oversight

Tax Administration: IRS and TIGTA Should Evaluate Their Processing of Employee Misconduct under Section 1203

Published by the Government Accountability Office on 2003-02-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States General Accounting Office

GAO             Report to the Chairman and Ranking
                Minority Member, Committee on
                Finance, U.S. Senate


February 2003
                TAX
                ADMINISTRATION
                IRS and TIGTA Should
                Evaluate Their
                Processing of
                Employee Misconduct
                under Section 1203




GAO-03-394
                                               February 2003


                                               TAX ADMINISTRATION

                                               IRS and TIGTA Should Evaluate Their
Highlights of GAO-03-394, a report to the      Processing of Employee Misconduct
Chairman and Ranking Minority Member,
Committee on Finance, U. S. Senate             under Section 1203



Section 1203 of the Internal                   IRS data show that of the 3,970 section 1203 allegations IRS received from
Revenue Service (IRS)                          July 1998 through September 2002, IRS or TIGTA completed investigations
Restructuring and Reform Act of                on 3,512 allegations and substantiated 419 as violations, resulting in 71
1998 outlines conditions for firing            employees being fired for section 1203 misconduct. Employee misconduct
IRS employees for any of 10 acts of            related to the two section 1203 provisions on whether employees filed their
misconduct covering taxpayer and
employee rights and tax return
                                               tax returns on time and accurately stated their tax liability (as opposed to
filing requirements. Both IRS and              the eight taxpayer and employee rights provisions) accounted for almost all
the Treasury Inspector General for             of the violations and firings.
Tax Administration (TIGTA) have
responsibilities related to section            Most of the IRS frontline enforcement employees who responded to GAO’s
1203. Because of concerns that                 survey said that they understood, but feared, section 1203. They also
section 1203 may have a chilling               reported that, because of section 1203, their work takes longer and the
effect on IRS enforcement staff’s              likelihood of their taking an enforcement action, such as recommending a
productivity, GAO (1) determined               seizure, has decreased. However, employees also were more likely to say
the number of section 1203                     that other factors, such as IRS’s reorganization, have had a greater impact on
allegations, (2) surveyed IRS                  their ability to do their job than to say that section 1203 had a greater impact.
employee perceptions about
section 1203, and (3) identified
problems IRS and TIGTA face in                 IRS and TIGTA have taken steps intended to correct known problems in
processing section 1203 cases and              their processing of section 1203 employee misconduct cases—such as
the extent to which they have                  lengthy investigations and conflicts of interest during investigations—that
addressed them.                                may have negatively affected frontline employees’ morale and productivity.
                                               However, the extent to which these steps have succeeded is unknown
                                               because IRS and TIGTA do not have a coordinated approach for evaluating
                                               how effectively they process section 1203 cases. Such an approach would
GAO recommends that IRS and                    include results-oriented goals, balanced performance measures to mark
TIGTA coordinate on an approach                progress towards these goals, and means to collect performance data.
for evaluating the section 1203
process to include results-oriented
goals for processing section 1203              Extent to Which IRS Employees Said They Feared Section 1203
                                                                           Very fearful           Somewhat fearful       A little/not at all fearful
cases, performance measures that
assess progress towards these                          Being fired for a
goals, and means to collect and                  section 1203 complaint               33%               25%                              40%
                                                                 (n=350)
analyze related performance data.
                                                Being investigated for a
In commenting on a draft of this                section 1203 complaint               32%                      35%                    32%
report, IRS agreed with GAO’s                                   (n=350)
recommendation that a
coordinated evaluation of the                     Being the subject of a
                                                 section 1203 complaint            27%                         39%                   33%
section 1203 process is desirable                               (n=350)
and TIGTA neither agreed nor
disagreed. However, both raised a                                          Percent of IRS staff
                                               Source: GAO.
similar concern about the
independence of each agency.                   Note: Percentages may not add to 100 percent because of rounding and a few “did not know or had
                                               no basis to judge” responses.
www.gao.gov/cgi-bin/getrpt?GAO-03-394.

To view the full report, including the scope
and methodology, click on the link above.
For more information, contact Jim White at
(202) 512-9110 or whitej@gao.gov.
Contents


Letter                                                                                  1
               Results in Brief                                                         2
               Background                                                               3
               Scope and Methodology                                                    6
               Few Section 1203 Allegations Were Substantiated and Resulted in
                 an Employee’s Firing, Except for Those Involving Compliance
                 with Federal Tax Laws                                                  8
               Most Employees Believed That They Understood but Feared
                 Section 1203, and That It Was One of Several Factors Affecting
                 Their Work                                                           10
               IRS and TIGTA Have Taken Steps Intended to Improve the Section
                 1203 Process, but Extent of Progress is Unknown                      19
               Conclusions                                                            24
               Recommendations                                                        24
               Agency Comments and our Evaluation                                     25

Appendix I     Survey and Case File Review Methodologies                               27
               Survey Methodology                                                     27
               Case File Review Methodology                                           30

Appendix II    Data on Section 1203 Allegations                                        32



Appendix III   GAO Survey of IRS Frontline Enforcement
               Employees                                                               35



Appendix IV    Summary of Content Analysis of Open-Ended
               Comments from GAO Survey of IRS Frontline
               Enforcement Employees                                                   43



Appendix V     Stages of Section 1203 Case Processing                                  46
               Reporting and Investigative Determination                              46
               Fact-Finding                                                           48
               Adjudication                                                           48




               Page i                                       GAO-03-394 Tax Administration
Appendix VI     Comments from the Internal Revenue Service                               52



Appendix VII    Comments from the Treasury Inspector General
                for Tax Administration                                                   54



Appendix VIII   GAO Contacts and Staff Acknowledgments                                   56
                GAO Contacts                                                            56
                Staff Acknowledgments                                                   56


Tables
                Table 1: Summary of Section 1203 Allegations Received,
                         Investigated, and Substantiated and of Employee Firings,
                         July 1998 through September 2002                                 9
                Table 2: Summary of Problems Identified, Actions Recommended,
                         and Actions Taken to Improve the Section 1203 Process          20
                Table 3: Number of Cases Opened before, on, or after March 1,
                         2002                                                           31
                Table 4: Summary of Substantiated Section 1203 Allegations by
                         Disposition, July 1998 through September 2002                  32
                Table 5: Summary of Employee Firings by Type of Misconduct and
                         Employee GS-Level, July 1998 through September 2002            33
                Table 6: Summary of Investigative Results, July 1998 through
                         September 2002                                                 34


Figures
                Figure 1: Employees Said They Had a Clear Understanding of the
                         Types of Misconduct under Section 1203                         11
                Figure 2: Extent to Which Employees Said They Were Fearful of
                         Section 1203                                                   12
                Figure 3: How Collection Employees Said Section 1203 Affected
                         the Likelihood of Their Recommending a Seizure, Lien, or
                         Levy                                                           15
                Figure 4: How Employees Reported Section 1203 Affected the
                         Likelihood of Taking Other Actions Associated with Audit
                         and Collection                                                 16



                Page ii                                       GAO-03-394 Tax Administration
Figure 5: IRS Employee Views on the Impacts of Various Factors
         on Their Ability to Do Their Jobs Compared to Section
         1203                                                                             17
Figure 6: Extent to Which IRS Employees Said Section 1203
         Promotes Employee Accountability and Respect for
         Taxpayer Rights                                                                  18
Figure 7: Summary of Content Analysis of Open-Ended Written
         Responses                                                                        44
Figure 8:Case Flow Process for Section 1203 Cases                                         50




Abbreviations

ALERTS            Automated Labor and Employee Relations Tracking System
BEPR              Board of Employee Professional Responsibility
CCPAG             Commissioner’s Complaint Processing and Analysis Group
EEO               Equal Employment Opportunity
ETC               Employee Tax Compliance
IRS               Internal Revenue Service
SB/SE             Small Business and Self-Employed Operating Division
TIGTA             Treasury Inspector General for Tax Administration




This is a work of the U.S. Government and is not subject to copyright protection in the
United States. It may be reproduced and distributed in its entirety without further
permission from GAO. It may contain copyrighted graphics, images or other materials.
Permission from the copyright holder may be necessary should you wish to reproduce
copyrighted materials separately from GAO’s product.




