Tax Administration: IRS and TIGTA Should Evaluate Their Processing of Employee Misconduct under Section 1203
Released: 2003-03-17T00:00:00

Letter

Background

As part of the Restructuring Act, the Congress enacted section 1203, which provides for the firing of IRS employees who have been proven to commit any of 10 acts or omissions in the performance of their official duties, unless a mitigated penalty is appropriate. These 10 acts or omissions, which are shown below, can be divided into 2 that relate to IRS employees’ tax compliance in filing tax returns and reporting tax liability, and 8 that relate to employee and taxpayer rights. Specifically, these acts or omissions are (1) willful failure to obtain the required approval signatures on documents authorizing a seizure of a taxpayer’s home, personal belongings, or business assets; (2) providing a false statement under oath with respect to a material matter involving a taxpayer or taxpayer representative; (3) violating the rights protected under the Constitution or the civil rights established under six specifically identified laws with respect to a taxpayer, taxpayer representative, or other employee of the IRS; (4) falsifying or destroying documents to conceal mistakes made by any employee with respect to a matter involving a taxpayer or taxpayer representative; (5) assault or battery of a taxpayer, taxpayer representative, or employee of the IRS, 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; (6) violating the Internal Revenue Code, Department of Treasury regulations, or policies of the IRS (including the Internal Revenue Manual) for the purpose of retaliating against, or harassing, a taxpayer, taxpayer representative, or other employee of the IRS; (7) willful misuse of the provisions of section 6103 of the Internal Revenue Code for the purpose of concealing information from a congressional inquiry; (8) willful failure to file any return of tax required under the Internal Revenue Code on or before the date prescribed therefore (including any extensions), unless such failure is due to reasonable cause and not to willful neglect; (9) willful understatement of federal tax liability, unless such understatement is due to reasonable cause and not to willful neglect; and (10) threatening to audit a taxpayer for the purpose of extracting personal gain or benefit.

The Restructuring Act provided the Commissioner with sole discretion, which he cannot delegate, to determine whether to take a personnel action other than firing an employee (i.e., mitigation) for a section 1203 violation. Such determination may not be appealed in any administrative or judicial proceeding.

The process for receiving, investigating, and adjudicating section 1203 allegations involves TIGTA and IRS. Under the section 1203 process, revised in March 2002, TIGTA has primary responsibility for receiving and investigating the allegations, except for those that IRS receives and investigates. For example, IRS’s Employee Tax Compliance (ETC) unit, using a computer match, has primary responsibility for identifying and investigating employee tax compliance issues. Also, IRS’s Office of Equal Employment Opportunity (EEO) is to analyze EEO settlement agreements, findings of discrimination, and taxpayer complaints of discrimination to identify whether a potential section 1203 civil rights violation exists. IRS is responsible for adjudicating all section 1203 allegations that are substantiated as violations.

Generally, each allegation of a potential section 1203 violation must be initially evaluated to determine whether it merits a full investigation. Then, if an investigation of an allegation uncovers sufficient facts to substantiate it (i.e., support a section 1203 violation), the employee is to be issued a letter notifying him or her of the proposed firing from IRS. The employee has a right to respond to the letter. Afterwards, if the deciding official determines that the evidence sustains the alleged violation, a board established by the IRS Commissioner must review the case to determine whether a penalty less than firing is appropriate. If the board does not find mitigation to be appropriate, the case is not submitted to the IRS Commissioner and the employee is fired. If the board recommends mitigation, the Commissioner must consider it. If the Commissioner mitigates the penalty, other disciplinary actions, such as counseling, admonishment, reprimand, or suspension may be applied. Details on the process are provided in appendix V.

According to IRS senior management, the misconduct addressed in section 1203 has always been regarded as serious and subjected to disciplinary action. Prior to the enactment of section 1203, the general rules for imposing discipline required a deciding official to consider a wide range of factors in arriving at the appropriate disciplinary action. Enactment of section 1203 eliminated the variation in penalty for substantiated misconduct, requiring the employee to be fired unless the Commissioner mitigates that penalty.

The IRS Commissioner has expressed concerns over the appropriateness of the mandatory firing penalty, especially when an IRS employee had already paid his or her tax liability or when the allegation involves just IRS employees. To address the concerns, IRS, through the Department of the Treasury, is seeking legislation to amend section 1203 by eliminating this penalty for (1) the late filing of tax returns for which a refund is due and (2) action by IRS employees that violate another employee’s rights. In addition, IRS requested that the Commissioner be able to use a range of penalties aside from firing employees, for the types of misconduct under section 1203. Further, because of the associated seriousness and sensitivity over privacy issues, IRS also asked that the unauthorized inspection of returns or return information be added to the list of violations under section 1203.

Scope and Methodology

To determine the number, type, and disposition of section 1203 allegations, we analyzed data from IRS’s Automated Labor and Employee Relations Tracking System (ALERTS) database as of September 30, 2002. The data included all section 1203 cases that had originated in IRS, as well as some cases that originated in TIGTA and were either investigated or referred to IRS for investigation or adjudication. On the basis of IRS information on its quality control checks of the data, the use of the data, and our review of the database, we determined that the data were sufficiently reliable to determine the number, type, and disposition of section 1203 allegations.

