In 1986, IRS began to modernize its technology for processing tax returns, enforcing the tax laws, and assisting taxpayers. IRS was several years into its system modernization efforts before it began to study the implications for its organization and work processes. In response to suggestions from us and others, IRS decided that it should take this opportunity to redesign its organization and processes for administering the tax laws. Hence, TSM has become part of IRS’ business vision for both technological and organizational change. IRS’ business vision includes the following basic organizational components: (1) submission processing centers to receive paper returns, correspondence, and other tax documents; (2) customer service centers to interact with taxpayers mainly by telephone; (3) district offices to use face-to-face contacts to assist taxpayers and enforce the tax laws; and (4) computer centers to maintain taxpayer accounts, process electronically filed returns, and receive electronic fund transfers. IRS’ customer service vision is a plan for changing the way IRS interacts with taxpayers. IRS does this in a number of ways, such as answering inquiries, clarifying and correcting tax returns, and collecting unpaid taxes. The agency has decided that these interactions are too fragmentary in its current organization and that taxpayers who contact IRS are too often told to call or write to other offices. It thus developed a plan to consolidate, in 23 customer service centers, work that has been done in at least 70 organizational units in 44 locations, including much work currently done by correspondence. As shown in figure 1, this consolidation of functions involves a major restructuring of IRS operations, including a reduction in the number of staff doing customer service work in 1994 from about 29,000 to an estimated 22,240 in 2001. Customer service centers would absorb the functions of toll-free taxpayer assistance sites, which answer calls about tax law and procedures, taxpayer accounts, and notices that taxpayers receive from IRS. In addition, customer service centers would attempt to convert to the telephone some work now done by correspondence in the collection, adjustment, taxpayer relations, and underreporter branches of service centers. Customer service centers would also absorb the workload of the current automated collection call sites, which contact taxpayers to secure payments and answer calls from taxpayers who are the subjects of collection actions. Finally, customer service centers would handle requests for tax forms in lieu of the current forms distribution centers. We did this assignment because of the magnitude of the changes IRS was planning for its customer service activities. Our objectives were to describe IRS’ goals for its customer service vision and its plans for achieving them, determine the current status of implementation, and identify major challenges facing IRS in moving toward its vision. To gather information on these objectives, we reviewed numerous IRS studies, plans, IRS’ National Office customer service site visit reports, and training materials. The key documents used as baselines for following the progress of customer service were IRS’ September 1993 Business Plan; April 1994 Business Master Plan; IRS Future Concept of Operations, Volume V, Customer Service Center, August 1994; November 1994 Customer Service Implementation Information; and February 1995 draft Integrated Transition Plan for Customer Service; interviewed IRS’ National Office officials responsible for customer service and related technology projects; reviewed IRS’ customer service workload model that was used for forecasting staff needs and the model used for selection of customer service sites, and discussed the latter model with officials of IRS’ Office of Cost Analysis; interviewed the Assistant Director of Negotiations at the National Treasury Employees Union (NTEU) who represents IRS’ bargaining unit employees; visited three of the seven customer service centers that had begun operations as of June 30, 1995: Nashville, TN; Fresno, CA; and Cincinnati, OH; and reviewed related reports done by us, IRS’ Internal Audit, and the National Research Council. We requested comments on a draft of this report from the Commissioner of Internal Revenue or her designee. On August 21, 1995, we met with IRS officials to obtain their comments on the draft. IRS representatives at that meeting included the Assistant Commissioner for Taxpayer Services; the Customer Service Site Executive; the Director, Taxpayer Service Design and Review; and the Director, Collection Customer Services. Their comments are summarized on pages 24 and 25 and incorporated elsewhere in the report where appropriate. We did our work from January 1994 to June 1995 in accordance with generally accepted government auditing standards. IRS’ customer service goals are to greatly improve both its service to taxpayers and its efficiency in using resources. IRS also expects these improvements to contribute to a higher level of compliance with the tax laws. IRS intends to achieve these goals by consolidating several taxpayer interaction functions in customer service centers, giving customer service representatives broad training and responsibility, and using better technology. IRS’ customer service vision, if achieved, would represent a substantial change from current capabilities and performance. One goal of the customer service vision is to resolve 95 percent of taxpayer inquiries after one contact, which IRS refers to as initial contact resolution. In its 1993 Business Plan, which describes IRS’ business vision, IRS stated that its interactions with taxpayers were fragmented among too many organizational units. One of IRS’ reasons for consolidating taxpayer