IRS Management: Challenges Facing the National Taxpayer Advocate

Published by the Government Accountability Office on 1999-02-10.

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

                          United States General Accounting Office

GAO                       Testimony
                          Before the Subcommittee on Oversight
                          Committee on Ways and Means
                          House of Representatives

For Release on Delivery
Expected at
2:30 p.m., EST
                          IRS MANAGEMENT
on Wednesday
February 10, 1999

                          Challenges Facing the
                          National Taxpayer
                          Statement of Cornelia M. Ashby, Associate Director
                          Tax Policy and Administration Issues
                          General Government Division


               Mr. Chairman and Members of the Subcommittee:

               We are pleased to be here today to assist the Subcommittee in its oversight
               of the Internal Revenue Service’s (IRS) Office of the Taxpayer Advocate.
               Our testimony is based on our ongoing work for the Subcommittee. Our
               work has included (1) interviewing IRS officials at the National Office, all 4
               regional offices, and 17 of the 43 district offices and service centers; (2)
               reviewing numerous documents relating to the work of the Advocate’s
               Office; and (3) surveying IRS staff who were doing Advocate’s Office work
               as of June 1, 1998. We are currently drafting our report, which we expect
               to issue later this year.

               As you are aware, IRS is changing its organizational structure in response
               to the IRS Restructuring and Reform Act of 1998. My statement highlights
               three key challenges facing IRS and the National Taxpayer Advocate as
               decisions are made about restructuring the Office of the Taxpayer
               Advocate. These challenges are to

             • address complex staffing and operational issues within the Advocate’s
               Office in a way that will ensure that it offers an independent means for
               taxpayers to resolve their problems. Specifically, while maintaining
               independence from IRS operations, the National Taxpayer Advocate must,
               to some extent, depend on other IRS units in developing a caseworker
               reporting structure, establishing a resource control and tracking system,
               obtaining caseworkers and providing them with appropriate training, and
               determining how best to use available resources.
             • strengthen efforts within the Advocate’s Office to determine the causes of
               taxpayer problems so that systemic causes can be identified and corrected.
               In that regard, the Advocate’s Office needs to share information on these
               efforts throughout IRS and conduct them in a systematic and coordinated
               way to reduce duplication of efforts among its offices.
             • develop the performance measures that the National Taxpayer Advocate
               needs to manage operations and measure effectiveness.

               IRS founded the Problem Resolution Program (PRP) in 1976 to provide an
Background     independent means of ensuring that taxpayers’ unresolved problems were
               promptly and properly handled. Initially, PRP units were established in
               IRS district offices and, in 1979, PRP was expanded to include the service
               centers. In late 1979, IRS created the position of Taxpayer Ombudsman to
               head PRP. In 1996, Congress replaced the Ombudsman’s position with
               what is now the National Taxpayer Advocate.

               Page 1                                                        GAO/T-GGD-99-28

The goals of PRP are consistent with IRS’ mission of providing quality
service to taxpayers by helping them meet their tax responsibilities and by
applying the tax laws fairly. PRP’s first goal is to assist taxpayers who
cannot get their problems resolved through normal IRS channels or who
are suffering significant hardships. For example, local advocate offices
can expedite tax refunds or stop enforcement actions for taxpayers
experiencing significant hardships. During fiscal year 1998, PRP closed
more than 300,000 cases, of which about 10 percent involved potential
hardships. The second goal of PRP is to determine the causes of taxpayer
problems so that systemic causes can be identified and corrected and to
propose legislative changes that might help alleviate taxpayer problems.
IRS commonly refers to this process as advocacy. The third goal of PRP is
to represent the taxpayers’ interests in the formulation of IRS’ policies and

IRS has a taxpayer advocate in each of its 4 regional offices and has local
advocates in its 33 district offices, 30 former district offices, and 10
service centers. The National Taxpayer Advocate has responsibility for the
overall management of PRP, and regional and local advocates have
responsibility for managing PRP at their respective levels. The Office of
the Taxpayer Advocate funds the advocate positions; the staff in advocate
offices at all levels; and other resources for advocate offices.

PRP assistance to taxpayers who cannot get their problems resolved
through normal IRS channels is done by employees called caseworkers,
who are not part of the Advocate’s Office. They are in IRS’ functional
units—mainly customer service, collection, and examination—in the
district offices and service centers. Most PRP resources, including
caseworkers, are funded by the functions, and about 80 percent of the
caseworkers report to functional managers--not local advocates. Some
offices, however, had a centralized structure in which PRP casework was
done by employees who were funded by the functions, but reported to the
local taxpayer advocate.

