Personnel Management Flexibility for the Internal Revenue Service: P.L. 105-206

Personnel Management Flexibility for the Internal Revenue Service: P.L. 105-206

98-4 GOV
CRS Report for Congress
Received through the CRS Web
Personnel Management Flexibility for the Internal
Revenue Service: P.L. 105-206
July 24, 1998
Barbara L. Schwemle
Analyst in American National Government
Government Division
Congressional Research Service ˜ The Library of Congress

ABSTRACT
This report analyzes the personnel management flexibility provisions of P.L. 105-206, a law
restructuring and reforming the Internal Revenue Service. Among the issues discussed are
performance management, staffing, demonstration projects, critical pay authority, position
classification, voluntary separation incentive payments, termination of employment for
misconduct, and employee training. This report will be updated as necessary. For more
from CRS, see CRS Report 97-984E.

Personnel Management Flexibility for the
Internal Revenue Service: P.L. 105-206
Summary
Legislation authorizing personnel flexibilities for the Internal Revenue Service
(IRS) has been enacted by the 105 Congress. The Internal Revenue Servic
th
e
Restructuring and Reform Act, H.R. 2676, passed the House of Representatives on
November 5, 1997, and the Senate on May 7, 1998. The House agreed to the
conference report accompanying the legislation on June 25, 1998, and the Senate
agreed to the conference report on July 9, 1998. President William Clinton signed
the bill on July 22, 1998, and it became P.L. 105-206. The legislation is based on the
report of the National Commission on Restructuring the IRS, which recommended
that the IRS and the Department of the Treasury be given more flexibility to hire
qualified personnel needed to implement modernization. Both the House and Senate
versions drew on two sets of identical bills, H.R. 2292/S. 1096 and H.R. 2428/S.
1174, which had been introduced earlier, for a number of their provisions.
Congressional action occurred following a series of hearings. Those which included
discussion of the personnel flexibility provisions were conducted by the Senate
Committees on Finance and Governmental Affairs and the House Subcommittee on
Government Management, Information, and Technology.
The IRS Commissioner testified in favor of additional flexibilities, including
those on compensation and workforce restructuring. Former IRS Commissioners and
representatives of finance-related professional organizations also testified, and, while
generally supportive of the personnel flexibilities, encouraged the committee to
review proposed provisions on union authority, performance-based pay, and hiring,
among others. The Office of Management and Budget, Office of Personnel
Management (OPM), and General Accounting Office likewise testified in support of
personnel flexibilities, but emphasized that OPM oversight should be maintained.
The American Bar Association favored hiring and pay flexibilities to attract
private sector individuals into government. The American Institute of Certified
Public Accountants suggested that some positions now reserved for career civil
servants should be open to professional appointees. The National Academy of Public
Administration emphasized that the oversight processes of the Merit Systems
Protection Board, Office of Special Counsel, and OPM should be retained and that
all employees below the IRS Commissioner should be selected on a non-political and
non-partisan basis and strictly on the basis of merit and qualifications. The National
Treasury Employees Union supported the legislation.
P.L. 105-206 provides personnel flexibilities relating to performance
management, staffing, and demonstration projects which test personnel management
policies or procedures. It also includes provisions which were in the Senate-passed,
but not the House-passed bill, including those on critical pay authority, recruitment,
retention, and relocation incentives (and relocation expenses, added in the conference
committee), performance awards for senior executives, limited appointments to
career reserved Senior Executive Service positions, details, classification and pay,
voluntary separation incentive payments, termination of employees for misconduct,
evaluation of IRS employees, and employee training.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Public Law 105-206 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
General Requirements for Personnel Flexibilities . . . . . . . . . . . . . . . . . . . . 9
Flexibilities Relating to Performance Management . . . . . . . . . . . . . . . . . . 11
Performance Management System . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Notice/Appeal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Staffing Flexibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Eligibility to Compete for a Permanent Appointment in the Competitive
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Rating Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Probationary Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Provisions That Remain Applicable . . . . . . . . . . . . . . . . . . . . . . . . . 15
Flexibilities Relating to Demonstration Projects . . . . . . . . . . . . . . . . . . . . 16
Other Critical Pay Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Streamlined Critical Pay Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Recruitment, Retention, and Relocation Incentives and Relocation Expenses
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Performance Awards for Senior Executives . . . . . . . . . . . . . . . . . . . . . . . 20
Limited Appointments to Career Reserved Senior Executive Service Positions
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Workforce Classification and Pay Banding . . . . . . . . . . . . . . . . . . . . . . . . 21
Details . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Voluntary Separation Incentive Payments . . . . . . . . . . . . . . . . . . . . . . . . 22
Termination of Employment for Misconduct . . . . . . . . . . . . . . . . . . . . . . 23
Basis for Evaluation of Internal Revenue Service Employees . . . . . . . . . . 25
Employee Training Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Provisions Unique to the House-Passed Bill, and Not in P.L. 105-206 . . . . . . . 26
Involuntary Reassignments and Removals of Career Appointees in the
Senior Executive Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Senate Hearings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
House Hearings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Additional Views . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Personnel Management Flexibility for the
Internal Revenue Service:
P.L. 105-206
Introduction
Legislation authorizing personnel flexibilities for the Internal Revenue Service
(IRS) has been enacted by the 105 Congress. The Internal Revenue Servic
th
e
Restructuring and Reform Act, H.R. 2676, passed the House of Representatives on
November 5, 1997, and the Senate on May 7, 1998. The House agreed to the
conference report accompanying the legislation on June 25, 1998, and the Senate
agreed to the conference report on July 9, 1998. President William Clinton signed
the bill on July 22, 1998, and it became P.L. 105-206. The legislation is based on the
report of the National Commission on Restructuring the IRS, which recommended
that the IRS and the Department of the Treasury be given more flexibility to hire
qualified personnel needed to implement modernization.1 Both the House and Senate
versions drew on two sets of identical bills, H.R. 2292/S. 1096 and H.R. 2428/S.
1174, which had been introduced earlier, for a number of their provisions.
Congressional action occurred following a series of hearings. Those which included
discussion of the personnel flexibility provisions were conducted by the Senate
Committees on Finance and Governmental Affairs and the House Subcommittee on
Government Management, Information, and Technology.
The IRS Commissioner testified in favor of additional flexibilities, including
those on compensation and workforce restructuring. Former IRS Commissioners and
representatives of finance-related professional organizations also testified, and, while
generally supportive of the personnel flexibilities, encouraged the committee to
review proposed provisions on union authority, performance-based pay, and hiring,
among others. The Office of Management and Budget, Office of Personnel
Management (OPM), and General Accounting Office likewise testified in support of
personnel flexibilities, but emphasized that OPM oversight should be maintained.
The American Bar Association favored hiring and pay flexibilities to attract
private sector individuals into government. The American Institute of Certified
Public Accountants suggested that some positions now reserved for career civil
1 See: U.S. Congress, National Commission on Restructuring the Internal Revenue
Service, A Vision for a New IRS (Washington: June 25, 1997); U.S. Library of Congress,
Congressional Research Service, Restructuring the Internal Revenue Service in the 105th
Congress: the conference report, CRS Rept. 97-984E, by Sylvia Morrison (Washington:
updated July 10, 1998), 5p.; and Ferris, Nancy, "Oversight Overkill," Government
Executive, vol. 30, May 1998, pp. 35-39.