Page iii                                                  GAO-03-394 Tax Administration
United States General Accounting Office
Washington, DC 20548




                                   February 14, 2003

                                   The Honorable Charles E. Grassley
                                   Chairman
                                   The Honorable Max Baucus
                                   Ranking Minority Member
                                   Committee on Finance
                                   United States Senate

                                   On July 22, 1998, the Congress enacted the Internal Revenue Service
                                   Restructuring and Reform Act1 (Restructuring Act) to balance the Internal
                                   Revenue Service’s (IRS) responsibility to collect taxes with its
                                   responsibility to protect the rights of taxpayers and serve the public. One
                                   provision of the Restructuring Act, section 1203, defines 10 specific acts or
                                   omissions for which an IRS employee may be fired during the performance
                                   of official duties. Such acts or omissions include harassing a taxpayer,
                                   taxpayer representative, or other IRS employee, or IRS employees not
                                   complying with their tax obligations; they are investigated on the basis of
                                   allegations made by taxpayers (or taxpayer representatives) or IRS
                                   employees. Both IRS and the Treasury Inspector General for Tax
                                   Administration (TIGTA) have responsibilities for receiving and
                                   investigating such allegations under section 1203 while IRS has the
                                   responsibility for adjudicating violations of section 1203.

                                   The IRS Commissioner and others have asserted that section 1203 has had
                                   a negative impact on IRS employees’ morale and effectiveness. In
                                   particular, they have indicated that section 1203 has had a “chilling effect”
                                   on IRS frontline enforcement employees who are afraid to take certain
                                   appropriate enforcement actions, contributing to recent declines in IRS’s
                                   enforcement activities. In addition, IRS officials acknowledge that aspects
                                   of the process for receiving, investigating, and adjudicating section 1203
                                   allegations (which we refer to as the “section 1203 process”), such as long
                                   case processing times, may have contributed to employees’ fears.

                                   In light of the assertions about possible chilling effects, you asked us to
                                   assess the implementation of section 1203. Specifically, as agreed with
                                   your offices, our objectives were to (1) determine the number, type, and


                                   1
                                    P.L. 105-206.



                                   Page 1                                           GAO-03-394 Tax Administration
                   disposition of section 1203 allegations; (2) determine IRS frontline
                   enforcement employees’ perceptions of how section 1203 has affected
                   their interactions with taxpayers; and (3) 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 did not attempt to measure
                   the effectiveness of section 1203, or whether its perceived impacts were
                   beneficial or harmful. (See our scope and methodology section for details
                   on our approach.)

                   To determine the number, type, and disposition of section 1203
                   allegations, we analyzed IRS data for July 1998 (when section 1203 took
                   effect) through September 2002. To determine IRS frontline enforcement
                   employees’ perceptions of section 1203, we surveyed a random sample of
                   audit and collection employees—revenue agents, revenue officers, tax
                   auditors, and tax compliance officers. To identify any problems in the
                   section 1203 process and the extent to which they have been addressed,
                   we reviewed the policies and procedures for processing section 1203 cases
                   and interviewed responsible officials from IRS and TIGTA.


                   IRS data show that of the 3,970 section 1203 allegations received from July
Results in Brief   1998 through September 2002, IRS or TIGTA had finished investigating
                   3,512 allegations and substantiated 419 as violations.2 Of these 419
                   violations, 71 resulted in firings3 and the rest resulted in a mitigated
                   penalty, the employee leaving IRS, or another disposition (see app. II).
                   Employee misconduct related to the two tax compliance provisions of
                   section 1203—late filing of federal tax returns and understatement of
                   federal tax liability by IRS employees—accounted for about 93 percent of
                   the 419 violations and 87 percent of the 71 firings.

                   On the basis of our survey results, the majority of frontline enforcement
                   employees said that they have a clear understanding of the types of
                   misconduct under section 1203 but that they had fears associated with
                   section 1203, such as being fired.4 They also cited section 1203 as one of


                   2
                    According to IRS, an allegation is considered “substantiated” if the investigation develops
                   information sufficient to support the allegation, thereby resulting in a violation.
                   3
                    According to IRS, the firing and mitigated penalty data presented throughout this report do
                   not include the results of any third party appeals.
                   4
                   The sampling errors (confidence limits) for all survey percentages do not exceed plus or
                   minus 10 percentage points, unless otherwise shown as footnotes to the report text.




                   Page 2                                                     GAO-03-394 Tax Administration
             several factors affecting their work. Specifically, over three-quarters of the
             frontline enforcement employees said that the time to do their jobs had
             increased, and nearly two-thirds of those who collect tax debts said that
             the likelihood of recommending a seizure of a taxpayer’s assets had
             decreased. Further, many frontline enforcement employees believe that
             other factors such as IRS’s reorganization and tax law changes have had a
             greater impact on their ability to do their jobs than section 1203.

             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. For example, IRS
             has not developed results-oriented timeliness goals or measures or tracked
             the length of time to handle its parts of the section 1203 process. 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.

             We are recommending that IRS and TIGTA coordinate on an approach for
             evaluating the section 1203 process based on results-oriented goals,
             measures, and related performance data. In commenting on a draft of this
             report, IRS generally agreed with our recommendation and TIGTA neither
             agreed nor disagreed. However, both IRS and Treasury raised a similar
             concern about the independence of each agency. (See agency comments
             and our evaluation and apps. VI and VII.)


             As part of the Restructuring Act, the Congress enacted section 1203, which
Background   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;


             Page 3                                           GAO-03-394 Tax Administration
(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;5

(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 61036 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.


5
 These laws are: (1) Title VI or VII of the Civil Rights Act of 1964; (2) Title IX of the
Education Amendments of 1972; (3) the Age Discrimination in Employment Act of 1967;
(4) the Age Discrimination Act of 1975; (5) Section 501 or 504 of the Rehabilitation Act of
1973; or (6) Title I of the Americans with Disabilities Act of 1990. IRS Reform Act section
1203(b)(3)(B).
6
 Section 6103 of the Internal Revenue Code governs the protection of tax data, which are
confidential, from unauthorized disclosure and use.