Formerly, regional and local advocates were selected by and reported to
the director of the regional, district, or service center office where they
worked. However, in response to a requirement in the IRS Restructuring

  In 1996, IRS consolidated its regional and district offices and reduced the number of its district offices
from 63 to 33. The 30 former district offices continue to have staff and operations, including local
advocate staff.
 Unless specifically noted, a reference to “advocate’s staff” or “Advocate’s Office staff” refers to staff in
the Advocate’s Office at all levels.

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                         and Reform Act of 1998, regional advocates are now selected by and report
                         to the National Taxpayer Advocate or his or her designee; and local
                         advocates are now selected by and report to regional advocates.
                         Additionally, last October, IRS began moving to a more centralized
                         reporting structure for the caseworkers—in which they would report to
                         local advocates instead of functional management. IRS officially assigned
                         those caseworkers who were already reporting to local advocates—about
                         20 percent of the caseworkers—to local advocate offices. In addition, IRS
                         is developing an implementation plan to have the remaining 80 percent of
                         the caseworker positions assigned to local advocate offices this year. IRS
                         plans to submit budget requests that reflect these staffing changes by
                         transferring funds for caseworkers to the Advocate’s Office.

                         During fiscal year 1998, the staffing level of the Advocate’s Office
                         increased from 428 to 584 authorized positions. Our survey showed that,
                         as of June 1, 1998, the Advocate’s Office had 508 on-board staff. At the
                         same time, there were about 1,500 functional employees doing PRP
                         casework in IRS’ field offices. Advocate staff worked on, among other
                         things, sensitive cases; cases involving taxpayer hardship; and advocacy
                         work, such as identifying IRS procedures that cause recurring taxpayer
                         problems. Caseworkers worked on resolving individual taxpayer problems
                         as well as participating in some advocacy efforts. During times of high
                         casework levels, many Advocate’s Office staff are required to do casework
                         in addition to their other duties.

                         The first challenge facing IRS and the National Taxpayer Advocate is the
Resolving Staffing and   need to address staffing and operational issues while ensuring the
Operational Issues       independence of the Advocate’s Office. Staffing and operational issues,
While Maintaining        such as resource allocation, training, and staff selection, are commonplace
                         in most organizations. However, dealing with these issues could prove
Independence             more challenging for the Advocate’s Office because of the need for PRP to
                         be independent from the IRS operations that have been unsuccessful in
                         resolving taxpayers’ problems. Independence—actual and apparent—is
                         important because, among other things, it helps promote taxpayer
                         confidence in PRP.

                         A key staffing and operational issue is developing an implementation plan
                         for bringing all caseworkers into the Advocate’s Office that includes
                         operational mechanisms that will give PRP the potential benefits of both a
                         reliance on the functions and a separate operation. According to IRS
                         officials, having the caseworkers in the functions may have facilitated
                         caseworker training and the handling of workload fluctuations; however,
                         this arrangement may also have led to the perception that PRP was not an

                         Page 3                                                      GAO/T-GGD-99-28

independent program. In addition, as we will discuss later, this
organizational arrangement may have contributed to some of the other
PRP staffing and operational issues.

Another, but related, staffing and operational issue is capturing
information about resource usage that advocates need to manage PRP.
Some local advocates told us that the lack of control over PRP resources,
including staff, made it difficult to manage PRP operations. Advocates do
not know the full staffing levels or the total cost of resources devoted to
PRP, because IRS does not have a standard system to track PRP resources.
Instead, each function tracks its resources differently. The absence of this
type of management information yields an incomplete picture of program
operations, places limitations on decision-making, and hinders the
identification of matters requiring management attention. In addition,
having this basic program information would improve the National
Taxpayer Advocate’s ability to estimate the resources needed in the
restructured Advocate’s Office.

Providing appropriate training is also an issue. It is important that
caseworkers and other staff receive adequate training if they are going to
be able to help taxpayers resolve their problems and effectively work on
advocacy efforts. Our survey of IRS staff who were doing advocate office
work showed that training has been inconsistent throughout the
Advocate’s Office and among PRP caseworkers. For example, as of June
1, 1998, more than half of the PRP caseworkers had not completed a
formal PRP training course for their current position.

Caseworkers should be trained in both functional responsibilities and PRP
operations. Functional training, such as training in tax law changes, is
important because resolving taxpayer problems requires that caseworkers
understand the tax law affecting a particular case. Historically, because
caseworkers were usually functional employees, they routinely received
training in functional matters. The National Taxpayer Advocate is faced
with ensuring that caseworkers continue to receive needed functional
training even if they are no longer functional employees. In this regard, the
National Taxpayer Advocate is considering whether to implement a cross-
functional training program for caseworkers that would provide training in
multiple IRS functions. IRS officials told us that this would broaden
caseworker skills and might provide faster and more accurate service to

Acquiring qualified PRP caseworkers has been an issue. In the past, the
quality of caseworkers depended on the office and the function that

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assigned the caseworkers to PRP. Local advocates told us that they had
no assurance that the functions would provide PRP with qualified staff. It
is important for the Advocate’s Office to develop mechanisms to ensure
that qualified caseworkers are selected so that program goals are met.
Once the Advocate’s Office is no longer dependent upon the functions for
its staff, it can implement a competitive selection process for PRP
caseworkers that should help ensure that it gets the staff it needs.