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servants should be open to professional appointees. The National Academy of Public
Administration emphasized that the oversight processes of the Merit Systems
Protection Board, Office of Special Counsel, and OPM should be retained and that
all employees below the IRS Commissioner should be selected on a non-political and
non-partisan basis and strictly on the basis of merit and qualifications. The National
Treasury Employees Union supported the legislation.
Background
The Internal Revenue Service Restructuring and Reform Act, H.R. 2676, passed
the House of Representatives, amended, by a 426-4 vote (Roll No. 577) on
November 5, 1997. Earlier, the bill, which had been introduced by Representative
Bill Archer, Chairman of the Ways and Means Committee, on October 21, 1997, was
reported from the Ways and Means Committee on October 31, 1997 (H. Rept. 105-
364 Part I). It was discharged from the Government Reform and Oversight and Rules
Committees on the same day. Title I, Subtitle B, Section 111 of H.R. 2676
authorized personnel flexibilities for the IRS, to be effective upon enactment of the
act, by amending Part III of title 5, United States Code, to add a new subpart, chapter
93.
The House Ways and Means Committee report accompanying H.R. 2676 stated
that the bill “builds on the Commission’s report and recommendations and the
provisions of H.R. 2292.” In discussing the need for personnel flexibilities, the
committee report noted that existing personnel rules and procedures on hiring,
evaluating, promoting, and firing employees are subject to extensive regulation.
Further, according to the committee, the risk-averse nature of the IRS provides
minimal incentive for managers or front-line employees to achieve the agency’s
mission, and stifles creativity, innovation, and quick problem resolution. The
committee stated its intention that the personnel flexibilities lead to increased
accountability by IRS managers and employees and to increased focus on IRS
mission, goals, and objectives.2
The Senate passed its version of H.R. 2676, amended, by a 97 to 0 vote (Vote
No. 126) on May 7, 1998. This action followed Finance Committee mark-up of the
bill on March 31, 1998, during which Senator William Roth's amendment in the
nature of a substitute, as amended was adopted, and reporting of the bill (S. Rept.
105-174), as amended, on April 22, 1998. Title I, Subtitle C, Sections 1201 to 1205
authorized personnel flexibilities for the IRS by amending Part III of title 5, United
States Code, to add a new subpart, chapter 95. The flexibilities are effective upon
enactment of the act, except for the provisions on employee training, which are
effective no later than 90 days after enactment. According to the report
accompanying the bill, the personnel flexibilities are needed because:
2 U.S. House Committee on Ways and Means, Internal Revenue Service Restructuring
and Reform Act of 1997, Report to Accompany H.R. 2676, H. Rept. 105-364 Part 1, 105th
Cong., 1 Sess., (Washington: GPO, Oct. 31, 1997), pp. 45-46. (Hereafter referred to a
st
s
Ways and Means Committee Report.)

CRS-3
The Committee believes that as part of restructuring the IRS, the Commissioner
should have the ability to bring in experts and the flexibility to revitalize the
current IRS workforce. The current hiring practices often inhibit the ability of
the Commissioner to change the IRS' institutional culture. Commissioner
Rossotti has indicated that in order to maximize efforts to transform the IRS into
an efficient, modern and responsive agency, the ability to recruit and retain a top-
notch leadership and technical team is critical. The Committee believes the IRS
needs the flexibility to recruit employees from the private sector, to redesign its
salary and incentive structures to reward employees who meet their objectives,
and to hold non-performers accountable. Personnel and pay flexibilities are
necessary prerequisites for larger fundamental changes in the IRS. The
Committee wants to support the Commissioner's initiatives to reposition the
current IRS workforce as part of implementing a new organization designed
around the needs of taxpayers.3
When Senate consideration of the committee amendment, in the nature of a
substitute for H.R. 2676, began on May 4, 1998, Senator William Roth, Chairman
of the Finance Committee, spoke of giving the Commissioner "the tools necessary
to bring the IRS into the next century." According to Senator Roth, "One of the
problems is that the Commissioner does not have the kind of authority that is
necessary to eliminate those managers who contaminate the culture of the agency.
And the Commissioner does not have sufficient authority to hire those who will work
toward making the kinds of changes that are necessary. This legislation gives the
Commissioner the tools he needs to hire top-flight managers who are experts in their
field."4
Among the tools provided to the Commissioner, said Senator Roth, are "the
wherewithal to transform the agency's workforce by providing bonuses and other
incentives, and to sufficiently discipline employees whose inappropriate actions are
a plague on the agency." Another change in personnel law emphasized by Senator
Roth was the legislation's prohibition on "the use of enforcement statistics to evaluate
any IRS employee, not merely front line collection employees and their supervisors."
Senator Roth identified the use of enforcement statistics as "one of the most troubling
issues raised in our September hearings," noted that the IRS Chief Inspector had
substantiated the Finance Committee's findings about their use, and said that their
continued use "mocks Congress" and "demonstrates that the IRS believes it is above
the law."5
Senator Richard Bryan also emphasized the improper use of enforcement
statistics and referred to their use as a "so-called quota system." According to him,
"in the district in Nevada, such quotas were in fact being used, although they were
not described as quotas. From all appearances, those who are part of the evaluating
process could, in my judgment, have reached no other conclusion but that their
3 U.S. Senate Committee on Finance, Internal Revenue Service Restructuring and
Reform Act of 1998, Report to Accompany H.R. 2676, S. Rept. 105-174, 105th Cong., 1st
Sess., (Washington: GPO, Apr. 22, 1998), pp. 34-35. (Hereafter referred to as Finance
Committee Report.)
4 Congressional Record, daily edition, vol. 144, May 4, 1998, pp. S4182-S4183.
5 Ibid., p. S4183.

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performance would be judged by the amount of money that would be extracted from
each taxpayer who came to the office by reason of some conflict or disagreement as
to the amount of revenue that the taxpayer owed." Saying that this "is inherently
wrong and unfair," Senator Bryan said that "the IRS revenue officer looks at the
taxpayer not as a consumer, one who has a problem that needs to be addressed, but
basically as an individual that the revenue agent must collect a certain amount of
taxes from in order to be evaluated positively by his or her superiors for purposes of
tenure or promotion within the system."6
Senator Daniel Moynihan, Ranking Member on the Finance Committee, noted
the various personnel flexibilities in the bill. Focusing on the critical pay authority,
he said that it is "[i]n recognition of the great disparity between the salary structures
in Government and those in the private sector on parallel activities," and "provides
a streamlined process by which the Commissioner can appoint up to 40 individuals
designated critical technical and professional positions for up to 4-year terms at an
annual compensation equivalent to the pay of the Vice President, currently
$175,400." Further explaining the provision, he said that, "The Commissioner can
go out and find this person to do this particular job and make it a 4-year appointment.
Persons who obviously are in the private sector will come into Government at not too
large a sacrifice, and for most it would be a considerable one. I do not want to use
the word "sacrifice"-lachrymose, perhaps-just a large reduction in income for the
kinds of persons that will be sought after, but not so large that they cannot manage
the transition."7
The conference committee report (H. Rept. 105-599) accompanying H.R. 2676
was filed on June 24, 1998. The next day, the House agre
8
ed to the conference report
by a 402-8 vote (Roll No. 273), exactly one year after the National Commission on
Restructuring the IRS issued its report to Congress. The Senate agreed to the
conference report by a 96-2 vote (Roll. No. 189) on July 9, 1998. President William
Clinton, when signing the bill on July 22, 1998, said it would help the IRS to build
for the 21 . Century. It became P.L. 105-206 (112 Stat. 685).
st
In remarks during the House consideration of the conference report,
Representative Rob Portman, co-chairman of the National Commission, noted the
following with regard to the personnel flexibilities provisions:
Very importantly, the legislation also reforms the IRS management structure to
increase accountability and performance. It gives the IRS Commissioner new
personnel flexibilities to drive change through the agency, such as the ability to
bring in experts from the private sector at a high level in the IRS, the ability to
reward IRS employees for taxpayer service, and fire employees who provide
6 Ibid., p. S4189.
7 Ibid., p. S4185.
8 U.S. House Internal Revenue Service Restructuring and Reform Act of 1998,
Conference Report to Accompany H.R. 2676, H. Rept. 105-599, 105th Cong., 2d Sess.,
(Washington: GPO, June 24, 1998), 368p. (Hereafter referred to as Conference Report.)

