture. Of those interviewed, eighty-five percent requested that Congress stop "bashing" the IRS. They believe that broadsiding the institution for all of the difficulties and controversies surrounding federal taxes makes their jobs more difficult, particularly when Congress and Treasury are the primary sources of complexity in the tax law. The Commission agrees.
The accountants, lawyers, and taxpayers interviewed expressed universal sentiment that the quality of IRS interaction with taxpayers and the public has deteriorated over the past fifteen years. While many factors have led to this deterioration, several stand out. First, the personnel qualifications, pay levels, and training quality have deteriorated. Second, there is a shortage of basic tools available to employees to do their jobs in the most effective manner possible. This shortage includes basic equipment like facsimile machines, copiers, and computers, as well as research materials like copies of the tax code and access to online databases (e.g., LEXIS and Westlaw) needed by tax auditors and agents. Consequently, the quality of service at the primary point of taxpayer contact is low, building frustration among the taxpaying public.
The IRS has a strong plan for training, but it is not receiving the institutional support needed to ensure its success. The functional units within the IRS are resistant to giving up resources to assist training personnel. This resistance is due to the IRS culture which relates power to control over resources, as well as the measurement system which rewards short-term goals over long-term investments in personnel. As a result, tax law and administrative policies are not taught consistently across the country, and the overall training and expertise of personnel is deteriorating.
The Commission believes taxpayers should deal only with IRS employees who are trained adequately and possess the skills and tools necessary to do their jobs well. Accordingly, the Commission recommends that Congress, the IRS, and the new Board of Directors make training, skills, and support of IRS personnel a priority. The IRS should implement a fully funded policy that its employees will be trained adequately, possess the requisite skills, and be given the tools to execute their jobs. This policy should be given a priority equal to the priority placed on the filing season. Other IRS operations (including enforcement and taxpayer service) should be "sized" in a manner consistent with this priority. Other major organizational changes, including reclassifying the training budget so that it is not part of overhead, undoubtedly will be necessary.
Within two years, the IRS should develop, and have verified independently, the measures necessary to ascertain whether and to what extent these standards are being met.
Traditionally, the IRS has been characterized as a stovepipe operation. In a stovepipe operation, functional units such as taxpayer services, exam, collection, appeals, and counsel set and implement their own priorities and objectives, which often are disconnected from the other functions and the organization as a whole. This is why a taxpayer may receive a notice from the IRS, but when the taxpayer calls the toll-free number, the customer service representative is unable to help. Sometimes the customer service representative does not have the information needed to settle account problems, and sometimes the performance measures for customer service employees are not aligned with performance measures for exam or collection. Under this arrangement, the IRS looks like a conglomeration of unconnected parts, rather than an integrated organization moving toward a common goal. Although the agency has made progress in breaking down stovepipe barriers, it has not eliminated them to the degree necessary.
The Commission believes the IRS must work very hard to break down the stovepipe operations. We recognize that there is no "silver bullet" to rectifying this entrenched problem. It is our understanding that stovepipe computer systems developed around stovepipe functions, and the new Modernization Blueprint (which is discussed in Section 4 of this Report) will set the stage for eliminating these stovepipes. The new IRS leadership team should establish performance measures that encourage functions within the IRS to cooperate. Additionally, the IRS should continue on the course begun in Compliance 2000, in which cross functional teams work together to solve problems. Finally, the Commission considered more far reaching reforms to break down functional stovepipes, including reorganizing the entire organization into four divisions: individual taxpayers subject to withholding, self-employed individuals, small businesses, and large businesses. Reorganizing into specialized units focused on taxpayer needs, rather than IRS internal needs, should better serve the American public. While this idea was not fully developed by the Commission, it deserves further exploration.
Many of the recommendations in the technology section of this report also are geared toward breaking down functional stovepipes. The new governance and management structure must serve as a vehicle to push major changes through the organization. Past efforts to break down stovepipes have failed. The new Board of Directors and Commissioner, with fixed five year terms, should develop the proper structures, systems, and measures to break down stovepipe operations and direct all resources to meeting the needs of taxpayers.
Risk averse culture
Every institution has a unique fabric that is reflected in the attitudes and actions of employees. While the various functions and divisions of the IRS have different cultures and mores, some generalizations can be drawn from the Commission’s work.
The culture of IRS is overly risk averse, based on a tradition of valuing checks and controls over creative approaches to solving problems. In order to evolve into a more taxpayer focused, responsive organization, a cultural shift must occur at the IRS. The positives of the culture are that employees will execute orders and follow directions. The negatives are that the IRS environment often does not encourage personal or organizational growth, and stifles creativity, innovation, and quick problem resolution.
