According to IRS, the agency’s overall mission is to collect the proper amount of tax revenue at the least cost; serve the public by continually improving the quality of its products and services; and perform in a manner warranting the highest degree of public confidence in IRS’ integrity, efficiency, and fairness. Its strategic objectives are to improve customer service, increase compliance with the tax laws, and increase IRS’ productivity. Essentially, IRS is striving to encourage taxpayers to pay what they owe, reduce taxpayers’ cost to get answers to their questions and prepare their tax returns, and reduce IRS’ cost to collect federal taxes. In the mid-1980s, IRS’ Strategic Business Plan first provided IRS’ mission statement, objectives, general strategies, and goals. IRS created the Fiscal Year 1995-2001 Business Master Plan (BMP) to incorporate IRS’ vision and long-range objectives. The fiscal year 1996 BMP formalized IRS’ “measures hierarchy,” which was intended to link IRS’ mission, objectives, and annual performance goals with respective programs. For fiscal year 1997, IRS replaced the BMP with the Strategic Plan and Budget and the Annual Performance Plan. On September 30, 1997, IRS released a new Strategic Plan that updates its strategic measures. IRS expects to use these documents to provide guidance to its field offices and to implement the Results Act. According to IRS, improving taxpayer service is one of its highest priorities, and it has a variety of programs and operational units to assist taxpayers in meeting their federal tax obligations. A primary source of taxpayer assistance is IRS’ 24 customer service centers, which are to answer calls from taxpayers who have questions about the tax laws, where to file returns, or the status of their accounts and refunds. According to IRS, in fiscal year 1996, the centers answered over 99 million taxpayer calls about tax law and procedures. Other sources of assistance include IRS’ walk-in sites, taxpayer education and outreach programs, Problem Resolution Program, and Internet web site. According to IRS, about 440 walk-in sites helped almost 6.4 million taxpayers in fiscal year 1996 with tax forms, questions about their accounts, or preparing tax returns. In addition, over the past several months, IRS has been working to improve its measures and has consulted with many stakeholders. A task force has been formed with representatives from Treasury and OMB to develop a “balanced scorecard.” IRS’ taxpayer education and outreach programs assist millions of taxpayers at various community locations, often with the help of volunteers and nonprofit organizations. For example, almost 12.7 million taxpayers in fiscal year 1996 received free tax information and return preparation through IRS’ Volunteer Income Tax Assistance, Tax Counseling for the Elderly, and other outreach programs. The Problem Resolution Program staff assists taxpayers who have such problems as repeated unsuccessful attempts to resolve an issue or a pending IRS enforcement action that might cause undue hardship, such as the seizure of a taxpayer’s property. Also, taxpayers may use the Internet to obtain forms and instructions, publications, information on tax topics, and press releases. According to IRS, its web site had 73 million “hits” in fiscal year 1996. IRS has had several efforts under way to improve its performance measures. For example, the agency established the Measures Advisory Group, comprising field and National Office executives, in part to provide advice and recommendations on the agency’s performance measures. As the group suggested, IRS recently developed three new performance measures for its customer service centers: (1) customers successfully served per dollars expended, (2) dollars collected per dollars expended, and (3) taxpayers gaining access to telephone assistance as a percentage of demand. IRS’ September 30, 1997, Strategic Plan included the first measure as a strategic-level indicator for increasing productivity and the third measure as a strategic-level indicator for improving customer service. IRS plans to use the second measure as a program-level indicator. The Results Act requires federal agencies to measure the results of their programs and operations. Agencies are expected to set goals, measure performance, make needed improvements, and report results. The Results Act required executive agencies, no later than September 30, 1997, to have developed strategic plans covering a period of at least 5 years and have submitedt them to Congress and the Office of Management and Budget (OMB). Strategic plans are intended to be the framework for each agency’s performance measurement system. The Results Act also requires agencies to develop annual performance plans that are intended to reinforce the link between strategic goals and day-to-day activities. The first annual performance reports, covering fiscal year 1999, are due by March 31, 2000. Implementation of the Results Act requires adequate and reliable performance measures that are useful in improving agency and program performance, improving accountability, or supporting policy decisionmaking. IRS recognizes that collecting such data can be costly and difficult. As with other federal agencies, IRS will have to balance the cost of data collection efforts against the need to ensure that the collected data are complete, accurate, and consistent enough to document performance and support decisionmaking at various organizational levels. In conjunction with developing the required strategic plans, federal agencies are required to solicit views of other stakeholders to