CRS-5
inferior service. It also increases the accountability of IRS employees and
managers in the collection area to stop the tactics of intimidation.9
Senate discussion of the conference report covered two days, July 8 and 9, 1998,
and 61 pages of the Congressional Record. Senators addressed their intent with
regard to the provisions on personnel flexibilities in H.R. 2676. These remarks are
excerpted below.
Senator William Roth:
The second principle incorporated in this legislation is to hold IRS employees
accountable for their actions and to reward those who treat the taxpayer fairly.
One of the problems we discovered in our hearings is that the Commissioner did
not have the kind of authority that is necessary to streamline management and
remove managers who contaminate the culture of the agency. Additionally, we
found that the Commissioner does not have sufficient authority to hire those who
will work toward making the kinds of changes that are necessary. This
legislation changes that. It provides the Commissioner the tools he needs to hire
top-flight managers who are experts in their field. It gives the Commissioner the
wherewithal to transform the agency's work force by providing bonuses and other
incentives, and to sufficiently discipline employees whose inappropriate actions
harm the image and effectiveness of the agency. ... As I have said before, an
environment that allows employees guilty of these kinds of behaviors to continue
to work within the system is not acceptable to me, the Finance Committee, or to
the American people. We have heard enough excuses. The time has come for
change. And this legislation allows needed changes to take place.10
Senator Daniel Moynihan:
An ongoing problem is how to attract top executives to a government activity
which has its counterpart in the private sector where compensation-if I may use
that term-is often very high, if not indeed exorbitant, because the amounts of
money involved are very large. So to recognize the disparity between
government and private sector salary structures, the conference agreement
adopted the Senate provision authorizing the appointment by the Commissioner
of up to 40 persons to critical positions for 4-year terms with an annual
compensation equivalent to the pay of the Vice President of the United States;
that is to say, currently $175,400. These will be persons chosen for their
particular skills. They will be there for a 4-year period. They will be departing
the private sector for an interval of public service at something approaching the
salaries they normally enjoy. Other provisions will permit the establishment of
a new performance management system focused on individual accountability,
and allow for the creation of an incentive award system bringing the IRS into
contemporary management modes-out of the model of the civil service that was
developed a century ago when we set up the Civil Service Commission, again
9 Congressional Record, daily edition, vol. 144, June 25, 1998, p. H5354.
10 Congressional Record, daily edition, vol. 144, July 8, 1998, pp. S7622-S7623.

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establishing grades for employees with salaries that were low, but careers that
were guaranteed for life.11
Senator Phil Gramm:
The third and, I believe, final major section of the bill has to do with the
flexibility of the Internal Revenue Service hiring people. Under our current
system, basically, you have to be in the Internal Revenue Service for 25 years to
have a major supervisory, decision-making post. One of the things we have done
in this bill is waive a number of the general procedures under civil service. We
are allowing the Internal Revenue Service to go outside the system and bring in
private expertise-some on a permanent basis, some on a temporary basis-and in
the process, we are bringing in new people with private experience, many of
whom will go back into the private sector. The net result, I believe, will be a
more efficient and basically a more balanced Internal Revenue Service.12
Senator Richard Bryan:
I believe the power that we invest in the new Commissioner to make changes at
the top level of management will also have some far-reaching consequences. It
is clear that those who are steeped in this corporate culture, this deeply ingrained
practice that I and others who have spoken on this issue have described, simply
are unable to make that change, that the frame of mind that allows that to
continue has been such a part of the daily operational conduct of the agency that
in some instances at the top level individuals simply have to be replaced. ... So
the powers that we give him to make those kinds of changes, which no previous
Commissioner has had, I think will help to send a very powerful message at the
top that this is not business as usual and that we want not only a more efficient
and a more responsive agency, but we want an agency that eliminates the kinds
of abuses that were provided during the course of the hearings.13
Senator Bob Graham:
A second aspect of the old IRS was its evaluation of employees based on how
much money was collected. This is analogous to a police department which
requires its officers to issue so many parking tickets or speeding tickets per day.
It changes the priorities, it changes the perspective, it changes the public respect
of the organization. I am pleased that the new IRS will evaluate employees based
on how they deal with taxpayers as well as on their collection efforts.14
Senator Max Baucus:
The bill creates much more personnel flexibility, making it easier for the new
Commissioner, ... giving him flexibility to reward employees doing well. I think
this flexibility will help the IRS attract competent people, people who are
technically competent and management experts. You get what you pay for. If
11 Ibid., p. S7625.
12 Ibid., p. S7629.
13 Ibid., p. S7635.
14 Ibid., pp. S7641-S7642.

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you want to get good people, you have to be able to pay them well and you have
to give them the wherewithal to do the job right. There has not been sufficient
flexibility to this point in the IRS.15
Senator Michael Enzi:
In requiring the IRS to collect allegations and document cases of employee
misconduct and report this misconduct to Congress every year, the IRS reform
bill requires the IRS to investigate itself and answer to Congress for any
misconduct of IRS employees.16
Senator Lauch Faircloth:
My message to the unions and to the union representative and the rest of the IRS
personnel and bureaucracy is this: Do not oppose IRS reform, but accept and take
it and get going with making it the law of the land. The Congress and the
American people have spoken, and this agency is going to be cleaned up with or
without your acquiescence. If you try to undermine these reforms, there will be
more legislation and stricter legislation in future sessions of the Congress. In
summary, let me say to the IRS personnel and its representatives and the entire
IRS bureaucracy that Congress is very closely observing the actions of the IRS
in how it deals with the American people. Do not oppose us, support us, and we
will have a great revenue collection service. Do not go back to the old ways, but
move into the new law and do it with enthusiasm.17
Senator Connie Mack:
Congress cannot let up on the IRS. We must follow through on the misconduct
exposed by the bright spotlight of our oversight hearings. I am calling on
Commissioner Rossotti to testify again before the Finance Committee, prior to
the end of this legislative session, to bring us up to date on the disciplinary
actions taken as a result of our hearings. ... We cannot fall into the trap of
thinking that things are fixed at the IRS just because this reform bill will soon
become law. The Senate has an obligation to continue its vigilance over the
actions of the IRS, to follow through on the abuses that have been exposed and
root out those that perpetuate. Experience has shown conclusively that the IRS
cannot be trusted to police itself. ... Let no defender of the status quo at the
Service be mistaken on this point: This is the beginning, not the end, of our
reform efforts.18
Senator Pete Domenici:
15 Ibid., p. S7644.
16 Ibid., p. S7648.
17 Ibid., p. S7649.
18 Ibid., p. S7666-S7667.