Page 4                                                     GAO-03-394 Tax Administration
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.7 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.8 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,



7
 The ETC unit is to refer employee tax issues that it cannot resolve to IRS management for
additional fact-finding. TIGTA may investigate employee tax compliance allegations that
are identified independent of the ETC unit.
8
 The Discrimination Complaint Review Unit is to assess EEO settlement agreements and
discrimination findings to determine potential section 1203 misconduct. The External Civil
Rights Unit is to investigate complaints from taxpayers or taxpayer representatives about
being excluded from, denied the benefits of, or subjected to discrimination in an IRS
program or activity. TIGTA may also investigate civil rights allegations involving some
types of sexual harassment.




Page 5                                                   GAO-03-394 Tax Administration
              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.9
              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.


              To determine the number, type, and disposition of section 1203
Scope and     allegations, we analyzed data from IRS’s Automated Labor and Employee
Methodology   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.10 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



              9
               Factors included the nature, notoriety, and seriousness of the offense; the employee’s
              work record; and the impact of the offense on confidence in the employees’ ability to
              perform their duties.
              10
                According to IRS and TIGTA officials, only a small percentage of TIGTA cases are not
              included in IRS’s database.




              Page 6                                                    GAO-03-394 Tax Administration
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).11 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,12
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.




11
  As one of four operating divisions, SB/SE was established in October 2000 to serve the
needs of self-employed individuals as well as businesses with assets of up to $10 million or
less.
12
  As discussed in appendix I, we dropped 45 survey respondents from our initial sample of
500 because those employees reported that they did not have regular contact with
taxpayers.




Page 7                                                     GAO-03-394 Tax Administration
                       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.


                       IRS data show that, with the exception of employees’ tax compliance
Few Section 1203       provisions, few of the 3,970 section 1203 allegations received between July
Allegations Were       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
Substantiated and      3,970 allegations in terms of completed investigations, substantiated
Resulted in an         allegations, and firings.13
Employee’s Firing,
Except for Those
Involving Compliance
with Federal Tax
Laws




                       13
                         For context, IRS’s frontline enforcement employees interacted with tens of millions of
                       individual taxpayers from 1998 to 2002, and some portion (which is not known) of the 3,970
                       allegations were made by IRS employees rather than taxpayers.




                       Page 8                                                   GAO-03-394 Tax Administration
Table 1: Summary of Section 1203 Allegations Received, Investigated, and Substantiated and of Employee Firings, July 1998
through September 2002

                                                                                    Section 1203 allegations
                                                                                     Completed                                       IRS employee
 Type of section 1203 misconduct                              Received            investigations      Substantiated                        firings
 Taxpayer and employee rights
   Seizure without approval                                           16                        13                         0                           0
   False statement under oath                                         22                        21                         1                           0
   Civil rights/constitutional rights                                291                       262                         1                           0
   Falsifying or destroying documents                                 81                        66                        10                           3
   Assault or battery                                                 10                         8                         1                           1
   Retaliation or harassment                                       1,729                     1,680                         6                           1
   Misuse of section 6103 to conceal
   information                                                         5                         3                         0                          0
   Threat to audit for personal gain                                  88                        77                        12                          4
   Subtotal                                                        2,242                     2,130                        31                          9
 Compliance with federal tax laws
   Failure to timely file federal tax return                        1,042                      914                      345                           55
   Understatement of federal tax liability                            686                      468                       43                            7
   Subtotal                                                        1,728                     1,382                      388                           62
                                                                         a                       b
 Total                                                             3,970                    3,512                       419                           71
Source: GAO analysis of IRS data.
                                               a
                                                In addition, IRS forwarded 1,196 taxpayer allegations of section 1203 misconduct to its Frivolous
                                               Return Program. Further, IRS’s Discrimination Complaint Review Unit received 1,003 EEO
                                               settlements and/or findings of discrimination involving civil rights or constitutional issues.
                                               b
                                                At the time of our review, another 351 allegations were in the process of being investigated, while
                                               107 allegations were not investigated due to such reasons as the employee resigning or retiring.


                                               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



                                               Page 9                                                            GAO-03-394 Tax Administration
                           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.


                           Our survey indicated that most frontline enforcement employees
Most Employees             understood but feared section 1203, and that, because of section 1203,
Believed That They         their work takes longer and the likelihood of their recommending a seizure
                           decreased. Otherwise, employees’ reported views were not as strong on
Understood but             the impacts of section 1203 on other audit or collection activities. At the
Feared Section 1203,       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
and That It Was One        than section 1203.
of Several Factors
Affecting Their Work

Most Frontline             The overwhelming majority of frontline enforcement employees reported
Enforcement Employees      that they understood the types of misconduct covered by section 1203.
Said They Understand the   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
Types of Section 1203      misconduct under section 1203. For the provision on the misuse of section
Misconduct                 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.



                           Page 10                                           GAO-03-394 Tax Administration
Figure 1: Employees Said They Had a Clear Understanding of the Types of
Misconduct under Section 1203

                                    Very/generally clear                                   Generally/very unclear

              Seizure without                                                 a
                                                                        93%                      6%
              approval (n=169)



              False statement                                                 b
                                                                        93%                    5%
            under oath (n=334)



    Civil rights/constitutional
                                                                 77%                           20%
                 rights (n=345)



      Falsifying or destroying                                                     c
                                                                         94%                  4%
           documents (n=345)



                    Assault or                                                 d
                                                                         94%                   5%
                battery (n=342)


    Retaliation or harassment                                          88%                 11%
                       (n=347)


    Misuse of section 6103 to
         conceal information                               68%                                     23%
                      (n=326)


          Failure to timely file                                                   e
                                                                          97%                 3%
     federal tax return (n=346)



            Understatement of                                                  f
                                                                         94%                   5%
    federal tax liability (n=347)


            Threat to audit for                                                        g
                                                                             99%             1%
         personal gain (n=343)


                                    Percent of IRS staff
Source: GAO.

a
  The 95-percent confidence interval is 73 percent to 100 percent.
b
  The 95-percent confidence interval is 80 percent to 99 percent.
c
  The 95-percent confidence interval is 81 percent to 99 percent.
d
  The 95-percent confidence interval is 82 percent to 99 percent.
e
  The 95-percent confidence interval is 81 percent to 100 percent.
f
 The 95-percent confidence interval is 81 percent to 99 percent.
g
  The 95-percent confidence interval is 73 percent to 100 percent.
Note: Percentages may not add to 100 percent because of rounding and a few “did not know”
responses.




Page 11                                                                GAO-03-394 Tax Administration
                            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.14


Most Frontline              The majority of employees reported fears associated with section 1203. As
Enforcement Employees       shown in figure 2, at least two-thirds reported that they were somewhat or
Reported Fears Associated   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.15
with Section 1203
                            Figure 2: Extent to Which Employees Said They Were Fearful of Section 1203

                                                           Very fearful           Somewhat fearful       A little/not at all fearful

                                       Being fired for a
                                 section 1203 complaint               33%               25%                              40%
                                                 (n=350)

                             Being investigated for a
                             section 1203 complaint                  32%                      35%                    32%
                                             (n=350)

                                  Being the subject of a
                                 section 1203 complaint            27%                         39%                   33%
                                                (n=350)

                                                           Percent of IRS staff
                            Source: GAO.

                            Note: Percentages may not add to 100 percent because of rounding and a few “did not know or had
                            no basis to judge” responses.