To determine IRS employees’ perceptions of how section 1203 has affected their interactions with taxpayers, we surveyed a stratified random sample of IRS frontline enforcement employees nationwide. Those audit or collection employees included revenue agents, revenue officers, tax compliance officers, and tax auditors from IRS’s Small Business and Self- Employed Division (SB/SE). We asked questions about their understanding and perceptions of section 1203 and its impacts on their jobs. We sent the survey to 455 eligible frontline enforcement employees, of which 350 responded via regular mail, fax, or the Internet between July and September 2002, for a response rate of 77 percent. We also did a content analysis of written comments volunteered by 208 respondents to arrive at a limited number of content categories. A copy of the survey instrument and a summary of the content categories are included in appendixes III and IV.

To identify what problems, if any, IRS and TIGTA have encountered in processing section 1203 cases and the extent to which they have addressed them, we reviewed IRS’s and TIGTA’s policies and procedures for receiving, investigating, and adjudicating section 1203 allegations. We also interviewed IRS and TIGTA officials who are responsible for the section 1203 process. In addition, we reviewed a study done by IRS, TIGTA, and a private consulting firm to streamline the section 1203 process, and discussed the study with their officials. To understand the process and gauge the length of time that section 1203 cases take to process, we reviewed 92 of the 100 most recently closed cases as of August 30, 2002, according to IRS’s ALERTS database; in 5 cases, the files could not be located for employees who retired or otherwise left IRS and 3 cases were duplicates. We recorded dates and decisions for various stages of the process.

We did not attempt to measure the effectiveness of section 1203 and whether its impacts on IRS employees were positive or negative. Appendix I contains more detailed information on our survey design and administration and case file review approaches. We conducted our review in Washington, D.C., from November 2001 to December 2002 in accordance with generally accepted government auditing standards.

Few Section 1203 Allegations Were Substantiated and Resulted in an Employee’s Firing, Except for Those Involving Compliance with Federal Tax Laws

IRS data show that, with the exception of employees’ tax compliance provisions, few of the 3,970 section 1203 allegations received between July 1998 and September 2002 were substantiated as violations of section 1203 and resulted in an employee’s firing. Table 1 shows what happened to the 3,970 allegations in terms of completed investigations, substantiated allegations, and firings.

Table 1 shows that IRS or TIGTA had finished investigating 3,512 allegations and substantiated 419 as violations, for which IRS fired 71 employees. Of the other 348 violations, IRS’s Commissioner mitigated the penalty for 166; the employees resigned or retired for 117; the employees were fired on other grounds or during their probationary period for 33; and IRS had not finalized the decision for another 32. Appendix II shows the dispositions of all 419 violations by type of section 1203 misconduct and the grade level of the 71 fired employees.

Table 1 also shows that most of the violations and related firings involved the two tax compliance provisions of section 1203. The failure to file tax returns on time and the understatement of federal tax liability accounted for 388 of the 419 violations (93 percent) and 62 of the 71 firings (87 percent). The rest of the violations and related firings involved the remaining 8 provisions, which deal with employee and taxpayer rights. IRS officials said that the bulk of the violations and firings involved the two tax compliance provisions of section 1203 because IRS has a systemic computerized process to identify and evaluate potential employee tax compliance issues. Further, according to officials, these issues generally are more factually based and involve clearer indicators of misconduct.

To understand why 3,093 investigated allegations were not substantiated, we analyzed IRS data and talked with IRS officials. As shown in appendix II, 800 of these investigated allegations were not substantiated as section 1203 violations but were substantiated as misconduct violations unrelated to section 1203. Of those remaining, 1,549 involved allegations of retaliation and harassment of a taxpayer, taxpayer representative, or IRS employee. Although IRS had not done a systematic analysis, IRS officials offered possible reasons why these investigated allegations could not be substantiated as section 1203 violations. These officials said that many were not credible. For example, the officials cited cases in which a taxpayer representative routinely lodged allegations whenever enforcement employees contacted clients. Another cited example was when taxpayers’ allegations had more to do with their protests about having to meet their tax obligations.

Most Employees Believed That They Understood but Feared Section 1203, and That It Was One of Several Factors Affecting Their Work

Our survey indicated that most frontline enforcement employees understood but feared section 1203, and that, because of section 1203, their work takes longer and the likelihood of their recommending a seizure decreased. Otherwise, employees’ reported views were not as strong on the impacts of section 1203 on other audit or collection activities. At the same time, many employees said that, other factors, such as IRS’s reorganization, have had a greater impact on their ability to do their jobs than section 1203.

Most Frontline Enforcement Employees Said They Understand the Types of Section 1203 Misconduct

The overwhelming majority of frontline enforcement employees reported that they understood the types of misconduct covered by section 1203. Figure 1 shows that for 9 of the 10 provisions, at least three-quarters of the employees said they had a very or generally clear understanding of misconduct under section 1203. For the provision on the misuse of section 6103 to conceal information from a congressional inquiry—about 68 percent of the employees said they had a very or generally clear understanding of misconduct covered by section 1203.

In addition, an estimated 48 percent of the employees said that IRS had provided, to a very great or great extent, clear examples of what constitutes harassment or retaliation under section 1203. Only about 7 percent said that IRS provided such examples to little or no extent.

Most Frontline Enforcement Employees Reported Fears Associated with Section 1203

The majority of employees reported fears associated with section 1203. As shown in figure 2, at least two-thirds reported that they were somewhat or very fearful of having a taxpayer file an allegation and being investigated. Almost as many said they were somewhat or very fearful of being fired.