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The bill requires the IRS to place a priority on employee training and adequately
fund employee training programs.19
Senator Fred Thompson:
The conference agreement also grants significant new personnel authorities to
the IRS. These new authorities are intended to help Commissioner Rossotti bring
in high-quality private sector professional, administrative and technical personnel
to address the many management problems facing the agency. These authorities
break new ground in terms of federal personnel pay and management policies.
By granting these authorities to the IRS, Congress will have high expectations
that the reform agenda is indeed carried through.20
Several Senators, in their remarks on the conference agreement, spoke against
the IRS practice of using a quota system to determine performance ratings and
promotions for employees, which P.L. 105-206 prohibits, and mentioned the law's
21
requirement that the IRS terminate employees who violate the law, and report
employee misconduct to Congress.22
Both the House and Senate versions of H.R. 2676 drew on two sets of identical
bills, H.R. 2292/S. 1096 and H.R. 2428/S. 1174, which had been introduced earlier,
for a number of their provisions. H.R. 2292, introduced by Representatives Rob
Portman and Benjamin Cardin on July 30, 1997, was referred to the House
Committee on Ways and Means and, in addition, to the Committees on Government
Reform and Oversight, the Budget, and Rules. In his statement upon introducing the
bill, Representative Portman said that, “We strengthen the ability of the
commissioner to make real changes at the IRS by providing the hiring flexibility to
recruit high-quality executives.” S. 1096, introduced by Senators Robert Kerre
23
y
and Charles Grassley on July 31, 1997, was referred to the Senate Committee on
Finance. Representative Portman and Senator Kerrey were co-chairmen of the
National Commission on Restructuring the IRS. Senator Grassley was also a
member of the commission. Title I, Subtitle B, Section 111 of the bills would have
19 Congressional Record, daily edition, vol. 144, July 9, 1998, p. S7719.
20 Ibid., p. S7721.
21 Congressional Record, daily edition, vol. 144, July 8, 1998. See: Senator Reid at
p. S7633, Senator Bryan at p. S7635, Senator Enzi at p. S7648, Senator Kyl at p. S7658,
Senator Leahy at p. S7664, Senator Snowe at p. S7665, Senator Mack at p. S7666, and
Senator Kerry at p. S7667.
22 Ibid. See: Senator Roth at pp. S7622-S7623, Senator Gramm at pp. S7629-S7630,
Senator Kerrey at p. S7631, Senator Reid at p. S7633, Senator Grassley at p. S7646, and
Senator Snowe at p. S7665. Congressional Record, daily edition, vol. 144, July 9, 1998.
See: Senator Domenici at p. S7718, Senator Dodd at p. S7722, and Senator Kohl at p.
S7722.
23 Hon. Rob Portman, Introduction of H.R. 2292-The Internal Revenue Service
Restructuring and Reform Act of 1997, Congressional Record, daily edition, vol. 143, Aug.
1, 1997, p. E1606.

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authorized personnel flexibilities for the IRS by amending part III of title 5, United
States Code, to add a new subpart I, chapter 93.
H.R. 2428, introduced by Representatives Charles Rangel, William Coyne,
Steny Hoyer, Henry Waxman, and Robert Matsui on September 8, 1997, was referred
to the House Committees on Ways and Means and Government Reform and
Oversight. Representatives Coyne and Matsui were members of the National
Commission on Restructuring the IRS. Representative Rangel, Ranking Member on
the Ways and Means Committee, in introducing the bill, stated that it, “provides the
Treasury Department and the IRS with the ability to put together and hire at the IRS
one of the best management teams in the country. Highly skilled, top talent would
be able to join the IRS at pay levels commensurate with experience and expertise.
Performance-based incentive pay arrangements and new demonstration management
systems could be set up at the IRS, as ways to insure that management goals are met,
to hold employees accountable, and to reward quality service.” S. 1174, introduced
24
by Senator Daniel Moynihan, by request, on September 12, 1997, was referred to the
Senate Committee on Finance. Title III, Section 301 of the bills would have
provided personnel flexibilities for the IRS by amending part III of title 5, United
States Code, to add a new subpart I, chapter 95. Table 1 in the Appendix includes
an overview of the various provisions in both sets of identical bills. (Generally, both
sets of legislation would have provided personnel flexibilities relating to performance
management, staffing, demonstration projects which test personnel management
policies or procedures, classification and pay, and recruitment, retention, and
relocation incentives. H.R. 2428/S. 1174 also included critical pay authority,
performance awards for senior executives, and limited appointments to career
reserved Senior Executive Service (SES) positions.)
P.L. 105-206 provides personnel flexibilities relating to performance
management, staffing, and demonstration projects which test personnel management
policies or procedures. It also includes provisions which were in the Senate-passed,
but not the House-passed bill, including those on critical pay authority, recruitment,
retention, and relocation incentives (and relocation expenses, added in the conference
committee), performance awards for senior executives, limited appointments to
career reserved SES positions, details, classification and pay, voluntary separation
incentive payments, termination of employees for misconduct, evaluation of IRS
employees, and employee training.
Public Law 105-206
"The conference agreement followed the Senate amendment with
modifications," according to the conference committee report. The provisions o
25
f
P.L. 105-206 are discussed below.
2 4 Remarks of Representative Charles Rangel on The Internal Revenue Service
Improvement Act of 1997, Congressional Record, daily edition, vol. 143, Sept. 8, 1997, p.
H6999. The remarks of Representative William Coyne appear on the same page.
25 Conference Report, p. 233.