                            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.”




                            14
                             See appendix III for more detailed survey results.
                            15
                             See appendix III for more detailed survey results.




                            Page 12                                                           GAO-03-394 Tax Administration
                              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.16

                              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.17


Many Frontline                Many frontline enforcement employees perceived that section 1203
Enforcement Employees         contributed to work taking longer and to a decline in seizure activity.
Reported That Section         Otherwise, employees reported views that were not as strong on the
                              impacts of section 1203 on other frontline enforcement activities, such as
1203 Contributes to Work      those associated with audits or collections.
Taking Longer and a
Decline in Seizure Activity   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.18
                              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.




                              16
                                Another estimated 27 percent of the employees said they are somewhat or very confident
                              that they would not be disciplined for making an honest mistake.
                              17
                                As noted in appendix I, because our sample was designed to produce precise estimates
                              for a nationwide sample of enforcement employees, we did not do any analyses by type of
                              employee.
                              18
                               For example, between fiscal years 1998 and 2001, the number of levies and seizures
                              decreased 73 percent and 90 percent, respectively. Over the same time, the rate at which
                              IRS audited individual tax returns declined from 0.99 percent to 0.58 percent.




                              Page 13                                                  GAO-03-394 Tax Administration
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
1203.19 Some written comments helped to illustrate why employees
believed their work takes longer. For example, one employee wrote, “[I
am] more cautious [and allow] more time to avoid harassment
allegations.” Another said, “the greatest impact [of section 1203] 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,20 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.21




19
 See appendix III for more detailed survey results.
20
 Under the Internal Revenue Code, “levy” is the seizure of taxpayer assets, including bank
accounts, wages, and other property possessed by third parties, such as banks or
employers. A “lien” is a legal claim attached to property to secure payment of a debt.
21
 See appendix III for more detailed survey results.




Page 14                                                   GAO-03-394 Tax Administration
Figure 3: How Collection Employees Said Section 1203 Affected the Likelihood of
Their Recommending a Seizure, Lien, or Levy

                            Greatly/somewhat                                 Greatly/somewhat
                            increased               Had no effect            decreased
         Likelihood of
                                                                                                  a
recommending a seizure      16%                     14%                                         67%
               (n=106)

           Likelihood of
     recommending a lien     20%                           38%                      39%
                 (n=118)

           Likelihood of
                                                                                          b
     recommending a levy      22%                         34%                        41%
                 (n=111)

                           Percent of IRS staff
Source: GAO.
a
 The 95-percent confidence interval is 55 percent to 78 percent.
b
 The 95-percent confidence interval is 31 percent to 52 percent.
Note: Percentages may not add to 100 percent because of rounding and a few “did not know”
responses.


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, “[Section 1203] 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, “[Section] 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.22



22
  Collection employees also might take some of these actions when trying to collect unpaid
taxes.



Page 15                                                             GAO-03-394 Tax Administration
                            Figure 4: How Employees Reported Section 1203 Affected the Likelihood of Taking
                            Other Actions Associated with Audit and Collection

                                                                   Greatly/somewhat                                     Greatly/somewhat
                                                                   increased              Had no effect                 decreased
                                     Likelihood of requesting
                                   documents from a taxpayer            25%                                     58%      15%
                                                      (n=344)

                                  Likelihood of reviewing
                            supporting tax documentation               23%                                        66%      8%
                                                  (n=344)

                                Likelihood of questioning
                            supporting tax documentation                25%                                 54%           19%
                                                  (n=341)

                                                Likelihood of
                                       contacting a third party              35%            19%                                     45%
                                                        (n=340)

                                 Likelihood of recommending,
                                       assessing, or collecting       19%                                   56%             24%
                                  a taxpayer's liability (n=310)

                                       Likelihood of resolving
                                              disputed issues               31%                           46%              21%
                                       with a taxpayer (n=343)

                              Likelihood of referring cases
                             to other areas of IRS or TIGTA           19%                                   54%            20%
                                                    (n=342)

                                                                   Percent of IRS staff
                            Source: GAO.

                            Note: Percentages may not add to 100 percent because of rounding and a few “did not know”
                            responses.



Many Employees Said That    Many IRS frontline enforcement employees also reported that IRS’s
IRS’s Reorganization and    reorganization and tax law changes have had a greater impact on their
Tax Law Changes Have        ability to do their jobs than section 1203.23 As shown in figure 5, a higher
                            percentage of employees reported that IRS’s reorganization and tax law
Had a Greater Impact on
Their Ability to do Their
Jobs Than Section 1203

                            23
                             Since the Restructuring Act, IRS has been in the midst of a major reorganization, and
                            complex tax laws have been changing annually. For information see, U.S. General
                            Accounting Office, IRS Restructuring Act: Implementation Under Way but Agency
                            Modernization Important to Success, GAO/T-GGD-00-53 (Washington, D.C.: Feb. 2, 2000)
                            and Tax Administration: IRS’s Implementation of the Restructuring Act’s Taxpayer
                            Protection and Rights Provision, GAO/GGD-00-85 (Washington, D.C.: Apr. 28, 2000).




                            Page 16                                                                  GAO-03-394 Tax Administration
changes have had a greater impact rather than a lesser impact on their
ability to do their jobs compared to section 1203.24

Figure 5: IRS Employee Views on the Impacts of Various Factors on Their Ability to
Do Their Jobs Compared to Section 1203

                                                           About the
                            Much/somewhat greater          same impact     Much/somewhat less

Ongoing tax law changes
                                               43%             20%                      35%
                 (n=350)



Complex tax law changes                       42%                23%                  30%
                 (n=348)



     IRS's reorganization                            52%       19%                23%
        changes (n=348)

                            Percent of IRS staff
Source: GAO.

Note: Percentages may not add to 100 percent because of rounding and a few “did not know or had
no basis to judge” responses.


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.




24
 See appendix III for more detailed survey results.




Page 17                                                       GAO-03-394 Tax Administration
Most Frontline              As figure 6 shows, we estimate that at least 60 percent of the enforcement
Enforcement Employees       employees perceived section 1203 as promoting some degree of employee
Said Section 1203 Has Had   accountability and respect for taxpayer rights. We also estimate that about
                            30 percent of the employees perceived section 1203 as doing little or
Some Impact in Promoting    nothing to promote accountability or respect for taxpayer rights.25
Employee Accountability
and Respect for Taxpayer    Figure 6: Extent to Which IRS Employees Said Section 1203 Promotes Employee
Rights                      Accountability and Respect for Taxpayer Rights

                                                         Great/very great       Moderate/some             Little or no

                                 Promotes employee
                                     accountability                24%                          36%                            38%
                                            (n=343)

                                    Promotes respect
                                   for taxpayer rights               27%                          40%                    30%
                                              (n=346)

                                                         Percent of IRS staff
                            Source: GAO.

                            Note: Percentages may not add to 100 percent because of rounding and a few “did not know or had
                            no basis to judge” responses.


                            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[s] 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. [Section] 1203 does not enhance taxpayer’s rights or . . . efforts to
                            ensure those rights are honored.”