clarify their missions and reach agreement on their goals. This statutory requirement was, in part, designed to address instances where Congress, the agency, and other interested parties may disagree because of competing priorities. Our objectives were to (1) describe IRS’ system of performance measures and (2) identify any challenges IRS faces in developing and implementing performance measures to gauge its efforts to reduce taxpayer burden through improved customer service. To describe IRS’ performance measures, we reviewed IRS’ fiscal year 1997 Strategic Plan and Budget, including the Annual Performance Plan; its updated September 30, 1997, Strategic Plan; and other planning documents, including IRS’ fiscal year 1996 Business Master Plan and Business Review. We also interviewed the staff of the National Director of Compliance Research and the National Director and staff of the Strategic Planning Division, who are responsible for developing the Annual Performance Plan; and officials in the Analysis and Studies Division, who conduct the Business Review and are responsible for establishing selected strategic measures. To identify any challenges IRS faces in developing and implementing performance measures to gauge its efforts to reduce taxpayer burden through improved customer service, we reviewed IRS’ strategic-level measures to improve customer service in its September 30, 1997, Strategic Plan for fiscal years 1997 through 2002; its fiscal year 1997 Strategic Plan; and selected program-level customer service measures in its Annual Performance Plan for fiscal year 1997. Using criteria drawn from the steps and critical practices set forth in GAO’s Executive Guide: Effectively Implementing the Government Performance and Results Act (GAO/GGD-96-118, June 1996), we examined the strategic-level and new customer service measures to determine if they were based on sound methodologies and were useful in improving agency and program performance and in supporting agency policy decisionmaking. For example, we analyzed the strategic-level taxpayer burden indicator to determine whether it (1) was linked to the burden IRS can influence and the services it provides; and (2) measured the full range of costs that taxpayers’ incur, including the costs they incur after they file their returns. Similarly, we examined IRS’ definition of initial contact resolution to determine what services IRS measures and the contacts that are counted as successful. We reviewed the fiscal year 1997 Performance Plan to determine whether IRS had comparable program-level indicators for the different sources of assistance, including customer service centers, walk-in sites, the Problem Resolution Program, the Education and Outreach Program, and the Internet web site. We selected these five units or programs because they are primary sources of assistance for taxpayers who need help from IRS. Additionally, we examined IRS’ definition of “customers successfully served” to determine whether IRS considered the quality of the service, such as how many times the taxpayers had to call before being assisted. We also interviewed IRS’ National Office, Atlanta Service Center, Southeast Region, Georgia District, and Nashville District officials who were responsible for either developing, implementing, or using the customer service performance measures to determine the status of IRS’ system of performance measures and to obtain an understanding of the newly developed customer service measures. We did our work from September 1996 through December 1997 in accordance with generally accepted government auditing standards. We requested comments on a draft of this report from the Commissioner of Internal Revenue or his designated representative. Responsible IRS officials, including Chief Management and Administration; the National Director, Strategic Planning Division; and staff of the Executive Officer for Customer Service provided oral comments and factual clarifications in a January 21, 1998, meeting. We have incorporated those comments in the report where appropriate. The Commissioner of IRS provided us written comments on January 23, 1998, which are discussed near the end of this report and reproduced in appendix III. IRS’ system of performance measures has three tiers: mission, strategic, and program. IRS has 1 mission effectiveness measure, 3 strategic objectives with 9 measures, and 111 program measures, as depicted in figure 1. See appendix I for definitions of mission-level, strategic-level, and selected customer service program-level measures. IRS’ mission-level effectiveness indicator (MEI) is intended to measure the agency’s performance in accomplishing its primary mission of collecting the proper amount of tax revenue at the least cost. The MEI compares total revenue collected during a fiscal year, less the cost of collecting the revenue (the sum of IRS’ budget and estimated taxpayers’ costs), to the revenue that should have been collected if all taxpayers had paid their full liability. With the MEI, IRS has a mission-level performance indicator that includes the taxpayer compliance rate, the cost or burden to taxpayers of complying with the tax laws, and the cost of operating IRS. The second tier of measures includes nine performance indicators that are intended to gauge IRS’ progress in achieving its three strategic objectives—improve customer service, increase compliance, and increase productivity. These three objectives link directly to the MEI, because improving customer service reduces taxpayer burden, increasing compliance increases the compliance rate, and increasing productivity reduces IRS cost.