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General Requirements for Personnel Flexibilities
Section 9501 of P.L. 105-206 provides that the personnel flexibilities shall be
exercised in a manner consistent with 5 U.S.C. chapter 23 on merit system principles
and prohibited personnel practices; provisions on veterans preference; and, except
as otherwise specifically provided, 5 U.S.C. 5307 relating to the aggregate limitation
on pay and 5 U.S.C. chapter 71 relating to labor-management relations. The
flexibilities shall also be subject to 5 U.S.C. 1104(b) and (c) relating to delegation of
authority for personnel management, as though such authorities were delegated to the
Secretary of the Treasury. The Secretary shall provide OPM with any information
that it requires in carrying out its responsibilities.
Employees within a unit to which a labor organization is accorded exclusive
recognition shall not be subject to the exercise of any flexibility unless the IRS and
the labor organization enter into a written agreement which specifically provides for
the exercise. The flexibilities relate to streamlined demonstration project authority,
the general workforce performance management system, classification and pay, and
staffing. The written agreement may be imposed by the Federal Services Impasses
Panel.
Section 9301 of H.R. 2676, as passed by the House, would have provided that
the personnel flexibilities be exercised in a manner consistent with 5 U.S.C. chapter
23 on merit system principles and prohibited personnel practices and provisions on
veterans preference (outside of those in chapter 93 of H.R. 2676). Employees within
a unit to which a labor organization is accorded exclusive recognition would not have
been subject to the exercise of any flexibility unless the IRS and the labor
organization entered into a written agreement permitting such exercise. A written
agreement need not have been a collective bargaining agreement and could not have
been an agreement imposed by the Federal Services Impasses Panel. The written
agreement could have addressed any of the flexibilities on performance management,
staffing, and demonstration projects, and any matter proposed to be included in a
demonstration project.
In its report accompanying H.R. 2676, the House Ways and Means Committee
expressed its belief that IRS employees should be involved in the reinvention of the
bureaucracies in which they work. The extent of this involvement was characterized
by the committee: “Accordingly, the bill provides that the flexibilities provided to
the IRS must be negotiated between the IRS and the employees’ union. Such
negotiations need not address all of the flexibilities provided under this provision.
The written agreement should be a consensus document, but is not a contract that can
be appealed to the federal services impasses panel, or otherwise create additional
appeal rights.”26
According to the Internal Revenue Service, as of January 31, 1998, its
workforce totaled 118,213. Of this total, 95,048 employees or 80.4% of the
workforce were in the bargaining unit. Non-bargaining unit employees totaled
22,922 or 19.4% of the workforce. The IRS has 243 members of the SES who make
26 Ways and Means Committee Report, p. 46.

CRS-11
up 0.2% of the workforce. Four of the personnel flexibilities apply to the SES and
non-bargaining unit members as follows: pay authority for critical positions,
streamlined critical pay authority, performance awards for the SES, and limited
appointments to career reserved SES positions. The recruitment, retention, and
relocation flexibility applies equally to all employees. Five flexibilities apply equally
to bargaining unit and non-bargaining unit employees, but not to the SES. These
flexibilities relate to streamlined demonstration project authority, voluntary
separation incentives, and the general workforce systems on performance
management, classification and pay, and staffing. The National Treasury Employees
Union (NTEU), which represents IRS workers, essentially has veto rights over
establishment of personnel flexibilities. If an impasse occurred between the IRS and
NTEU, the flexibilities could not be implemented until the differences were
resolved.27
Flexibilities Relating to Performance Management
Performance Management System. Section 9508(a)(b) of P.L. 105-206
authorizes the Secretary of the Treasury, within one year after the date of enactment
of this section, to establish a performance management system for the IRS in lieu of
a system established under 5 U.S.C. 4302. The system will maintain individua
28
l
accountability by establishing one or more retention standards for each employee
related to his/her work and expressed in terms of individual performance. The
standards will be communicated to employees. Periodic determinations of whether
each employee does or does not meet his/her established retention standards will be
made. With respect to any employee whose performance does not meet established
retention standards, actions, including denying basic pay increases, promotions, and
credit for performance during a reduction in force, could be taken. One or more of
the following actions could also be taken: reassignment, action under 5 U.S.C.
chapter 43 on performance appraisal or 5 U.S.C. chapter 75 on adverse actions, and
any other appropriate action to resolve the performance problem.
The performance system will provide for establishing goals or objectives for
individual, group, or organizational performance (or any combination thereof) that
are consistent with IRS performance planning procedures, including those established
under the 1993 Government Performance and Results Act, Revenue Procedure 64-22
(as in effect on July 30, 1997), and taxpayer service surveys. The performance
system will also provide for communicating goals or objectives to employees and
will use such goals and objectives to make performance distinctions among
employees or groups of employees. Performance assessments will be used as a basis
for granting employee awards, adjusting an employee’s basic pay rate, and taking
other appropriate personnel action. Performance assessment means a determination
of whether or not retention standards are met, and any additional performance
determination made on the basis of performance goals and objectives. An
2 7 Telephone conversation with the Office of Legislative Affairs, Internal Revenue
Service, Feb. 25, 1998.
28 As provided by the conference committee. Under the Senate-passed bill, the
Secretary of the Treasury was authorized to establish a performance management system for
all or part of the IRS in lieu of a system established under 5 U.S.C. 4302.

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employee’s performance will be considered "unacceptable" if it fails to meet a
retention standard.
The Senate Finance Committee, in its report accompanying H.R. 2676, stated
its intention "that in no event will performance measures be used which rank
employees or groups of employees based on enforcement results, establish dollar
goals for assessments or collections, or otherwise undermine fair treatment of
taxpayers."29
Section 9302(a) of H.R. 2676, as passed by the House, would have authorized
the Commissioner of the IRS to establish a performance management system within
one year after the act became law. The system would have covered all IRS
employees except for members of the IRS Oversight Board, the IRS Commissioner,
and the IRS chief counsel. The system would have maintained individual
accountability by establishing performance standards that permit the accurate
evaluation of each employee’s performance on the basis of applicable individual and
organizational performance requirements, taking into account individual
contributions toward the attainment of any goals or objectives. It would have been
communicated to an employee before being used to evaluate the employee’s
performance. The standards of performance would have included at least two
standards, the lower of which would have denoted the retention standard and been
equivalent to fully successful performance. The system would have provided for
periodic performance evaluations to determine whether employees were meeting all
applicable retention standards. The results of the employee’s performance evaluation
would have been used as a basis for adjustments in pay and other appropriate
personnel actions.
The performance system would have provided for establishing goals or
objectives for individual, group, or organizational performance (or any combination
thereof) that were consistent with IRS performance planning procedures, including
those established under the 1993 Government Performance and Results Act, the 1996
Information Technology Management Reform Act, Revenue Procedure 64-22 (as in
effect on July 30, 1997), and taxpayer service surveys. The performance system
would also have provided for communicating goals or objectives to employees and
would have used such goals or objectives to make performance distinctions among
employees or groups of employees. An employee’s performance would have been
considered ‘unacceptable’ if it failed to meet any retention standard.
The House Ways and Means Committee, in its report accompanying H.R. 2676,
stated its expectation that the performance management system refocus the IRS
personnel system on the agency’s overall mission and on how each employee’s
performance relates to the mission. The committee encouraged the IRS to redesign
its performance measures to more appropriately align employee behavior with
organizational goals. The design of internal measures to “encourage behavior which
makes it easier for taxpayers to interact with the IRS” was identified as a necessary
and significant effort for the IRS. IRS is expected to develop taxpayer service
29 Finance Committee Report, p. 37.