As IRS restructures the Advocate’s Office, it must consider how best to
handle workload fluctuations. Over the past 18 months, the Advocate’s
Office and PRP’s workloads have increased. Factors that have affected
and could continue to affect workload include increased media attention,
the introduction of a toll-free telephone number for taxpayers to call PRP,
and Problem Solving Days. Historically, PRP has relied on the functions
to provide additional staff to cover workload increases. However, as the
office is moving toward a structure that would place all caseworkers in the
Advocate’s Office, this source of additional caseworkers may no longer be
available. Many local advocates told us that it would be difficult to handle
workload fluctuations without the traditional ability to obtain additional
caseworkers from functional units.

Workload increases may also make it necessary for the Advocate’s Office
to decide which cases to address with PRP resources. That is, some
taxpayers who seek help from PRP may have to be referred to other IRS
offices. Local advocates told us that workload increases could
compromise PRP’s ability to help taxpayers. For example, an increase in
the number of PRP cases could negatively affect the timeliness and quality
of PRP casework.

IRS has three criteria for deciding what qualifies as a PRP case. The first
two criteria are specific—(1) any contact by a taxpayer on the same issue
at least 30 days after the initial contact and (2) no response to the taxpayer
by a promised date. However, the third criterion—any contact that
indicates established systems have failed to resolve the taxpayer problem,
or when it is in the best interest of the taxpayer or IRS to resolve the
problem in PRP—is broad enough to encompass virtually any taxpayer
contact. We understand why the Advocate’s Office would not want to turn
away any taxpayer. However, if PRP accepts cases that could be handled
elsewhere in IRS, the program could be overburdened, potentially reducing

  Beginning in November 1997, IRS began holding a series of monthly Problem Solving Days in each of
its 33 districts. The purpose is to give taxpayers with unresolved tax problems the opportunity to meet
face-to-face with IRS staff in an effort to resolve those problems.

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                    PRP’s ability to help taxpayers who have nowhere else to go to resolve
                    their problems.

                    The second challenge facing IRS and the National Taxpayer Advocate is to
Using Advocacy to   strengthen advocacy efforts within the Advocate’s Office. Advocacy
Prevent Problems    efforts are key to the success of the Advocate’s Office because the
From Recurring      improvements they generate can reduce the number of taxpayers who
                    ultimately require help from PRP. Ideas for advocacy efforts are generated
                    at the national, regional, and local levels. These efforts are aimed at
                    eliminating deficiencies in IRS’ processes and procedures that cause
                    recurring problems. Through advocacy efforts, the National Taxpayer
                    Advocate can recommend changes to the Commissioner, IRS functions,
                    and Congress to improve IRS operations and address provisions in law that
                    may be causing undue burden to taxpayers.

                    The Advocate’s Office has taken steps to promote advocacy, such as
                    implementing regional advocacy councils and identifying strategies to
                    increase awareness of advocacy within IRS. The Advocate’s Office has
                    encouraged the functions to play a greater role in assisting taxpayers and
                    improving procedures to reduce taxpayer compliance burden. For
                    example, the Advocate’s Office is working with functional management
                    through an executive level group—called the Taxpayer Equity Task Force--
                    to develop ways to strengthen equity and fairness in tax administration.
                    The Task Force consists of a cross section of executives from IRS’
                    functions and staff from the Advocate’s Office. It was established to “fast-
                    track” potential administrative changes and legislative proposals
                    recommended to the National Taxpayer Advocate.

                    However, the Advocate’s Office staff and PRP caseworkers told us that
                    they were spending only a minimal amount of time on advocacy. In that
                    regard, our survey showed that as of June 1, 1998, advocates and their
                    staffs were spending about 10 percent of their time on advocacy, and PRP
                    caseworkers were spending less than 1 percent of their time on advocacy.
                    Advocate office staff and PRP caseworkers told us that increased
                    casework limited the time they could spend on advocacy.