Written comments, while not representative of all respondents, provide some insights on employees’ fears. For example, several employees described fears of being falsely accused by a taxpayer while others noted a fear of being investigated for making an honest mistake. A number of employees expressed more general fears of section 1203. For example, one employee wrote, “I acknowledge that my fears may be irrational, and I would hope that the system would work as it is designed. I could envision a complaint (unfounded, I would hope) being filed, and the resulting anxiety would be overwhelming.”

Further, the survey revealed that most frontline enforcement employees had little or no confidence in the disciplinary process for section 1203. For example, an estimated 50 percent of the employees said they are not at all confident and 18 percent reported that they had little confidence that they will not be disciplined for making an honest mistake.

IRS officials said that they believe the fear and distrust of section 1203 is pervasive among all types of frontline enforcement employees. However, they indicated that those most affected and concerned are revenue officers who have face-to-face contacts with delinquent taxpayers.

Many Frontline Enforcement Employees Reported That Section 1203 Contributes to Work Taking Longer and a Decline in Seizure Activity

Many frontline enforcement employees perceived that section 1203 contributed to work taking longer and to a decline in seizure activity. Otherwise, employees reported views that were not as strong on the impacts of section 1203 on other frontline enforcement activities, such as those associated with audits or collections.

Such perceptions are important because IRS management believes that declines in enforcement activities since 1998 resulted, in part, from employees’ reluctance to use enforcement tools due to section 1203 fears. Our survey results on employees’ perceptions of changes in job behavior are broadly correlated with actual declines in enforcement activities, such as seizures. However, this broad correlation should be interpreted with caution because employee perceptions do not necessarily demonstrate causation and section 1203 is unlikely to be the only reason for the decline in enforcement activity. Further, any changes in enforcement activity could be positive or negative, depending on whether the activity was merited.

One job behavior that employees reported being affected by section 1203 was the time spent to do their work. An estimated 80 percent of frontline enforcement employees said that work took longer as a result of section 1203. Some written comments helped to illustrate why employees believed their work takes longer. For example, one employee wrote, “[I am] more cautious more time to avoid harassment allegations.” Another said, “the greatest impact has been on the amount of time necessary to work a case—ensuring that taxpayer rights are made clear and protected through every step.”

In addition, many employees responsible for collections, such as issuing seizures, liens, and levies, said that section 1203 has affected how they do their jobs. As figure 3 shows, an estimated 67 percent of the collection employees said that the likelihood of their recommending a seizure of taxpayer assets to satisfy a tax debt had decreased (including somewhat or greatly); reported views were not as strong on the likelihood of recommending a levy or lien decreasing.

The written comments helped to illustrate why collection employees said they were less likely to take collection actions. Several employees indicated that they second-guess their decisions as a result of section 1203. One employee wrote, “ has forced me to doubt my own judgment on enforcement matters, especially . . . where some issues are vague and the collection officer has to use his or her judgment.” Another employee noted, “ 1203 has made me hesitant to take any action and has slowed work progress since each and every action has the potential to create a section 1203 violation. There is so much information that we are responsible to know and any act, willful or not, can result in a disciplinary action.”

Employees reported views that were not as strong on the impacts of section 1203 on other frontline enforcement activities. For example, figure 4 shows that except for one action—contacting a third party—roughly half or more than half of the employees reported that section 1203 had no impact on the likelihood of their taking actions that can be associated with audits such as requesting, reviewing, or questioning documents submitted by taxpayers.

Many Employees Said That IRS’s Reorganization and Tax Law Changes Have Had a Greater Impact on Their Ability to do Their Jobs Than Section 1203

Many IRS frontline enforcement employees also reported that IRS’s reorganization and tax law changes have had a greater impact on their ability to do their jobs than section 1203. As shown in figure 5, a higher percentage of employees reported that IRS’s reorganization and tax law changes have had a greater impact rather than a lesser impact on their ability to do their jobs compared to section 1203.

Some written comments indicated employee’s perceptions on how the other factors had an effect on their ability to do their jobs. For example, one employee wrote, “The restructuring has created areas where there is no accountability. Frontline employees have nowhere to go when not receiving services, as the person providing the service is in a different division . . . .” Another wrote, “The ongoing complex tax law changes in conjunction with the threat of losing your job (under section 1203) if you don’t correctly implement all of the changes is what greatly impacts our ability to do the job.”

IRS officials indicated that the impacts of section 1203 on employees cannot be isolated from those of such factors as IRS’s reorganization and tax law changes because they are interrelated. For example, the officials said that section 1203 itself is part of the reorganization and is a tax law change that some view as complex.

Most Frontline Enforcement Employees Said Section 1203 Has Had Some Impact in Promoting Employee Accountability and Respect for Taxpayer Rights

As figure 6 shows, we estimate that at least 60 percent of the enforcement employees perceived section 1203 as promoting some degree of employee accountability and respect for taxpayer rights. We also estimate that about 30 percent of the employees perceived section 1203 as doing little or nothing to promote accountability or respect for taxpayer rights.

Some written comments indicated ways that employees perceived section 1203 as promoting employee accountability and respect for taxpayer rights. One employee wrote, “These changes were needed and . . . it has been a change for the better and hopefully has increased our trust and faith in the general public, our clients, the taxpayers.” Another employee noted, “Section 1203 make IRS employees accountable and promotes respect for taxpayers . . . .”