CRS-13
surveys to gauge the level of service that taxpayers actually receive. These surveys
are to be used in evaluating organizational and group performance.
The committee indicated how performance measures cannot be used:
In no case should measures be used which rank employees or groups of
employees based solely on enforcement results, establish dollar goals for
assessments or collections, or otherwise undermine fair treatment of taxpayers.
While any system of measures must reflect the efficiency and productivity of
employees, the Committee expects that the IRS will establish a balanced system
of measures that will ensure that taxpayer satisfaction is paramount throughout
all IRS functions.30
Awards. Section 9508(c) of P.L. 105-206 authorizes the Secretary of the
Treasury to establish an awards program designed to provide incentives for and
recognition of organizational, group, and individual achievements. It provides for
awards to employees who, as individuals or members of a group, contribute to
meeting performance goals and objectives by such means as superior individual or
group accomplishment; a documented productivity gain; or sustained superior
performance. A cash award could be granted without OPM approval.
The Senate Finance Committee, in its report accompanying H.R. 2676, stated
that, "These awards will be based on performance under the new performance
management system, and in no case will awards be made (or performance measured)
based on tax enforcement results."31
Section 9302(b) of H.R. 2676, as passed by the House, would have provided
that proposed awards for superior accomplishments of current and former IRS
employees would have been considered approved if OPM did not disapprove the
proposed award within 60 days after receiving the appropriate certification. In the
case of an employee who reports directly to the Commissioner, a cash award up to
50% of the employee’s annual basic pay rate may have been made if the
Commissioner found the award to be warranted by his or her performance. The cash
award would not have been part of basic pay, and may not have been based solely on
tax enforcement results. Whether or not a covered employee was one who reports
directly to the Commissioner shall have been determined under regulations
prescribed by the Commissioner. In no event shall more than eight employees have
been eligible for a cash award in any calendar year. Total compensation in a calendar
year could not have equaled or exceeded the annual rate of compensation for the
Vice-President of the United States ($175,400, as of January 1998). An award could
not have been made unless the IRS Commissioner certified to OPM that the award
was warranted and if OPM approved, or did not disapprove, the proposed award
within 60 days after the date on which it was certified.
The Commissioner may have authorized cash awards to employees based on
documented financial savings achieved by a group or organization comprised of these
30 Ways and Means Committee Report, p. 47.
31 Finance Committee Report, p. 37.

CRS-14
employees, if the payments were made pursuant to a plan that specified minimum
levels of service and quality to be maintained while achieving financial savings, and
conformed with OPM criteria. The cash award may have been paid from the fund or
appropriation available to the activity that primarily benefitted or the various
activities that benefitted. It may not have been based solely on tax enforcement
results.
With regard to the awards for senior managers, the House Ways and Means
Committee report accompanying H.R. 2676 stated that it did not expect all of the
eligible pool to receive awards each year, or that the full 50% of salary amount would
be appropriate, except in cases of extraordinary performance. The committee
encouraged the IRS to establish awards programs based on savings that encourage
employee input into reorganizing business processes leading to efficiency gains, and
share with employees the resulting savings.32
Notice/Appeal. The notice period for actions based on unacceptable
performance or adverse actions may be 15 days under section 9508(d) of P.L. 105-
206. Additionally, the law eliminates an IRS employee’s right to appeal the denial
of a periodic step increase to the Merit Systems Protection Board. According to the
33
House Ways and Means Committee report that accompanied H.R. 2676, employees
can appeal denial of a step increase pursuant to internal agency procedures, including
those in collective bargaining agreements or in the written agreements discussed
under section 9301 of H.R. 2676 authorizing the use of personnel flexibilities.34
Staffing Flexibilities
Eligibility to Compete for a Permanent Appointment in the Competitive
Service. Section 9510(a) of P.L. 105-206 provides that an IRS employee may be
selected for a permanent appointment in the competitive service in the IRS through
internal competitive promotion procedures. The following conditions must be met:
the employee has completed two years of current continuous service in the
competitive service under a term appointment or any combination of term
appointments; the term appointment or appointments were made under competitive
procedures prescribed for permanent appointments; the employee’s performance
under the term appointment or appointments meets established retention standards,
or, if not covered by a performance management system established under section
9508 of this bill, is rated at the fully successful level or higher (or equivalent thereof);
and the vacancy announcement for the term appointment from which the conversion
is made stated that there was a potential for subsequent conversion to a permanent
appointment. An appointment may be made only to a position in the same line of
work as a position to which the employee received a term appointment under
competitive procedures.
32 Ways and Means Committee Report, p. 48.
33 Section 9302(c) of H.R. 2676, as passed by the House, also included this provision.
34 Ways and Means Committee Report, p. 48.

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Section 9303(a)(1)(2) of H.R. 2676, as passed by the House, would have
provided that no qualified veteran would have been denied the opportunity to
compete for an announced vacant competitive service position within the IRS by
reason of (i) not having acquired competitive status or (ii) not being an IRS
employee. An individual would have been considered to have been a veteran if he
or she: (i) was either a preference eligible, or an individual (other than a preference
eligible) who had been separated from the armed forces under honorable conditions
after at least three years of active service; and (ii) met the minimum qualification
requirements for the position sought.
The House-passed version of H.R. 2676 also would have provided that no
temporary employee would have been denied the opportunity to compete for an
announced vacant competitive service position within the IRS by reason of not
having acquired competitive status. An individual would have been considered to
be a temporary employee if such individual: (i) was then currently serving as a
temporary employee in the IRS; (ii) had completed at least two years of current
continuous service in the competitive service under one or more term appointments,
each of which was made under competitive procedures prescribed for permanent
appointments; (iii) performance under each term appointment met all applicable
retention standards; and (iv) met the minimum qualification requirements for the
position sought. The Senate-passed bill did not include this provision.
Rating Systems. Section 9510(b) of P.L. 105-206 provides that the Secretary
of the Treasury may establish category rating systems for evaluating applicants for
IRS positions in the competitive service. Qualified candidates will be divided into
two or more quality categories on the basis of relative degrees of merit, rather than
assigned individual numerical ratings. Each applicant who meets the minimum
qualification requirements for the position to be filled shall be assigned to an
appropriate category based on an evaluation of his/her knowledge, skills, and abilities
relative to those needed for successful performance in the job to be filled. Within
each quality category, preference eligibles shall be listed ahead of other individuals.
For other than scientific and professional positions at or higher than GS-9 (or
equivalent), preference eligibles with a compensable service-connected disability of
10% or more, and who meet the minimum qualification standards, will be listed in
the highest quality category. An appointing authority may select any applicant from
the highest quality category. If fewer than three candidates have been assigned to the
highest quality category, the individual may be selected from a merged category
consisting of the highest and second highest quality categories. The appointing
authority may not pass over a preference eligible in the same or a higher category
from which the selection is made, unless the requirements of 5 U.S.C. 3317(b) or
3318(b) are satisfied.
Section 9303(b) of H.R. 2676, as passed by the House, would have provided the
same, except that the authority for establishing category rating systems would have
been granted to the IRS Commissioner. In no event may certification of a preference
eligible have been discontinued by the IRS before the end of the six-month period
beginning on the date of the employee’s first certification.
Probationary Periods. Section 9510(d) of P.L. 105-206 provides that a
probationary period of up to three years may be established by the Secretary of the