                    We understand the need to give priority to casework over advocacy when
                    there is not enough time to do both. The National Taxpayer Advocate’s
                    ability to deal with these competing priorities is hampered, however, by
                    the absence of (1) a systematic and coordinated approach for conducting
                    advocacy efforts and (2) data with which to prioritize potential advocacy

                    Page 6                                                      GAO/T-GGD-99-28

                      To provide information on advocacy to field offices, the Advocate’s Office
                      has developed a list of ongoing advocacy projects. However, the list
                      includes only national-level projects; there is no corresponding list of local
                      efforts, even though those efforts could be addressing issues with
                      agencywide implications. Advocacy staff told us that because there is no
                      system for sharing information on local advocacy efforts, there is some
                      duplication of effort among field offices. Additionally, field staff told us
                      that there is no system that provides feedback on the status of advocacy
                      recommendations. For example, in one district, staff told us that they
                      forwarded the same recommendations to the Advocate’s Office over the
                      course of several years but never received feedback on what actions, if
                      any, were taken on those recommendations.

                      The Advocate’s Office also has not identified its top advocacy priorities,
                      and it has no way to determine the actual impact of its advocacy efforts.
                      Without such information, the National Taxpayer Advocate does not know
                      which advocacy efforts have the greatest potential to reduce taxpayers’
                      compliance burden.

                      The third challenge facing IRS and the National Taxpayer Advocate is to
Developing Measures   develop performance measures to be used in managing operations and
of Effectiveness      assessing the effectiveness of the Office of the Taxpayer Advocate and
                      PRP. Developing measures of effectiveness is a difficult undertaking for
                      any organization because it requires that management shift its focus away
                      from descriptive information on staffing, activity levels, and tasks
                      completed. Instead, management must focus on the impact its programs
                      have on its customers.

                      Currently, the Advocate’s Office uses four program measures, but they do
                      not produce all of the information needed to assess program effectiveness.
                      The first two measures--the average length of time it takes to process a
                      PRP case and the currency of PRP inventory—describe program activity.
                      While these two measures are useful for some program management
                      decisions, such as the number of staff needed at a specific office, they do
                      not provide information on how effectively PRP is operating.

                      The third measure, PRP case identification and tracking, attempts to
                      determine if potential PRP cases are properly identified from incoming
                      service center correspondence and subsequently worked by PRP. This
                      measure is an important tool to help the National Taxpayer Advocate
                      know whether PRP actually serves those taxpayers who need and qualify
                      for help from the program. However, a recent review of this measure by
                      IRS’ Office of Internal Audit found, among other things, that inconsistent

                      Page 7                                                        GAO/T-GGD-99-28

          data collection for the measure could affect the integrity and reliability of
          the measure’s results. Also, the measure is designed for use only at service
          centers; there is no similar measure for use at district offices, resulting in
          an incomplete picture of whether taxpayers are being properly identified
          and subsequently referred to PRP.

          PRP’s fourth measure—designed to determine the quality of PRP
          casework—provides some data on program effectiveness. This measure is
          based on a statistically valid sample of PRP cases and provides the
          National Taxpayer Advocate with data on timeliness and the technical
          accuracy of PRP cases. Among other things, selected PRP cases are
          checked to determine whether the caseworker contacted the taxpayer by a
          promised date, whether copies of any correspondence with the taxpayer
          appeared to communicate issues clearly, and whether the taxpayer’s
          problem appeared to be completely resolved. Caseworkers and advocate
          staff in the field told us that the quality measure was helpful because the
          elements that are reviewed provide a checklist for working PRP cases.
          According to staff, this helps ensure that most cases are worked in a
          similar manner in accordance with standard elements.

          The quality measure, however, does not have a customer satisfaction
          component. The Advocate’s Office is piloting a method for collecting
          customer satisfaction data, but the results of this effort are unknown.
          Because IRS does not collect customer satisfaction data from taxpayers
          who contacted PRP, the National Taxpayer Advocate does not know if
          taxpayers are satisfied with PRP services or whether taxpayers considered
          their problems solved.

          The National Taxpayer Advocate has the formidable task of developing
          measures that will provide useful data for improving program
          performance, increasing accountability, and supporting decisionmaking.
          To be comprehensive, these measures should cover the full range of
          Advocate Office operations, including taxpayer satisfaction with PRP
          services and the effectiveness of advocacy efforts in reducing taxpayer
          compliance burden.

          In summary, the responsibilities of the Office of the Taxpayer Advocate—
Summary   helping taxpayers who have not been able to resolve their tax problems
          through normal IRS channels, helping taxpayers experiencing financial
          hardship, and promoting advocacy—require the office to become involved
          in most, if not all, of IRS’ varied operations. These broad responsibilities
          must be fulfilled if IRS is to provide the level of customer service
          envisioned in its mission statement. As the Office of the Taxpayer

          Page 8                                                        GAO/T-GGD-99-28

Advocate restructures, it will be faced with many challenges. Addressing
these challenges is pivotal to the National Taxpayer Advocate’s success.

Mr. Chairman, this concludes my prepared statement. I would be happy to
answer any questions that you or the Members of the Subcommittee may


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