In other written comments, however, some employees offered their perceptions of how section 1203 did little or nothing to promote employee accountability or to promote taxpayer rights. For example, one employee wrote, “Employees who safeguard taxpayers’ rights are those who would have anyway—section 1203 did not affect that.” Another noted, “We have . . . always been aware of and made every effort to respect the taxpayer’s rights. 1203 does not enhance taxpayer’s rights or . . . efforts to ensure those rights are honored.”

IRS and TIGTA Have Taken Steps Intended to Improve the Section 1203 Process, but Extent of Progress is Unknown

IRS and TIGTA have taken steps intended to correct known problems, such as lengthy investigations and conflicts of interest during investigations, that may have reduced the effectiveness of the section 1203 process as well as the morale and productivity of enforcement employees. However, the extent to which these steps have succeeded is unknown because IRS and TIGTA have not coordinated on an approach for evaluating the section 1203 process on the basis of consistent types of results-oriented goals, measures, and performance data. Until IRS and TIGTA develop a coordinated approach to ensure consistent and valid evaluation, they cannot determine the effectiveness of the entire section 1203 process or any changes to it.

IRS and TIGTA Made Changes to Address Problems with the Section 1203 Process

IRS and TIGTA made changes to address problems with the process for receiving, investigating, and adjudicating section 1203 allegations. IRS initially identified some of these problems through a limited review to check employee concerns that section 1203 cases were not being resolved in a timely manner. The review revealed that, on average, IRS investigations took over 200 days and TIGTA investigations took over 300 days. In October 2001, IRS and TIGTA initiated a more comprehensive study to assess the causes of lengthy processing times and identify other problems associated with the process for receiving, investigating, and adjudicating section 1203 cases. A team of IRS, TIGTA, and private consulting firm officials did the study, which resulted in recommendations to reengineer the process to improve performance. The team issued a final report in January 2002.

The team identified several problems with the section 1203 process, such as cases changing hands frequently within and between IRS and TIGTA and use of multiple and inconsistent procedures for processing section 1203 allegations. The team developed recommendations to correct the problems and improve the section 1203 process. On the basis of the recommendations, IRS implemented some changes in March 2002.

Table 2 lists the problems identified by the team, its recommended actions, and actions taken.

Although many of the team’s recommendations were implemented, some were not implemented or were modified. IRS and TIGTA officials said that modifications resulted because both agencies agreed, after the recommendations were developed, that TIGTA would be more involved in screening and investigating most allegations.

For example, IRS modified the recommendation to create a BEPR that would receive section 1203 allegations, determine their investigative merit, and oversee the section 1203 process. IRS had created BEPR to handle these duties because IRS and TIGTA had not agreed on the extent of TIGTA’s involvement. By the time that the new process was implemented, IRS and TIGTA had agreed that TIGTA would handle allegations for section 1203, with some exceptions. As a result, BEPR’s responsibility was limited to determining the merit of only those allegations forwarded to it by TIGTA and did not include oversight of the whole section 1203 process. IRS officials said that having two independent agencies responsible for different parts of the section 1203 process complicates having one agency responsible for overseeing the other agency.

Rather than creating a centralized database, IRS and TIGTA officials described plans to modify an existing database to allow certain section 1203 data to be downloaded and shared between IRS and TIGTA. To do this, IRS has hired a contractor to develop such integrated data sharing. IRS officials said they plan to begin testing and implementing this new system sometime in 2003. Both IRS and TIGTA officials said that creating a centralized database for section 1203 cases would not be efficient or practical since both agencies use their respective databases to track various types of employee misconduct cases—not just those relating to section 1203. In addition, TIGTA officials said that sharing one database could compromise the integrity of TIGTA’s investigations, given the sensitivity of certain case information.

IRS officials said that the study did not make specific recommendations to address the multiple, inconsistent procedures. These officials said that they believe that the attempts to streamline the process will help to address these problems. For example, the new process clarifies that TIGTA is to be responsible for receiving and investigating most section 1203 allegations. IRS reflected the new process in a revised section 1203 handbook that eliminated some criteria on making various decisions (e.g., mitigation). IRS officials said that they did not retain these criteria because all IRS employees did not need such details. They indicated that they plan to begin developing customized guidelines during early 2003 for targeted audiences, such as labor relation specialists.

IRS and TIGTA Have Not Coordinated on an Approach for Evaluating Whether the New Section 1203 Process Corrected the Problems and Operated Effectively

IRS and TIGTA have not coordinated on an approach for evaluating the section 1203 process on the basis of consistent types of results-oriented goals, measures, and performance data. Until IRS and TIGTA develop a coordinated approach to ensure consistent and valid evaluation, IRS and TIGTA cannot determine the effectiveness of the entire section 1203 process or any changes to it, such as those made in March 2002.

We have issued a number of reports on the value added to agency operations by using results-oriented goals and balanced measures to guide and evaluate performance, avoid focusing on one aspect of performance at the expense of others, and ensure that any changes to a program or process are having the desired results rather than unintended consequences. These reports also have discussed the value of planning evaluations of performance of a program or process early so that arrangements can be made to ensure collection of the needed data.

IRS and TIGTA have not developed agreed-upon goals or measures for evaluating the effectiveness of the section 1203 process or means for collecting related performance data. For example, IRS has not established goals or measures for timely adjudication of section 1203 cases and does not collect information on the amount of time to adjudicate cases. To obtain a current view on section 1203 case processing time, we analyzed 92 of the 100 most recently closed cases in IRS’s database by the end of August 2002. Our analysis showed that the median number of days involved in the process was 186 days and that 80 percent of the cases ranged between 78 days and 774 days.