CRS-16
Treasury for any IRS position that requires a longer period for the incumbent to
demonstrate complete proficiency. Section 9303(d) of the House-passed version
would have granted authority to make the determination to the IRS Commissioner.
Provisions That Remain Applicable. Section 9510(e) of P.L. 105-206
provides that the Secretary of the Treasury is not exempted from any employment
priority established under the direction of the President for the placement of surplus
or displaced employees, or any obligation under a court order or decree relating to
IRS or Department of the Treasury employment practices.35
Flexibilities Relating to Demonstration Projects
Section 9507 of P.L. 105-206 provides that the exercise of any of the personnel
flexibilities shall not affect the Secretary of the Treasury’s authority to implement a
demonstration project for the IRS, subject to 5 U.S.C. chapter 47. In applying current
law to an IRS demonstration project, 5 U.S.C. 4703 is amended to provide that a plan
be developed for the demonstration project which describes the project’s purpose, the
employees to be covered, the project itself, its anticipated outcomes, and the method
for evaluating it. The plan will not be submitted to a public hearing. The notice
period for informing employees likely to be affected by the plan and each house of
Congress will be 30 days, and a final version of the plan will also be provided to each
house of Congress. No demonstration project may waive the current law provisions
on family and medical leave or on insurance and annuities. Current law limiting the
size and duration of a demonstration project will not apply. Based on an evaluation
of the demonstration project’s results and its impact on improving public
management, OPM and the Secretary of the Treasury may waive the termination date
of a demonstration project. At least 90 days before the waiver, OPM will publish
notice of its intention to waive the termination date in the Federal Register and
inform both houses of Congress in writing.
Section 9304 of H.R. 2676, as passed by the House, would have authorized the
IRS Commissioner to conduct one or more demonstration projects to improve
personnel management; provide increased individual accountability; eliminate
obstacles to the removal of or imposition of any disciplinary action to poor
performers, subject to the requirements of due process; expedite appeals from
adverse actions or performance-based actions; and promote pay based on
performance. Except as provided under special rules, described below, each
demonstration project would have complied with 5 U.S.C. 4703, which covers such
projects.
The special rules would have provided that, for any IRS demonstration project,
the IRS Commissioner would have exercised the authority provided to OPM under
5 U.S.C. 4703. Several of the provisions under this section would not have applied
to IRS demonstration projects. These provisions were:
! 5 U.S.C. 4703(b)(3)-(6) which provide that, before conducting or entering into
any agreement or contract to conduct a demonstration project, OPM shall (3)
35 Section 9303(e) of H.R. 2676, as passed by the House, also included this provision.

CRS-17
submit the plan to public hearing; (4) provide notification of the proposed
project, at least 180 days in advance of its effective date to employees likely
to be affected and to Congress; (5) obtain approval from each agency involved
of the plan’s final version; (6) provide Congress with a report at least 90 days
in advance of the project’s effective date, setting forth the final version of the
plan as approved; and
! 5 U.S.C. 4703(d),(e),(f),(g) which provide that, (d) each demonstration project
shall involve not more than 5,000 individuals other than those in control
groups necessary to validate the project’s results. Each demonstration project
shall terminate before the end of a 5-year period. Except, the project may
continue beyond that to the extent necessary to validate the project’s results.
Not more than ten active demonstration projects may be in effect at any time;
(e) subject to the terms of any written agreement or contract between OPM
and an agency, a demonstration project may be terminated by OPM or the
agency if either determines that the project creates a substantial hardship on,
or is not in the best interests of, the public, the federal government,
employees, or eligibles; (f) employees within a unit for which a labor
organization has exclusive recognition shall not be included within a
demonstration project if the project would violate a collective bargaining
agreement between the agency and the labor organization, unless there is
another written agreement for the project between the agency and the labor
organization permitting the inclusion. They also shall not be included, if the
project is not covered by a collective bargaining agreement, until the agency
has consulted or negotiated with the labor organization, as appropriate; (g)
employees within any unit for which a labor organization does not have
exclusive recognition shall not be included within a demonstration project
unless the agency has consulted with the employees in the unit.
The House-passed legislation would have changed several of the current
provisions at 5 U.S.C. 4703 for purposes of the IRS demonstration projects. The
language at 5 U.S.C. 4703(c)(1), which provides that no demonstration project may
waive any provision of 5 U.S.C. chapter 63 on leave or 5 U.S.C. title III subpart G
on insurance and annuities, would have been amended to read that no demonstration
project may waive 5 U.S.C. chapter 63 subchapter V on family and medical leave or
5 U.S.C. part III subpart G on insurance and annuities, or any regulations prescribed
thereunder.
The 5 U.S.C. 4703(c)(2)(B)(ii) provision, which provides that no demonstration
project may waive any provision of law implementing any provision of law referred
to in 5 U.S.C. 2302(b)(1) on employment discrimination by providing any right or
remedy available to any employee or applicant for employment in the civil service,
would not have been applicable.
Finally, 5 U.S.C. 4703(c)(4), which provides that no demonstration project may
waive any rule or regulation prescribed under any provision of law referred to in 5

CRS-18
U.S.C. 4703(c)(2)-(3), would have been amended
36
to provide that no demonstration
project may waive any regulation prescribed under any provision of law referred to
in 5 U.S.C. 4703(c)(2)(B)(i) or (3). The legislation would have provided that
37
5
U.S.C. 4703(c)(4), which provides that no demonstration may waive any rule or
regulation prescribed under any provision of law referred to in 5 U.S.C. 2302(b)(1),
would not have been applicable. (A technical correction may have been in order to
restore these rules or regulations.)
Additionally, H.R. 2676, as passed by the House, would have provided that no
demonstration project may have:
! waived any law or regulation relating to preference eligibles as defined in 5
U.S.C. 2108 or chapter 73 subchapter II or III, or any regulations prescribed
thereunder;
! permitted collective bargaining over pay or benefits, or required collective
bargaining over any matter not required by 5 U.S.C. 7106 on management
rights; or38
! included a system for measuring performance that provided for only one level
of performance at or above the fully successful level.
36 The laws referred to in (1)-(3) are 5 U.S.C. chapter 63, 5 U.S.C. title III subpart G,
5 U.S.C. 2302(b)(1), 5 U.S.C. chapter 15 on political activity of certain state and local
employees, and 5 U.S.C. chapter 73 subchapter III on political activities.
3 7 These paragraphs provide that, no demonstration project may waive (2)(B)(i) any
provision of law implementing any provision of law referred to in 5 U.S.C. 2302(b)(1) on
employment discrimination by providing for equal employment opportunity through
affirmative action; or on (3) any provision of 5 U.S.C. chapter 15 on political activity of
certain state and local employees or 5 U.S.C. chapter 73 subchapter III on political activities.
38 5 U.S.C. 7106: “(a) Subject to subsection (b), nothing in 5 U.S.C. chapter 71 shall
affect the authority of any management official of any agency-(1) to determine the mission,
budget, organization, number of employees, and internal security practices of the agency;
and (2) in accordance with applicable laws-(A) to hire, assign, direct, layoff, and retain
employees in the agency, or to suspend, remove, reduce in grade or pay, or take other
disciplinary action against such employees; (B) to assign work, to make determinations with
respect to contracting out, and to determine the personnel by which agency operations shall
be conducted; (C) with respect to filling positions, to make selections for appointments
from-(i) among properly ranked and certified candidates for promotion; or (ii) any other
appropriate source; and (D) to take whatever actions may be necessary to carry out the
agency mission during emergencies.
(b) Nothing in this section shall preclude any agency and any labor organization from
negotiating-(1) at the election of the agency, on the numbers, types, and grades of employees
or positions assigned to any organizational subdivision, work project, or tour of duty, or on
the technology, methods, and means of performing work; (2) procedures which management
officials of the agency will observe in exercising any authority under this section; or (3)
appropriate arrangements for employees adversely affected by the exercise of any authority
under this section by such management officials.”