                            25
                             See appendix III for more detailed survey results.




                            Page 18                                                             GAO-03-394 Tax Administration
                            IRS and TIGTA have taken steps intended to correct known problems,
IRS and TIGTA Have          such as lengthy investigations and conflicts of interest during
Taken Steps Intended        investigations, that may have reduced the effectiveness of the section 1203
                            process as well as the morale and productivity of enforcement employees.
to Improve the              However, the extent to which these steps have succeeded is unknown
Section 1203 Process,       because IRS and TIGTA have not coordinated on an approach for
                            evaluating the section 1203 process on the basis of consistent types of
but Extent of               results-oriented goals, measures, and performance data. Until IRS and
Progress is Unknown         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          IRS and TIGTA made changes to address problems with the process for
Changes to Address          receiving, investigating, and adjudicating section 1203 allegations. IRS
Problems with the Section   initially identified some of these problems through a limited review to
                            check employee concerns that section 1203 cases were not being resolved
1203 Process                in a timely manner. The review revealed that, on average, IRS
                            investigations took over 200 days and TIGTA investigations took over
                            300 days.26 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 2002.27

                            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.28 On the basis of the
                            recommendations, IRS implemented some changes in March 2002.29


                            26
                             IRS’s limited review involved 35 cases.
                            27
                             Booz-Allen & Hamilton, Inc., Section 1203 Complaint Process Reengineering; December
                            21, 2001. Addendum to Final Report, Section 1203 Complaint Process Reengineering;
                            January 22, 2002.
                            28
                             The study did not examine the section 1203 process for allegations involving the tax
                            compliance provisions of section 1203.
                            29
                             We did not assess the new process since it took effect during the course of our work.




                            Page 19                                                  GAO-03-394 Tax Administration
                                                   Table 2 lists the problems identified by the team,30 its recommended
                                                   actions, and actions taken.

Table 2: Summary of Problems Identified, Actions Recommended, and Actions Taken to Improve the Section 1203 Process

 Problems identified                      Actions recommended                                                  Actions taken
 Section 1203 cases changed               Establish a Board of Employee Professional Responsibility            BEPR was established and (1) is not
 hands frequently within IRS and          (BEPR) to streamline the section 1203 process and to                 responsible for overseeing the
 TIGTA, which added to long               (1) oversee the section 1203 process; (2) receive and                section 1203 process; (2) TIGTA is
 case processing times.                   review all allegations for investigative merit; and (3) issue        to receive most allegations and
                                          clearance letters to inform employees on decisions about             determine their investigative merit,
                                          the allegations through the Commissioner’s Complaint                 while BEPR is to determine the
                                          Processing and Analysis Group (CCPAG).a                              investigative merit of allegations
                                                                                                               referred to it by TIGTA; and
                                                                                                               (3) CCPAG is to issue clearance
                                                                                                               letters to IRS employees.
 Multiple, inconsistent procedures No specific recommendation was made.                                        Actions taken to streamline the
 for section 1203 cases, as                                                                                    process were viewed as ways to
 reflected in a section 1203                                                                                   address multiple, inconsistent
 handbook.                                                                                                     procedures.
 IRS and TIGTA lacked a            Develop a centralized database of information on section                    Rather than developing a central
 centralized database for section 1203 that will interface with TIGTA’s system.                                database, a system to share section
 1203 case information.                                                                                        1203 data between IRS and TIGTA
                                                                                                               is being developed.
 IRS managers investigated                TIGTA should be responsible for investigating section 1203           TIGTA is responsible for conducting
                                                                                                                                    b
 employees for section 1203               allegations.                                                         most investigations.
 misconduct, creating conflicts of
 interest, and lacked skills to do
 investigations.
Source: GAO review of Booz-Allen study.
                                                   a
                                                   To better respond to employee and taxpayer complaints, the IRS Commissioner established
                                                   CCPAG. In October 1999, CCPAG began controlling section 1203 complaints referred from TIGTA.
                                                   b
                                                    According to IRS officials, IRS managers still do some section 1203 investigations, such as tax
                                                   compliance-related allegations.


                                                   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.




                                                   30
                                                     We are reporting on problems that the team identified and for which recommendations
                                                   were made by the team or actions were taken by IRS to address the problems. Other
                                                   problems included IRS managers lacking skill to perform adjudications and inadequate
                                                   training for managers and employees on section 1203.




                                                   Page 20                                                          GAO-03-394 Tax Administration
For example, IRS modified the recommendation to create a BEPR31 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.32 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



31
 As we discuss in greater detail in appendix V, BEPR is comprised of IRS SB/SE and other
officials.
32
 Exceptions include some employee tax compliance and civil rights allegations, since
other units within IRS have primary responsibility for investigating these types of
allegations.




Page 21                                                 GAO-03-394 Tax Administration
                          to begin developing customized guidelines during early 2003 for targeted
                          audiences, such as labor relation specialists.


IRS and TIGTA Have Not    IRS and TIGTA have not coordinated on an approach for evaluating the
Coordinated on an         section 1203 process on the basis of consistent types of results-oriented
Approach for Evaluating   goals, measures, and performance data. Until IRS and TIGTA develop a
                          coordinated approach to ensure consistent and valid evaluation, IRS and
Whether the New Section   TIGTA cannot determine the effectiveness of the entire section 1203
1203 Process Corrected    process or any changes to it, such as those made in March 2002.
the Problems and
Operated Effectively      We have issued a number of reports33 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.34 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




                          33
                           See our work on IRS’s performance goals and measures, such as U.S. General Accounting
                          Office, Tax Administration: IRS’s Innocent Spouse Program Performance Improved;
                          Balanced Performance Measures Needed, GAO-02-558 (Washington, D.C.: Apr. 24, 2002);
                          Tax Administration: IRS Should Evaluate the Changes to its Offers in Compromise
                          Program, GAO-02-311 (Washington, D.C.: Mar. 15, 2002); and Political Organizations:
                          Data Disclosure and IRS’ Oversight of Organization Should Be Improved, GAO-02-444,
                          (Washington D.C. July 17, 2002).
                          34
                           Three balanced measures—customer service, employee satisfaction, and business
                          results—are to be considered when establishing goals and evaluating performance. For the
                          section 1203 process, the measures could balance service provided to those making
                          allegations, the satisfaction of IRS employees involved, and results such as the timeliness
                          and quality of the process.




                          Page 22                                                   GAO-03-394 Tax Administration
August 2002.35 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.




35
  As discussed in appendix I, we focused on the last 100 cases closed rather than those
started after March 2002 and closed by August 2002 because most of the investigations
under the old process took well beyond 6 months to close. We were unable to use 8 cases
because of files that were a duplicate or that could not be located. Further, 19 case files did
not include enough information on time spent. Our analysis of the remaining 73 cases
showed that section 1203 case processing times ranged from 22 days to 1155 days. Also,
59 of the cases opened before and 14 opened after March 1, 2002—the date that the new
section 1203 process took effect.




Page 23                                                     GAO-03-394 Tax Administration
                  The Congress included section 1203 in the Restructuring Act, in part, to
Conclusions       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.


                  We recommend that the Acting Commissioner of Internal Revenue and the
Recommendations   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.




                  Page 24                                        GAO-03-394 Tax Administration
                     On February 6, 2003, the Acting Commissioner of the Internal Revenue and
Agency Comments      the Acting Treasury Inspector General for Tax Administration each
and our Evaluation   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.