IRS officials said that they do not have a formal system for evaluating the section 1203 process—including goals and measures—because IRS does not have such a system for any of its employee disciplinary processes. TIGTA officials indicated that TIGTA has a strategic goal of 120 days to investigate and refer all administrative cases to IRS and a 365-day goal for all criminal cases. Although such goals can apply to section 1203 investigations, TIGTA officials said that they have not evaluated whether its section 1203 investigations have met these goals.

Without such performance indicators, IRS and TIGTA cannot determine whether the new process corrected the known problems and improved the section 1203 process as intended—that is, to reduce the number of handoffs, shorten the processing time, and eliminate conflicts of interest. Further, IRS and TIGTA cannot determine how effectively they process section 1203 allegations or whether future changes to the section 1203 process will be needed.

During December 2002, IRS officials told us they plan to develop goals and measures for evaluating all IRS disciplinary processes, including section 1203. Although they could not provide documentation on how this evaluation system would work, they said they plan to implement the evaluation system during fiscal year 2003. On the basis of informal tracking, they said that they believe that the new section 1203 process has expedited the determination of investigative merit and adjudication of violations. They acknowledged the value of having objective data on section 1203 and believed that this informal tracking system can be used to help develop appropriate goals and measures for the formal evaluation system.

Conclusions

The Congress included section 1203 in the Restructuring Act, in part, to minimize certain types of IRS employee misconduct in dealing with taxpayers. On the basis of our survey results, most IRS enforcement employees do perceive that section 1203 has affected their behavior, such as taking longer to work audit or collection cases and having some reluctance to take enforcement actions. The survey results by themselves, however, do not provide a basis for conclusions about whether section 1203 has worked or should be changed. On the one hand, their perceptions about longer case times and a reluctance to take action are consistent with the fear of section 1203 felt by many enforcement employees. On the other hand, any increase in the amount of time to work cases also could result from other impacts of section 1203 seen by employees, such as promoting increased employee accountability and respect for taxpayer rights. Moreover, policymakers might be willing to accept longer case times and some fear of taking enforcement actions when merited if the tradeoff is greater respect for taxpayer rights.

One influence on how enforcement employees perceive section 1203 is the IRS and TIGTA process for handling section 1203 allegations. However, our survey found widespread distrust of the process. Further, IRS and TIGTA recognized that problems with the section 1203 process were affecting employee morale and productivity. Consequently, they implemented a new process in March of 2002. Evaluation of the new process is important because of the potential impact on IRS employees and ultimately taxpayers. While too few section 1203 cases have been closed under the new process for an evaluation to date, IRS and TIGTA have not developed an evaluation approach. Any evaluation of effectiveness would have to be based on results-oriented goals and related performance measures. Developing an approach now would help ensure timely collection of the needed data.

Recommendations

We recommend that the Acting Commissioner of Internal Revenue and the Acting Treasury Inspector General for Tax Administration coordinate on an approach for evaluating the section 1203 process. In developing this approach, IRS and TIGTA also should develop (1) results-oriented goals for processing section 1203 cases, (2) performance measures that are balanced and can be used to assess progress towards those goals, and (3) methods for collecting and analyzing performance data related to the goals and measures.

Agency Comments and our Evaluation

On February 6, 2003, the Acting Commissioner of the Internal Revenue and the Acting Treasury Inspector General for Tax Administration each provided written comments on a draft of this report. (See appendix VI and appendix VII, respectively.) In general, IRS agreed with our recommendation that a coordinated evaluation of the section 1203 process is desirable, and TIGTA neither agreed nor disagreed with our recommendation. However, both agencies raised a similar concern about the independence of each agency. Specifically, IRS said that TIGTA’s independent role makes it inappropriate for IRS to oversee TIGTA’s performance. TIGTA pointed to legislative challenges in implementing our recommendation because Restructuring Act amendments to the Inspector General Act of 1978 created TIGTA as an independent agency with autonomy from IRS.

We recognize that IRS and TIGTA are independent agencies. As noted in our report, this independence is why IRS and TIGTA need to coordinate on the evaluation. In this sense, coordination does not mean that either agency evaluate, oversee, or direct the other agency. Rather, coordination means that IRS and TIGTA officials communicate on how each agency will develop goals, measures, and methods for collecting related data to better ensure that the entire section 1203 process is evaluated, using consistent and valid goals and measures.

We do not believe that such coordination would jeopardize the independence of TIGTA from IRS, particularly when IRS and TIGTA already have been working together on managing and improving the section 1203 process, as discussed in TIGTA’s as well as IRS’s comments. We view our recommendation on developing a coordinated approach as part of that continued communication. We made minor wording changes to our recommendation in order to clarify the need for a coordinated evaluation approach.

As agreed with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days from the date of this report. At that time, we will send copies to the Secretary of the Treasury; the Acting Treasury Inspector General for Tax Administration; the Acting Commissioner of Internal Revenue; and the Director of Office of Management and Budget. We will make copies available to others on request. In addition, the report will be available at no charge on GAO’s Web site at http://www.gao.gov.

If you have any questions, please contact me or Tom Short on (202) 512- 9110. Key contributors to this report are acknowledged in appendix VIII.

