Since 1973, IRS Policy Statement P-1-20 has prohibited using records of tax enforcement results to evaluate enforcement officers or to impose or suggest production goals or quotas. An enforcement officer is an employee who exercises judgment with regard to determining tax liability or the ability to pay. Enforcement officers include employees directly involved in collection, examination, or criminal investigation functions as well as appeals officers and reviewers. Each function has its own set of tax enforcement results. For example, for the examination function, tax enforcement results include data such as the number of hours spent per return, amount of dollars proposed per return, and number of cases closed. For the collection function, tax enforcement results include the number of liens, levies, and seizures; amount of dollars collected; and number of cases closed. As a general rule, the policy prohibited managers from using any statistic that measures quantity, time per case, type of disposition, or dollar value. Instead, employees are to be evaluated on the basis of the quality of the work, including the use of enforcement tools, timeliness of action, and application of tax law. However, the policy statement permitted IRS officials to use statistics on tax enforcement results when carrying out certain management activities, such as preparing long-range and financial plans, allocating resources, and evaluating program effectiveness. In addition, managers were permitted to use tax enforcement results when evaluating employee performance during a case review, for example by noting whether a revenue officer appropriately levied a bank account given the facts of the specific case. Managers were also permitted to discuss with employees the number of cases processed, the amount of time spent on cases, and the kind of results obtained, as long as the discussion was based on a review of the results that were appropriate for specific cases processed by the employees and goals and quotas were not involved. In 1988, along with other changes, the Taxpayer Bill of Rights also prohibited the use of records of tax enforcement results to evaluate employees, but the prohibition only applied to employees directly involved in collection activities and their immediate supervisors. The law specified that IRS would be in compliance with the legislative requirements as long as IRS followed its policy statement. To help ensure compliance, the law also required each district director to certify each quarter whether violations had occurred and the corrective action taken, if needed. Because IRS service centers also have collection responsibilities, IRS imposed the same certification requirement on its service center directors. Generally, the self-certification process requires managers to submit certifications to the next higher level for review. Quarterly, group managers are to submit certifications to their branch chiefs, branch chiefs are to submit certifications to their division chiefs, and division chiefs are to submit certifications to their directors. Directors, relying on lower-level managers’ certifications, are to submit their certifications to the Commissioner of Internal Revenue through the Assistant Commissioner (Collection). During hearings held by the Senate Committee on Finance in September 1997, witnesses alleged that IRS’ focus on enforcement statistics was encouraging enforcement officers to take unnecessary and illegal enforcement actions against taxpayers. Prompted by these hearings, IRS’ Internal Audit reviewed the use of enforcement statistics by collection personnel in 12 districts, as well as at national and regional offices, and found an atmosphere largely driven by statistical measures. Internal Audit also found similar conditions in its July 1998 report on the use of enforcement results by the examination functions in 12 district offices. The IRS Restructuring and Reform Act of 1998 (Public Law 105-206, July 22, 1998) repealed the Taxpayer Bill of Rights prohibitions, which only covered collection employees, and instead expanded the prohibitions to cover all employees. The act also expanded the quarterly certifications to cover each appropriate supervisor. To determine the extent to which IRS’ current certification process identified violations, we reviewed fiscal year 1996 and 1997 quarterly certifications filed by district and service center directors—a total of 288 for the district offices and 80 for the service centers. We also obtained summary information on the potential violations for the first quarter of fiscal year 1998. To obtain information on IRS’ quarterly certification policy and procedures, we interviewed officials from IRS’ National Office; the Western Regional Office; the Georgia, Kansas/Missouri, and Northern California District Offices; and the Atlanta and Fresno Service Centers. We visited these offices because of their close proximity to our offices. We also surveyed officials in all districts and service centers on the quarterly certification process they had in place as of the last quarter of calendar year 1997. Appendix I contains a summary of the violations reported in the quarterly certifications we reviewed. To determine IRS employees’ perceptions of the use of tax enforcement results, we surveyed a statistically representative sample of 1,104 of 20,974 IRS front-line employees and group managers in the collection and examination functions. The survey included questions on whether employees perceived that tax enforcement results influenced their evaluations, the basis for those perceptions, and the use of tax enforcement results to establish group goals. We also analyzed the comments provided voluntarily by IRS employees on the survey. Appendixes II through VI contain our sampling methodology and survey