                     Page 25                                          GAO-03-394 Tax Administration
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.




James R. White
Director, Strategic Issues




Page 26                                        GAO-03-394 Tax Administration
                     Appendix I: Survey and Case File Review
Appendix I: Survey and Case File Review
                     Methodologies



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.


                     To determine IRS frontline enforcement employees’ perceptions of how
Survey Methodology   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.




                     Page 27                                          GAO-03-394 Tax Administration
                        Appendix I: Survey and Case File Review
                        Methodologies




Calculation of Sample   All estimates produced in this report are for a study population defined as
Estimates               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,


                        Page 28                                         GAO-03-394 Tax Administration
                        Appendix I: Survey and Case File Review
                        Methodologies




                        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


                        Page 29                                          GAO-03-394 Tax Administration
                   Appendix I: Survey and Case File Review
                   Methodologies




                   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.


                   To contribute to our understanding of IRS’s processing of section 1203
Case File Review   cases and to determine the amount of time it takes to process the cases,
Methodology        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.




                   Page 30                                         GAO-03-394 Tax Administration
Appendix I: Survey and Case File Review
Methodologies




Table 3: Number of Cases Opened before, on, or after March 1, 2002
         a
    N=92                                                      Cases closed after 3/1/2002
    Cases opened before 3/1/2002                                                       59
    Cases opened on or after 3/1/2002                                                  14
    Total                                                                              73
Source: GAO analysis of IRS closed cases.
a
19 of the 92 cases were missing an opened or closed date.


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.




Page 31                                                     GAO-03-394 Tax Administration
                                        Appendix II: Data on Section 1203 Allegations
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.

Table 4: Summary of Substantiated Section 1203 Allegations by Disposition, July 1998 through September 2002

                                                                                            Fired                               In
                                                      Resigned/   Probation              on other        Penalty         personnel
                                                                            a                    b                                c
 Type of section 1203 misconduct      Firings            retired separation             grounds         mitigated         process       Total
 Taxpayer and employee rights
 False statement under oath                      0               1                0               0                0             0          1
 Civil rights/constitutional rights              0               0                0               1                0             0          1
 Falsifying or destroying documents              3               5                1               0                0             1         10
 Assault or battery                              1               0                0               0                0             0          1
 Retaliation or harassment                       1               4                0               1                0             0          6
 Threat to audit for personal gain               4               4                2               1                1             0         12
 Subtotal                                        9              14                3               3                1             1         31
 Compliance with federal tax laws
 Failure to timely file federal tax            55               90              12               14             159             15       345
 return
 Understatement of federal tax                   7              13                1               0                6            16         43
 liability
 Subtotal                                      62             103               13               14             165             31       388
 Total                                         71             117               16               17             166             32       419
Source: GAO analysis of IRS data.
                                        a
                                         Refers to the firing of an IRS employee during the first year of employment during the employee’s
                                        probationary period of employment.
                                        b
                                            Refers to disciplinary firings for misconduct not related to section 1203.
                                        c
                                         Refers to instances when an IRS deciding official has determined that a section 1203 allegation was
                                        substantiated and forwarded the case to the Executive Review Board for consideration.

                                        Note: Dispositions for 8 of the 10 types of section 1203 misconduct are noted on this table. For the
                                        remaining 2 types of misconduct, allegations made against the employee were not substantiated.




                                        Page 32                                                               GAO-03-394 Tax Administration
                                                 Appendix II: Data on Section 1203 Allegations




Table 5: Summary of Employee Firings by Type of Misconduct and Employee GS-Level, July 1998 through September 2002

                                                                                                     Failure to
                             Falsifying or                                  Threat to audit          timely file Understatement
 Employee                     destroying     Assault or    Retaliation or     for personal          federal tax    of federal tax
 GS level                     documents         battery     harassment                 gain              return          liability                 Total
 02                                      0            0                 0                 0                    1                 0                     1
 03                                      0            0                 0                 0                    7                 0                     7
 04                                      0            0                 0                 0                  10                  2                   12
 05                                      0            0                 0                 1                    7                 1                     9
 06                                      0            1                 0                 0                    4                 1                     6
 07                                      0            0                 0                 1                    8                 0                     9
 08                                      1            0                 1                 0                    8                 2                   12
 09                                      1            0                 0                 0                    2                 0                     3
 10                                      0            0                 0                 0                    1                 0                     1
 11                                      0            0                 0                 1                    2                 0                     3
 12                                      0            0                 0                 0                    3                 1                     4
 13                                      0            0                 0                 1                    2                 0                     3
 14                                      1            0                 0                 0                    0                 0                     1
 Total                                   3            1                 1                 4                  55                  7                   71
Source: GAO analysis of IRS data.

                                                 Note: Firings for 6 of the 10 types of section 1203 misconduct are noted on this table. For the
                                                 remaining 4 types of misconduct, an employee was not fired.




                                                 Page 33                                                           GAO-03-394 Tax Administration
                                         Appendix II: Data on Section 1203 Allegations




Table 6: Summary of Investigative Results, July 1998 through September 2002

                                                                  Investigative outcomes
                                           Allegations            Allegations
                                      substantiated for substantiated for non
 Type of section 1203                     section 1203          section 1203         Allegations not
 misconduct                                misconduct            misconduct           substantiated    Total investigations
 Taxpayer and employee rights
 Seizure without approval                             0                        2                 11                     13
 False statement under oath                           1                        3                 17                     21
 Civil rights/constitutional rights                   1                       10                251                    262
 Falsifying or destroying
 documents                                           10                       22                 34                     66
 Assault or battery                                   1                        4                  3                      8
 Retaliation or harassment                            6                      125              1,549                  1,680
 Misuse of section 6103 to
 conceal information                                  0                        0                  3                      3
 Threat to audit for personal gain                   12                       23                 42                     77
 Subtotal                                            31                      189              1,910                  2,130
 Compliance with federal tax
 laws
 Failure to timely file federal tax
 return                                            345                       330                239                    914
 Understatement of federal tax
 liability                                          43                       281                144                    468
 Subtotal                                          388                       611                383                  1,382
 Total                                             419                       800              2,293                  3,512
Source: GAO analysis of IRS data.




                                         Page 34                                            GAO-03-394 Tax Administration
              Appendix III: GAO Survey of IRS Frontline
Appendix III: GAO Survey of IRS Frontline
              Enforcement Employees



Enforcement Employees

              To determine IRS frontline enforcement employees’ perceptions of how
              section 1203 has affected their interactions with taxpayers, we surveyed a
              sample of IRS revenue officers, revenue agents, tax compliance officers,
              and tax auditors in the Small Business/Self Employed Division. We
              received 350 completed responses to our survey—a response rate of
              77 percent. Note: Percentages may not add to 100 percent due to rounding.
              In addition, for survey questions 5 and 9, respondents who answered “not
              applicable to my job” were not included in our analysis of the results.