Appendix I: Survey and Case File Review Methodologies

This appendix discusses the methodology we used to survey the Internal Revenue Service (IRS) employees on how section 1203 affected their interactions with taxpayers. We also discuss our methodology for a review of IRS case files to determine how long section 1203 cases were taking to process.

Survey Methodology

To determine IRS frontline enforcement employees’ perceptions of how section 1203 has affected their interactions with taxpayers, we surveyed a random sample of IRS frontline enforcement employees in the Small Business/Self Employed Operating Division (SB/SE) who had direct contact with taxpayers and taxpayer representatives. We administered the survey between July and September 2002 to a stratified sample of IRS employees identified through IRS’s personnel database.

Study Population

The study population from which the sample was drawn consisted of 10,186 SB/SE frontline enforcement employees nationwide as of June 2002. To ensure that the study population only included frontline enforcement employees who had regular contact with taxpayers and taxpayer representatives, IRS managers familiar with the positions reviewed a list of titles for all positions in the GS-512 job series (revenue agents), GS-1169 job series (revenue officers), GS-526 job series (tax compliance officers), an GS-501 and GS-598 job series (tax auditors), and identified position titles in these 5 series where the incumbent would have regular contact with taxpayers and taxpayer representatives.

Sample Design

The sample design for this survey is a single-stage stratified sample of IRS frontline enforcement employees in SB/SE. We drew a sample of 500 employees composed of 4 strata—revenue agents, revenue officers, tax compliance officers, and tax auditors.

After we administered the survey, we adjusted the original survey and sample population size because 45 respondents indicated that they did not have contact with taxpayers and taxpayer representatives. These respondents were considered “ineligible” to participate in our survey and were subsequently excluded. We adjusted the final sample size to 455. We received 350 completed responses to our survey—a response rate of 77 percent. The remaining 105 cases were considered to be nonrespondents.

Calculation of Sample Estimates

All estimates produced in this report are for a study population defined as IRS’s SB/SE frontline enforcement employees who have contact with taxpayers and taxpayer representatives. We designed our sample to produce precise estimates of this population on a nationwide basis. As a result, we did not perform any analyses by stratum. Further, we created the estimates by weighting the survey responses to account for the sampling rate in each stratum. The weights reflect both the initial sampling rate and the response rate for each stratum.

Sampling Error

We randomly selected the sample used for this study based on a probability procedure. As a result, our sample is only one of a large number of samples that we might have drawn from the total population of SB/SE frontline enforcement employees. If different samples had been taken from the same population, it is possible that the results would have been different. To recognize the possibility that other samples may have yielded other results, we express our confidence in the precision of our particular sample’s results as a 95-percent confidence interval. For all the percentages presented in this report, unless otherwise noted, we are 95-percent confident that the results we obtained are within plus or minus 10 or fewer percentage points of what we would have obtained if we had surveyed the entire study population. For example, our survey estimates that 58 percent of the respondents indicated that section 1203 had no effect on their likelihood of requesting documents from a taxpayer. The 95-percent confidence interval for this estimate would be between 48 percent and 68 percent. We calculated the confidence intervals for our study results using methods that are appropriate for a stratified probability sample.

Nonsampling Error

In addition to the reported sampling errors, the practical difficulties of conducting any survey may introduce other types of errors, commonly referred to as nonsampling errors. For example, questions may be misinterpreted, the respondents’ answers may differ from those who did not respond, or errors could be made in keying the questionnaire responses into a data file. We took several steps to reduce such errors.

We pretested the survey questions with employees from SB/SE who were part of the survey’s target population. After the survey administration, we examined the response rate for each of the 4 strata to determine whether any of the strata were underrepresented. The response rates for the revenue agent, revenue officer, tax compliance officer, and tax auditor strata were 89 percent, 87 percent, 78 percent, and 44 percent, respectively. We did not assess the impact of the nonrespondents on our results. To the extent that the nonrespondents had different views than the respondents, then our findings would be biased. The response rates for the revenue agent, revenue officer, and tax compliance officer strata are fairly high and give us a high degree of confidence that our findings for these groups are likely to be representative of the fuller populations. The 44 percent response rate for the tax auditor strata raises the possibility that the results for this group may have been different if more employees had chosen to complete the survey.

To ensure the integrity of the survey data, we performed a quality control check on the surveys that were keyed into an automated data file. We found no keying errors.

Survey Development

We identified areas to cover in the survey based on our congressional request and initial interviews with IRS and National Treasury Employees Union officials.

We pretested the survey to IRS revenue agents, revenue officers, and tax compliance officers at three IRS field offices (at the time of the pretests, tax auditors were unavailable). Two of the offices were located in suburban Maryland and another was located in Washington, D.C. In doing the pretest, we evaluated the appropriateness of the survey questions and the various formats we planned to use in administering the survey. Based on the pretests, we made necessary changes to the survey prior to its nationwide implementation.

Survey Administration

We administered the survey in three ways: mail, Internet, and as a portable document format (pdf) attachment sent out via E-mail. The respondents could submit their completed surveys through regular mail, fax, or the Internet. In addition to the survey itself, each survey package included two letters encouraging employees to participate in the survey administration. One letter was signed by the IRS Commissioner of the Small Business/Self Employed Division and the other was signed by GAO’s Managing Director of the Tax Administration and Justice team. We conducted at least two follow up calls to each nonrespondent in order to encourage a high response rate. A copy of the survey instrument is in appendix III.