interaction functions is its perception that taxpayers are often referred from one office to another or told to write a letter to resolve their inquiries. The difficulty of achieving this goal and of measuring its achievement is illustrated by one of IRS’ first experiences with initial contact resolution in 1991. By giving telephone assistors additional computer terminals with access to taxpayer accounts and more authority to resolve issues, IRS tried to reduce the contacts taxpayers had to make to resolve questions about their accounts. However, we reported that IRS was not reliably measuring its performance in this area. For fiscal year 1993, IRS reported achieving 96-percent initial contact resolution for these types of calls, but we found that about 80 percent of a small sample of these callers had to make additional contacts to resolve their account concerns. IRS acknowledged that its methodology for measuring initial contact resolution was flawed and agreed to develop a more accurate way to measure initial contact resolution for all types of calls. IRS intends to reach its initial contact resolution goal by bringing functions together in customer service centers, giving its representatives broader responsibility and authority, and giving them better technological tools with easy access to the needed data. Another IRS goal is to improve telephone accessibility. Currently, many taxpayers find it difficult to reach IRS by telephone. In fiscal year 1994, 73 percent of all call attempts received busy signals. IRS’ Tele-Tax, an automated system in which taxpayers can listen to selected topic tapes and get refund status information did better, recording busy signals only 13 percent of the time. IRS’ business vision for customer service centers calls for greatly reducing busy signals. Callers would be satisfied by an automated response program, reach a representative immediately, be put on hold, or leave a message to be called back. IRS’ plans call for having automated response programs resolve up to 45 percent of inquiries without intervention by a representative. IRS has an automated system that should allow it to route calls around the nation to balance peak and slack times in different areas. However, considering the shortcomings of current telephone accessibility to IRS, achievement of full accessibility is an ambitious goal. In addition to providing improved service to taxpayers, IRS plans to achieve efficiencies of personnel and facilities use by combining functions, providing better data and technology to customer service representatives, and moving most of the correspondence work to the telephone. The 23 customer service centers are expected to assume the workload currently done at 32 taxpayer services toll-free sites, 23 automated collection call sites, 3 toll-free forms distribution sites, and several branches in the 10 IRS service centers, such as adjustments and collection. In many locations, existing operations are to be consolidated to form the customer service centers, but operations would be closed at 21 locations that currently house 14 taxpayer services sites, 9 collection sites, and 2 forms distribution sites. (See app. I.) Existing IRS operations have drawn their workloads from geographically defined service areas; until 1995, employees had limited access to taxpayer data outside their service areas. When dealing with a taxpayer from another area, they had to request data from the IRS service center responsible for that area and recontact the taxpayer. In early 1995, IRS implemented a networking procedure among the 10 service center computers so that customer service representatives could have on-line access to some taxpayer account data nationwide, rather than only within their service areas. IRS plans to give its customer service representatives additional on-line access to taxpayer data nationwide. IRS also has an automated system that routes calls nationwide when one area is overloaded, and plans for the system to route specific calls and assign compliance cases on a nationwide basis to those customer service representatives that have the appropriate level of expertise to resolve the taxpayer’s concern. Its goal is to even the workload as much as possible and use personnel efficiently. IRS has projected that taxpayer interaction work now done by about 29,000 people will be done by about 22,240 at customer service centers. Under a redeployment understanding with the NTEU, IRS intends to gradually reassign employees to customer service centers from current positions that are being eliminated. IRS expects the planned reduction to occur through attrition. IRS employees interacting with taxpayers have often lacked easy access to information needed to resolve cases. This has not been just a geographic limitation, but also a result of fragmentation of taxpayer data into stand-alone systems that currently store different taxpayer data. Also, the current systems are not very user friendly because they require extensive knowledge of procedures and command codes. IRS intends to provide its customer service representatives with on-line access to a national database encompassing all the taxpayer’s account data and reference information needed to resolve most taxpayer accounts. In addition, new case processing software should help representatives work through cases more efficiently. Using a taxpayer’s social security number to obtain case history information, the software should automatically assemble the relevant information on screen, provide questions and prompts for the representative, and perform calculations for updating the account. IRS is moving toward this goal by first developing an Integrated Case Processing (ICP) project that links together existing information systems and helps representatives use them.