              Page 35                                        GAO-03-394 Tax Administration
Appendix III: GAO Survey of IRS Frontline
Enforcement Employees




Page 36                                     GAO-03-394 Tax Administration
Appendix III: GAO Survey of IRS Frontline
Enforcement Employees




Page 37                                     GAO-03-394 Tax Administration
Appendix III: GAO Survey of IRS Frontline
Enforcement Employees




Page 38                                     GAO-03-394 Tax Administration
Appendix III: GAO Survey of IRS Frontline
Enforcement Employees




Page 39                                     GAO-03-394 Tax Administration
Appendix III: GAO Survey of IRS Frontline
Enforcement Employees




Page 40                                     GAO-03-394 Tax Administration
Appendix III: GAO Survey of IRS Frontline
Enforcement Employees




Page 41                                     GAO-03-394 Tax Administration
Appendix III: GAO Survey of IRS Frontline
Enforcement Employees




Page 42                                     GAO-03-394 Tax Administration
              Appendix IV: Summary of Content Analysis of
Appendix IV: Summary of Content Analysis of
              Open-Ended Comments from GAO Survey of
              IRS Frontline Enforcement Employees


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.




              Page 43                                        GAO-03-394 Tax Administration
                                               Appendix IV: Summary of Content Analysis of
                                               Open-Ended Comments from GAO Survey of
                                               IRS Frontline Enforcement Employees




Figure 7: Summary of Content Analysis of Open-Ended Written Responses

 Section 1203 has or has not made me fearful of:                                                         (59 respondents)
      Sub-categories:

      · Fear, general/not specific
      · I fear a false section 1203 allegation by a taxpayer
      · I fear being investigated for an honest mistake
      · I fear losing my job/being terminated as a result of section 1203
      · I fear IRS management/management will use section 1203 against me
      · I fear TIGTA (investigative strategies, quotas, etc.)
      · Other fear
      · I am not afraid

 The section 1203 investigative process is troubling/intimidating/confusing:                             (19 respondents)
      Sub-categories:

      · Problems with the investigative process, general/not specific
      · I do not know if I committed a violation
      · Any allegation triggers an automatic investigation
      · I have to prove my innocence/The investigation begins with a presumption of my guilt
      · I am denied due process
      · It is expensive/time consuming to defend myself
      · Other problems with the investigative process

 My job behavior has changed in the following ways as a result of section 1203:                         (114 respondents)
      Sub-categories:

      · No effect on my job behavior
      · I do nothing/I avoid taking enforcement action
      · I am less likely to take enforcement action
      · I second-guess decisions
      · I find my job more difficult
      · I am less productive/less efficient/less effective
      · My work takes longer
      · I need more paperwork/documentation
      · I provide taxpayers more time and information
      · I provide fewer services to taxpayer/I have less freedom to help taxpayers
      · I request less taxpayer or third party information
      · I do not attempt to verify information from taxpayer
      · I avoid large or unusual taxpayer returns/items on returns
      · I avoid interactions with taxpayers
      · Other impacts on my job behavior




Source: GAO.




                                               Page 44                                         GAO-03-394 Tax Administration
                                             Appendix IV: Summary of Content Analysis of
                                             Open-Ended Comments from GAO Survey of
                                             IRS Frontline Enforcement Employees




The following challenges impact my job more than section 1203:                                                  (73 respondents)
    Sub-categories:

    · Lack of adequate information/training to do my job
    · Human capital problems in the workplace
    · Resource deficiencies in the workplace
    · The U.S. tax code/law/policies (hard to understand, outdated, etc. not section 1203-related)
    · Office/agency restructuring
    · Management being disconnected from/unsupportive of staff
    · Managers being inconsistent/unethical/not accountable for actions
    · Other changes

Overall effects of section 1203:                                                                              (105 respondents)
   Sub-categories:

   · No effect/no change, general/not specific
   · Most employees already follow(ed) the rules before section 1203
   · Section 1203 has improved taxpayer rights/makes employees accountable
   · Section 1203 overemphasizes taxpayer rights/gives taxpayers too much power
   · Staff held to a different/higher standard
   · Reform was a quick fix by Congress/Congress sacrificed workers
   · Section 1203 is vague/hard to understand
   · Other overall effects

I have experienced changes in taxpayer behavior as a result of section 1203:                                   (69 respondents)
   Sub-categories:

   · Section 1203 reduces taxpayer cooperation
   · Taxpayers use section 1203 to delay or avoid payment
   · Taxpayers use section 1203 to get even/threaten/intimidate/retaliate against staff
   · Taxpayers use section 1203 to take advantage of the IRS
   · Other changes in taxpayer behavior

Section 1203 impacts the feelings and attitudes of IRS employees in the following ways:                         (60 respondents)
   Sub-categories:

   · My morale has declined/I dislike my job
   · Staff morale has declined/Staff dislike their jobs
   · I feel targeted or defensive
   · Staff feels targeted or defensive
   · I feel like section 1203 is looming/hanging over my head
   · Staff feels like section 1203 is looming/hanging over our heads
   · I am thinking about leaving IRS (take other jobs, retire, etc.)
   · Staff thinking about leaving IRS (take other jobs, retire, etc.)
   · Other impact on feelings and attitudes of employees




                                             Page 45                                                 GAO-03-394 Tax Administration
                Appendix V: Stages of Section 1203 Case
Appendix V: Stages of Section 1203 Case
                Processing



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.1
                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.


                Any taxpayer, taxpayer representative, or IRS employee can file a
Reporting and   complaint with IRS or TIGTA alleging employee misconduct under section
Investigative   1203. IRS managers have been instructed to forward all allegations to
                TIGTA, which has primary responsibility for receiving and investigating
Determination   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



                1
                 As discussed earlier in this report, IRS’s Employee Tax Compliance unit is responsible for
                identifying and investigating employees who appear to have tax compliance problems.
                IRS’s Office of Equal Employment Opportunity is responsible for reviewing and analyzing
                EEO settlement agreements, findings of discrimination, and taxpayer complaints of
                discrimination to determine whether a potential section 1203 violation exists. However,
                under certain circumstances, TIGTA may also investigate allegations related to compliance
                with federal tax laws and employee and taxpayer civil rights.




                Page 46                                                   GAO-03-394 Tax Administration
Appendix V: Stages of Section 1203 Case
Processing




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.2

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.3 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.




2
 The Frivolous Return Program is responsible for identifying the tax returns of individuals
who assert unfounded legal or constitutional arguments and refuse to pay their taxes or to
file a proper tax return. The program also identifies returns claiming frivolous refunds,
such as those involving slavery reparations.
3
 The regular disciplinary process is codified at 5 U.S.C. Chapter 43 on unacceptable
performance and 5 U.S.C. Chapter 75 on adverse actions.




Page 47                                                   GAO-03-394 Tax Administration
               Appendix V: Stages of Section 1203 Case
               Processing




               Once TIGTA or BEPR determines an allegation to have investigative merit
Fact-Finding   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.


               All TIGTA Reports of Investigation on allegations of section 1203
Adjudication   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.4 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.



               4
                The discipline imposed may range from oral counseling to termination of employment,
               depending on the nature and severity of the misconduct, the employee’s work record, and
               other factors.




               Page 48                                                 GAO-03-394 Tax Administration
Appendix V: Stages of Section 1203 Case
Processing




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.5 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.