Content Analysis

Some of the survey questions were open-ended, allowing respondents an opportunity to provide thoughts and opinions in their own words. Of the 350 employees that responded to our survey, 208 provided written responses to the open-ended questions. In order to categorize and summarize these responses, we performed a systematic content analysis of the open-ended responses. Two GAO analysts reviewed the responses and independently proposed categories. They met and reconciled these; each comment was then placed into one or more of the resulting categories, and agreement regarding each placement was reached between at least two analysts. All initial disagreements regarding placement into categories were discussed and reconciled. The numbers of responses in each content category were then summarized and tallied.

Case File Review Methodology

To contribute to our understanding of IRS’s processing of section 1203 cases and to determine the amount of time it takes to process the cases, we reviewed 92 of the 100 most recently closed cases that were recorded in IRS’s ALERTS database as of August 30, 2002. We developed a data collection instrument to record the type of allegation as well as various dates associated with key stages in the processing of the case. These key stages were identified as part of our review of the section 1203 process and confirmed through discussions with IRS officials familiar with the processing of these cases.

Of the 100 cases that were identified in IRS’s database as being the most recently closed, we determined that 92 were available for review. For the 8 cases that were not available, IRS identified 3 as being duplicative, and we were advised by IRS not to include them in our review. In addition, according to IRS, 5 other cases were not available for review because the employee left IRS before TIGTA finished the investigation. (These cases were recorded as “not adjudicated.”) We performed a limited quality control check of the data recorded on 12 percent of the 92 cases by randomly selecting the cases.

In addition, for 19 of the 92 cases, missing data prevented us from computing case processing times. As a result, processing times could only be calculated for 73 of the 92 cases included in this review.

Table 3 provides a breakdown of the number of cases opened before, on, or after March 1, 2002—the date that the new section 1203 process was implemented. All cases were closed after March 1, 2002.

The case processing times were calculated based on the dates that the case was opened by either TIGTA or IRS and closed by IRS. For the closing date, we used the date that the employee was issued a letter informing them of the outcome of his or her case. If there was no such letter, we used other documentation contained in the file that indicated the date that the case had been closed. In 5 of the cases, the employee had resigned or retired and the case file did not include a letter or other documentation to indicate the case had been closed. For these cases, we used the employees’ resignation or retirement date.

Our work was conducted in accordance with generally accepted government auditing standards.

Appendix II: Data on Section 1203 Allegations

Tables 4, 5, and 6 summarize information on section 1203 allegations for the period July 1998 through 2002. Table 4 provides information on substantiated section 1203 allegations by disposition and table 5 provides information on employee firings by type of misconduct and employee GS level. Table 6 provides a breakdown of results for the 3,512 allegations that were investigated, including allegations that were substantiated as a section 1203 violation, allegations that were substantiated for nonsection 1203 misconduct, and allegations that were not substantiated.

Appendix III: GAO Survey of IRS Frontline Enforcement Employees

Appendix IV: Summary of Content Analysis of Open-Ended Comments from GAO Survey of IRS Frontline Enforcement Employees

Some of the survey questions were open-ended, allowing respondents to provide thoughts and opinions in their own words. In order to categorize and summarize these responses, we performed a systematic content analysis of the open-ended responses. Two GAO analysts reviewed the responses and independently proposed categories. They met and reconciled these; each comment was then placed into one or more of the resulting categories, and agreement regarding each placement was reached between at least two analysts. All initial disagreements regarding placement into categories were discussed and reconciled. As shown in figure 7, the number of responses in each content category was then summarized and tallied.

Appendix V: Stages of Section 1203 Case Processing

The following description of section 1203 case processing applies to all allegations, except those related to compliance with federal tax laws and employee and taxpayer civil rights, which are processed separately. Complaints involving allegations of section 1203 misconduct are subject to a 3-stage process, including: (1) reporting and investigative determination, (2) fact-finding, and (3) adjudication. Figure 8 provides an illustration of the various stages of the processing of a section 1203 case.

Reporting and Investigative Determination

Any taxpayer, taxpayer representative, or IRS employee can file a complaint with IRS or TIGTA alleging employee misconduct under section 1203. IRS managers have been instructed to forward all allegations to TIGTA, which has primary responsibility for receiving and investigating complaints involving allegations of section 1203 misconduct. Once it receives the complaint, TIGTA is to enter information on the allegation into its information tracking system for managing and reporting purposes.

After entering the information into its information system, TIGTA is to make an initial determination about whether the allegation should be investigated as a potential act of employee misconduct. If TIGTA finds sufficient information indicating a section 1203 violation may have occurred, TIGTA is to investigate the allegation. Similarly, TIGTA may find sufficient grounds to conduct an investigation for misconduct unrelated to section 1203. In either case, the results of the TIGTA investigation are provided to IRS as a formal Report of Investigation.

TIGTA may also determine that the complaint does not contain specific enough information, or that it does not have the necessary expertise, to be able to make a determination on the complaint’s investigative merit. In these instances, TIGTA is to refer the complaint to the Commissioner’s Complaint Processing and Analysis Group (CCPAG) to determine whether there is a basis for an investigation. A case development team within CCPAG is to receive the allegation and enter information on the allegation into its information tracking system. The role of the case development team is to gather the relevant facts related to the allegation to determine whether the essential elements of a section 1203 violation may be present.