results. All results are reported at the 95-percent confidence level. Sampling errors for all of our estimates are less than plus or minus 10 percentage points unless otherwise reported. To determine how tax enforcement results were used in written employee evaluations, we reviewed the 2 most recent evaluations for a statistically representative sample of 300 of 18,292 examination and collection front-line employees. We reviewed the evaluations to determine whether tax enforcement results were used to rate the employee in violation of IRS guidance. We discussed potential violations with IRS officials and considered their opinions on whether they were violations. We also reviewed the evaluations to determine whether the narratives used tax enforcement results to generally characterize employee performance or to discuss specific case examples. Appendix II contains our sampling methodology and appendix VII contains the results of our review of employee evaluations. All results are reported at the 95-percent confidence level and, unless noted otherwise, the data have sampling errors of no more than 8 percent. To evaluate IRS’ efforts to revise the certification process, we discussed IRS proposals with senior-level officials who were involved in developing the new process. We reviewed the existing and proposed guidance provided to managers and identified the differences between the existing and proposed certification processes. We also met with National Treasury Employees Union (NTEU) officials to obtain their perspective on the existing and proposed processes. We compared the proposed changes with the results of our review of the current process to determine if the limitations we noted were being addressed. There were some limitations to our analysis. We did not verify employees’ responses to our survey. However, we discussed these responses with senior IRS officials. We also did not verify IRS’ personnel database from which we drew our sample. We did our work between December 1997 and August 1998 in accordance with generally accepted government auditing standards. We requested comments on a draft of this report from the Commissioner of Internal Revenue. The comments we received are in appendix VIII and are evaluated at the end of this letter. Our review of quarterly certifications for fiscal years 1996 and 1997 found that directors reported 11 potential violations in 368 quarterly certifications (see app. I). IRS determined that four of the incidents were actual violations, two were unfounded allegations, and five were reported because the directors believed the actions could be misconstrued as violations. However, there are some indications that the certification process may not have identified all violations. For example, for the first quarter of fiscal year 1998, directors reported 28 potential enforcement results violations, more than double the total reported for the prior 8 quarters. According to IRS officials, the increase in reported potential violations occurred as a result of the September 1997 Senate hearings on IRS abuses, which made managers more aware of their responsibilities for reporting potential violations. IRS had not completed its investigation of these potential violations at the time we completed our audit work. Also, we identified several systemic weaknesses that affected the reliability of the certification process. First, our analysis of the potential violations that were reported indicated that there was confusion among IRS officials about what constituted a violation. For example, one certification noted that a district director had asked the National Office official, who was responsible for providing guidance on the use of tax enforcement results, whether a group could establish a team goal to increase dollars collected by 10 percent as part of an organizational pilot project. Although the National Office official agreed that this was acceptable because neither awards nor individual evaluations would be based on achieving the goal, IRS’ Chief Counsel subsequently determined that the group goal was a production quota or goal and, as such, a violation. Second, IRS guidance did not specify how the certifications were to be supported. For example, IRS policy did not mandate what action directors should take to support their certifications, such as reviewing a sample of evaluations or indicating on the certification the number and type of documents reviewed. As a result, National Office officials may not have been in a position to determine whether directors performed enough oversight to validate their certifications. We found that officials at all levels with certification responsibility said that they reviewed some documents to determine whether managers complied with the tax enforcement results policy. However, the nature and scope of their review varied widely. For example, some officials reviewed all performance evaluations and supporting documents for violations while other officials reviewed a random sample or reviewed a small, judgmental sample. Third, IRS did not integrate the employee performance evaluation and certification processes. For example, although IRS procedures require managers to submit an evaluation to a higher level of management for review and approval before the evaluation is given to the employee, they do not require the reviewer to assess the evaluation for potential tax enforcement results violations. Although the preparers’ and reviewers’ signatures on the evaluation form signified that the evaluation complied with procedures for conducting evaluations, the procedures did not specifically refer to the tax enforcement results policy or the certification process. Such a requirement could heighten managerial awareness of policy and legal prohibitions at the time the evaluation is prepared.