5
 The Deputy Commissioner is designated as the Board Chairman, but he is serving as the
Acting Commissioner of Internal Revenue at this time, and in this role must consider the
recommendations of the Board. Current members of the Board are the Assistant Deputy
Commissioner, who serves as Acting Chairman, the Deputy National Taxpayer Advocate,
the National Director for Equal Opportunity and Diversity, and the Deputy Commissioner
of the Large and Midsized Business Division. In addition, the Director of CCPAG serves as
Executive Director for the Board, presenting case files for consideration and maintaining
records of the Board’s activities. Agency-Wide Shared Services employee relations
specialists assemble case files for the Board, and a representative of the Office of Chief
Counsel attends and participates in all Board meetings.




Page 49                                                   GAO-03-394 Tax Administration
                                                             Appendix V: Stages of Section 1203 Case
                                                             Processing




Figure 8:Case Flow Process for Section 1203 Cases


                                Reporting and investigative determination                                                                                           Fact

                  Start                                                     Letter of "no investigation"
                                                                                or clearance letter
                                                                                sent to employee
                                                                                    or manager


                                                                                    No                                                                  Manager will
           1203 allegation                                                                                                       Letter issued        notify employee
                                                                                     Other    Yes                           No    to manager
         received by TIGTA                                                                                 TIGTA perform                               of case status
             and record                                                           misconduct?                                      (cc: Labor           and conduct
                                                                                                           investigation?
         created in database                                                                                                       Relations)          additional fact
                                                                                                                                                          finding in
                                                                                                                   Yes                                   necessary
                                                                                                                                    TIGTA
                                                                                                                                   performs
                                                                                                                                 investigation

                   TIGTA         Yes
               opens case for
               investigation?


                       No

                                                                                                                                     TIGTA
                                                                                       No
                                                                                                                                    performs
          CCPAG receives                                                                                                          investigation
         allegation, logs into                         No         Sent to
                                           Frivolous                                Potential
         a central database,                case?               IRS BEPR             1203?       Yes
        and prepares the case
                                                Yes

                                                                                                                                 TIGTA notifies
                                           Send to
                                                                                                                                   employee
                                           Ogden
                                                                                                                                    when/if
                                                                                                                                  appropriate



                                                       Yes
                                         Send back?
                                                                                                                                                  ROI sent to
                                                                                                                                                   BEPR for
                                                No                                                                                                review and
                                                                                                                                                   handling


                                          Tax allegation              Employee &
                                            worked as               manager notified                       End
                                       frivolous at Ogden               by case
                                                                   development team

Source: IRS.




                                                             Page 50                                                               GAO-03-394 Tax Administration
                                              Appendix V: Stages of Section 1203 Case
                                              Processing




FInding                                                                    Adjudication




                                                                                                                      Manager
                                                                                                                    notifies TIGTA
                                                                           Normal disciplinary                          of final
                                                                            process followed                         disposition
                                                                                                                        of case




                                                                                                                                                  End
                Yes

             Other    No
                                               Director of CCPAG
          misconduct?                        issues clearance letter
                                                                                  End

                                                          No

                 No                                  Other        Yes
                                                   misconduct                                                                   DO signs and delivers
           Evidence                                                                                                                decision letter
           supports
            1203?
                                                          No
                               Case                                                           Sent to Review
                Yes                                 Evidence                                Board for information
                           forwarded to
                                                    supports
                                PO
                                                     1203?

                                                          Yes
                                                                   Issue decision
                                   PO works                                                      Case closed                  Action taken
                                                                       letter
                                   with labor
                                  relations to                               No
                                   draft letter
                                                                                                   Normal                    Commissioner
                                                                          Other      Yes
                                                                                                 disciplinary              reviews case and
                               Employee notified                       misconduct?                 process                makes determination
                                  and given                                                       followed                   of final action
                                opportunity for
                                  response                                   No                                                      Yes


                            Case and any additional                   Is 1203        Yes         Sent draft to                               No
                                                                                                                             Recommend
                             information sent to DO                substantiated?                1203 Review
                                                                                                                              mitigation?
                                                                                                    Board


                                              Note: BEPR-Board of Employee Professional Responsibility; CCPAG-Commissioner’s Complaint
                                              Processing and Analysis Group; DO-deciding official; IRS-Internal Revenue Service; PO-proposing
                                              official; ROI-Receipt of Investigation; TIGTA-Treasury Inspector General for Tax Administration




                                              Page 51                                                                  GAO-03-394 Tax Administration
              Appendix VI: Comments from the Internal
Appendix VI: Comments from the Internal
              Revenue Service



Revenue Service




              Page 52                                   GAO-03-394 Tax Administration
Appendix VI: Comments from the Internal
Revenue Service




Page 53                                   GAO-03-394 Tax Administration
             Appendix VII: Comments from the Treasury Inspector General for Tax Administration
Appendix VII: Comments from the Treasury
Inspector General for Tax Administration




             Page 54                                                GAO-03-394 Tax Administration
Appendix VII: Comments from the Treasury Inspector General for Tax Administration




Page 55                                                GAO-03-394 Tax Administration
                  Appendix VIII: GAO Contacts and Staff
Appendix VIII: GAO Contacts and Staff
                  Acknowledgments



Acknowledgments

                  James R. White (202) 512-9110
GAO Contacts      Thomas Short (202) 512-9110


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




(440098)
                               Page 56                         GAO-03-394 Tax Administration
                         The General Accounting Office, the audit, evaluation and investigative arm of
GAO’s Mission            Congress, exists to support Congress in meeting its constitutional responsibilities
                         and to help improve the performance and accountability of the federal
                         government for the American people. GAO examines the use of public funds;
                         evaluates federal programs and policies; and provides analyses,
                         recommendations, and other assistance to help Congress make informed
                         oversight, policy, and funding decisions. GAO’s commitment to good government
                         is reflected in its core values of accountability, integrity, and reliability.


                         The fastest and easiest way to obtain copies of GAO documents at no cost is
Obtaining Copies of      through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full-
GAO Reports and          text files of current reports and testimony and an expanding archive of older
                         products. The Web site features a search engine to help you locate documents
Testimony                using key words and phrases. You can print these documents in their entirety,
                         including charts and other graphics.
                         Each day, GAO issues a list of newly released reports, testimony, and
                         correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site
                         daily. The list contains links to the full-text document files. To have GAO e-mail
                         this list to you every afternoon, go to www.gao.gov and select “Subscribe to daily
                         E-mail alert for newly released products” under the GAO Reports heading.


Order by Mail or Phone   The first copy of each printed report is free. Additional copies are $2 each. A
                         check or money order should be made out to the Superintendent of Documents.
                         GAO also accepts VISA and Mastercard. Orders for 100 or more copies mailed to a
                         single address are discounted 25 percent. Orders should be sent to:
                         U.S. General Accounting Office
                         441 G Street NW, Room LM
                         Washington, D.C. 20548
                         To order by Phone:     Voice:    (202) 512-6000
                                                TDD:      (202) 512-2537
                                                Fax:      (202) 512-6061


                         Contact:
To Report Fraud,
                         Web site: www.gao.gov/fraudnet/fraudnet.htm
Waste, and Abuse in      E-mail: fraudnet@gao.gov
Federal Programs         Automated answering system: (800) 424-5454 or (202) 512-7470


                         Jeff Nelligan, managing director, NelliganJ@gao.gov (202) 512-4800
Public Affairs           U.S. General Accounting Office, 441 G Street NW, Room 7149
                         Washington, D.C. 20548