Upon its evaluation of the allegation, CCPAG may conclude that the complaint is frivolous (e.g., a taxpayer alleges misconduct because the employee did not agree with the taxpayer that the tax laws are unconstitutional). In these instances, CCPAG is to forward the allegation to IRS’s Frivolous Return Program at the Ogden Service Center.

After gathering the relevant information—for allegations not considered frivolous—CCPAG is to forward the allegation to the Board of Employee Professional Responsibility (BEPR) for its review. BEPR includes the Director, CCPAG, and representatives from the Small Business and Self Employed Division. IRS’s Strategic Human Resources and Agency-Wide Shared Services employee relations specialists and Office of Chief Counsel General Legal Services may serve as advisors to BEPR. TIGTA also serves in an advisory role on BEPR. IRS’s Senior Counselor to the IRS Commissioner participates in BEPR’s review of allegations involving IRS executives, GS-15’s and senior manager pay band employees.

BEPR’s review may result in several outcomes. Specifically, BEPR may concur with the case development team’s finding that the allegation has no merit. In this situation, no investigation is conducted and the Director CCPAG is to issue a letter to the employee and his/her manager advising that there will be no investigation. If BEPR concurs with the case development team’s findings that no misconduct occurred, the Director of CCPAG is to issue a clearance letter to the employee and his/her manager. The case is then closed. If BEPR concurs with the case development team’s findings that other misconduct may have occurred, BEPR is to recommend a referral to TIGTA or IRS management for investgation, and regular disciplinary procedures are to apply. If BEPR agrees with the case development team’s findings that section 1203 misconduct may have occurred, BEPR is to recommend a referral to TIGTA for investigation.

Fact-Finding

Once TIGTA or BEPR determines an allegation to have investigative merit as a possible section 1203 violation, TIGTA is to perform the investigation. Specifically, TIGTA may review records, interview witnesses, and consult technical experts as necessary to develop information relevant to the alleged violation. In some cases, the possible section 1203 misconduct may also be a potential violation of criminal law. In these cases, TIGTA is to refer its findings to a local U.S. Attorney Office for consideration of criminal prosecution. After the investigation is completed, and a referral is made to a U.S. Attorney, if appropriate, TIGTA is to provide a Report of Investigation to CCPAG.

Adjudication

All TIGTA Reports of Investigation on allegations of section 1203 violations are first to be reviewed by CCPAG to determine whether the evidence can support the allegation for a section 1203 violation. If CCPAG determines that the evidence does not support a section 1203 violation or other misconduct unrelated to section 1203, the Director of CCPAG is to issue a clearance letter to the employee and his/her manager. If CCPAG determines that the evidence presented supports a section 1203 violation, it is to forward the Report of Investigation to the “proposing official”—a management official generally two levels of supervision above the subject of the allegation—for further action.

Acting with the advice of an employee relations specialist, the proposing official is to determine whether misconduct has been substantiated by a preponderance of the evidence. If the proposing official determines that no misconduct occurred, the official is to issue a clearance letter to the employee. If this official determines that the evidence supports misconduct unrelated to section 1203, IRS’s regular disciplinary procedures are to apply. If this official determines that the specific elements of a section 1203 violation appear to be established by a preponderance of the evidence, he or she is to issue a letter to the employee proposing removal from the federal service. The employee has the right to respond to this proposal letter and to review any information relied upon by the proposing official. The case is to be submitted to the deciding official, generally an executive at least three levels of supervision above the employee.

The deciding official is to review the entire case file, including the employee’s response, to determine whether the charge has been proved. If the deciding official determines that no misconduct occurred, the official is to issue a clearance letter to the employee. If this official determines that the evidence supports misconduct unrelated to section 1203, IRS’s regular disciplinary procedures are to apply. If the deciding official determines that a section 1203 violation is established by a preponderance of the evidence, the employee is to be removed from the federal service, unless the Commissioner of Internal Revenue decides that another penalty is to be imposed.

The Commissioner of Internal Revenue has established a Section 1203 Review Board (Board) to consider all cases in which a deciding official finds that a section 1203 violation has occurred. Comprised of various IRS executives from different IRS units, the board must review the allegation to determine whether a penalty less than firing the employee is appropriate. If the Board does not find mitigation to be appropriate, the case is not submitted to the IRS Commissioner. The case is then returned to the deciding official who is to impose the statutory penalty of termination of employment. If the Board recommends mitigation, the Commissioner reviews the recommendation. If the Commissioner mitigates the penalty, other disciplinary actions, such as written counseling, admonishment, reprimand, or suspension, may be applied. The Commissioner’s decision on the level of discipline to be imposed is not subject to review outside IRS. After the Commissioner’s decision, the employee may appeal the finding that a violation occurred.

Appendix VI: Comments from the Internal Revenue Service

Appendix VII: Comments from the Treasury Inspector General for Tax Administration

Appendix VIII: GAO Contacts and Staff Acknowledgments

GAO Contacts

Staff Acknowledgments

In addition to the persons named above, the following persons made key contributions to this report: Kevin Dooley, Evan Gilman, Patty Hsieh, Shirley Jones, Stuart Kaufman, Anne Laffoon, MacDonald Phillips, Kristen Plungas, Brenda Rabinowitz, Anne Rhodes-Kline, Andrea Rogers, Wendy Turenne, and Chris Wetzel.