The IRS provides minimal incentive for managers or front-line workers for achieving mission. Most managers interviewed said that rather than use their judgment to assist taxpayers, they document changes they think will help the system, and send them through the chain of command for approval. Most managers indicated that this is often discouraging due to the time lag caused by the multiple layers of management approval required to override systems. Front-line employees and managers rarely receive a response to their suggestions. In addition, Congress, Treasury, GAO, and the press tend to focus on failures without acknowledging successes. Both internal and external forces foster an environment in which employees value rules over outcomes, and do little to encourage the use of judgment in handling taxpayer problems. While the IRS traditional career path develops good managers of labor intensive operations, it does not produce enough business strategists or innovative leaders of technology based process change.
The lack of structure to improve operations based on input from front-line personnel and managers is mirrored at the highest levels of the organization. Senior managers expressed frustration that the infrastructure and decision making process at the IRS does not encourage a full airing of issues. Dissent often is frowned upon, and top level decision makers are not always given the best options for making strategic decisions. Often, the institution views even constructive criticism, whether internal or external, as an attack, blunting the opportunity to have a full review of issues and solutions.
Internal Performance Measures
The IRS has a formal system for reviewing and evaluating its front-line employees and managers based on "critical elements" for every job description. Employees are rated by their managers on their performance in each of these elements on a five point scale. In addition to understanding that they must meet a certain level of performance for the critical elements, field employees are aware of the numerical performance goals that must be met by their group, division, and District or Service Center. Current law prohibits Revenue Agents, Tax Auditors, and Revenue Officers from being evaluated by numerical goals. Congress created this rule to ensure that taxpayers would be treated fairly and not be subject to dollar quotas that field employees might feel pressure to meet.
The Commission applauds the IRS for its attempts to develop a measurement system that influences employee behavior in a positive way. While measures have consistently improved over the past five years, they still need further refinement and development. Most employees interviewed at the IRS are concerned that the internal measurement systems (the Field Office Performance Index (FOPI), Service Center Operations Index (SCOI), and the formal system for evaluating employees that the agency uses as a vehicle to influence employee behavior) are ineffective and encourage perverse behavior. Employees believe that the numerical standards of the FOPI and SCOI do not measure long-term quality performance accurately. Consequently, employees put an emphasis on short-term performance and meeting goals of efficiency (as measured by the FOPI and SCOI), rather than on a balanced focus on efficiency, quality, and taxpayer service. Many employees and outside observers believe the result is that the performance measures do not align with the ultimate objectives and mission of the IRS.
The Commission encourages the IRS to ensure that day-to-day measures of employee performance and behavior align with organizational goals. One of the most significant efforts that the IRS must undertake is to redesign its internal measurement system to encourage behavior which makes it easy for taxpayers to interact with the IRS. A prerequisite to building internal measures is buy-in among IRS, those responsible for governance and oversight of the agency, and external stakeholders. Once priorities are set, the IRS should use private sector experts to help it further refine its internal measures.
Constraints on management
IRS management feels that it is very difficult to realign management and front-line personnel in order to deal with workload and priority changes. In the last few years the IRS budget has decreased, and there is a growing perception that management is constrained in managing the IRS workforce. Most notably, management prioritizes keeping employees on the payrolls. From what the Commission has been able to discern, a combination of the federal civil service rules, labor relations, and management’s unwillingness to make difficult decisions causes the organization to feel constrained in its ability to move workers to priority areas and remove ineffective workers. The Commission encourages the IRS to hold all workers—from senior mangers to middle managers to front-line employees—accountable for carrying out the IRS mission.
The Commission recommends that Congress enable the IRS to attract and train a qualified workforce. To do this, the IRS needs the flexibility to recruit employees from the private sector, to redesign its salary and incentive structures to reward employees who meet their objectives, and to hold non-performers accountable. We suggest that the new IRS leadership work with its Board of Directors and Congress to redesign current incentive systems. In this regard, Congress should consider providing the IRS with similar flexibility that it provided the Federal Aviation Administration. In addition, the IRS must increase its commitment to training personnel, and should encourage new ideas and approaches to serving taxpayers, increasing compliance, and increasing productivity.
Again, the Commission is convinced that the necessary changes in training, culture, measures, and quality of workforce need to be driven by IRS leaders. The Commission’s recommendations in governance and management, as outlined in Section 1 of this Report, set the stage for fundamental organizational change, and are necessary prerequisites to the successful implementation of the changes recommended in Section 2.