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The Commissioner would have notified employees likely to have been affected
by a proposed project at least 90 days in advance of the project’s effective date. For
each demonstration project, the Commissioner would have provided the Senate, the
House of Representatives, and OPM with a report setting forth the final version of
the plan at least 30 days in advance of a project’s effective date. It would have
included the information specified at 5 U.S.C. 4703(b)(1), including the purposes of
the project, types and number of employees or eligibles to be included, methodology,
duration, training to be provided, anticipated costs, methodology and criteria for
evaluation, a description of any aspect lacking specific authority, and citations to any
law, rule, or regulation which, if not waived, would prohibit the project from being
conducted or any part of the project as proposed.
A demonstration project could have established alternative means of resolving
any dispute within the jurisdiction of the Equal Employment Opportunity
Commission, the Merit Systems Protection Board, the Federal Labor Relations
Authority, or the Federal Services Impasses Panel. The IRS could have adopted any
alternative dispute resolution procedure that a private entity may lawfully adopt.
The Commissioner would have consulted with the OPM Director in the
development and implementation of each demonstration project, and submitted such
reports to the Director as he or she required. The Director or the Commissioner
could have terminated a demonstration project if either determined that it created a
substantial hardship on, or was not in the best interests of, the public, the federal
government, employees, or qualified applicants for IRS employment.
Each demonstration project would have terminated before the end of the five-
year period beginning on the date on which it became effective. However, any such
project could have continued for up to two more years beyond this period if the
Commissioner, with the concurrence of the Director, determined the extension was
necessary to validate the project’s results. Not later than six months before the end
of the five-year period and any extension period, the Commissioner would have
submitted a legislative proposal to the Congress if he or she determined that the
project should have been made permanent, in whole or in part.
In its report accompanying H.R. 2676, the House Ways and Means Committee
stated its expectation that the IRS will use the more flexible demonstration project
authority to increase individual accountability.39
Each of the following provisions of P.L. 105-206 were included in the Senate-
passed, but not the House-passed legislation.
Other Critical Pay Authority
Section 9502 of P.L. 105-206 provides that, when the Secretary of the Treasury
seeks a grant of critical pay authority for one or more positions at the IRS, the Office
of Management and Budget may fix the basic pay rate at any rate up to the Vice
President's salary ($175,400 as of January 1998). No allowance, differential, bonus,
39 Ways and Means Committee Report, p. 49.

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award, or similar cash payment may be paid to any employee receiving critical pay
at a rate fixed by the provision immediately above if, or to the extent that, the
employee's total annual compensation would exceed the maximum amount of total
annual compensation for the Vice President ($175,400).
Streamlined Critical Pay Authority
Section 9503 of P.L. 105-206 authorizes the Secretary of the Treasury to
establish, fix the compensation of, and appoint individuals to, designated critical
technical and professional positions in the IRS for ten years from its enactment. The
positions will require expertise of an extremely high level in a technical or
professional field and will be critical to the IRS’s successful accomplishment of its
mission. Exercise of the authority will be necessary to recruit or retain an individual
exceptionally well qualified for the position. The number of critical positions may
not exceed 40 at any one time. Designation of critical positions will be approved by
the Secretary of the Treasury. The terms of such appointments may not exceed four
years. Appointees to critical positions may not have been IRS employees prior to
June 1, 1998.4 Total annual compensation for critical positions may not exceed the
0
highest total annual compensation payable to the Vice President ($175,400, as of
January 1998). Critical positions will be excluded from the collective bargaining
unit. Individuals appointed to critical positions will not be employees for purposes
of removal, suspension for more than 14 days, reduction in grade or pay, or furlough
for 30 days or less.
Recruitment, Retention, and Relocation Incentives and Relocation
Expenses
Section 9504 of P.L. 105-206 authorizes the Secretary of the Treasury, subject
to approval by the Office of Personnel Management, to provide for variations from
current law on recruitment, relocation, and retention incentives for ten years from its
enactment. A provision on relocation expenses, added in the conference committee,
provides that for a period of 10 years after the date of enactment of this section, the
Secretary of the Treasury may pay from appropriations made to the Internal Revenue
Service allowable relocation expenses under section 5724a for employees transferred
or reemployed and allowable travel and transportation expenses under section 5723
for new appointees, for any new appointee appointed to a position for which pay is
fixed under section 9502 or 9503 (critical pay authorities) after June 1, 1998.
Performance Awards for Senior Executives
Section 9505 of P.L. 105-206 provides that, for ten years after enactment, IRS
senior executives with program management responsibility over significant IRS
40 As provided by the conference committee. Under the Senate-passed bill, the
provision provided that appointees to critical positions could not have been IRS employees
immediately prior to appointment.

CRS-21
functions may be paid a performance bonus if the Secretary of the Treasury finds the
award warranted by the executive’s performance. The bonus will not be subject to
the 5 U.S.C. 5384(b)(2) limitation on senior executive service performance awards
of no less than 5% nor more than 20% of basic pay. The executive’s performance
will be evaluated by the Secretary on the basis of contributions toward the successful
accomplishment of goals and objectives established by the 1993 Government
Performance and Results Act, division E of the Clinger-Cohen Act of 1996, Revenue
Procedure 64-22 (as in effect on July 30, 1997), taxpayer service surveys, and other
performance metrics or plans established in consultation with the IRS Oversight
Board. Any award that exceeds 20% of an executive’s basic pay rate must be
approved by the Secretary.
The Secretary of the Treasury will determine the aggregate amount of
performance awards available to be paid in any fiscal year to career senior executives
in the IRS, provided that the amount does not exceed 5% of the aggregate amount of
basic pay paid to career senior executives in the IRS during the preceding fiscal year.
IRS will not be included in the 5 U.S.C. 5384(b)(3) determination of the aggregate
amount of performance awards payable to career senior executives in the Department
of the Treasury other than the IRS. A performance bonus award may not be paid to
an executive in a calendar year if, or to the extent that, the executive’s total annual
compensation will exceed the maximum amount of total annual compensation
payable to the Vice President ($175,400, as of January 1998).
The Senate Finance Committee, in its report accompanying H.R. 2676, stated
its expectation "that the bonuses will not be available to more than 25 IRS senior
executives annually."41
Limited Appointments to Career Reserved Senior Executive Service
Positions
Section 9506 of P.L. 105-206 provides that, in applying 5 U.S.C. 3132, "career
reserved position" in the IRS means a position which may be filled only by a career
appointee, or a limited emergency appointee or a limited term appointee who,
immediately upon entering the career-reserved position, was serving under a career
or career-conditional appointment outside the Senior Executive Service (SES); or
whose limited emergency or limited term appointment was approved in advance by
OPM. The number of positions filled by such appointees may not exceed 10% of the
total number of SES positions (currently 219) in the IRS. The term of an appointee
may not exceed three years. An appointee may serve two such terms, or two such
terms in addition to any unexpired term applicable at the time of appointment.
Workforce Classification and Pay Banding
Section 9509 of P.L. 105-206 authorizes the Secretary of the Treasury, subject
to OPM criteria, to establish one or more broad-banded systems covering all or any
portion of the IRS workforce. "Broad-banded system" means a system for grouping
positions for pay, job evaluation, and other purposes that differs from the General
41 Finance Committee Report, p. 36.

CRS-22
Schedule classification system as a result of combining grades and related ranges of
rates of pay in one or more occupational series. With OPM approval, a broad-banded
system may either include or consist of positions that otherwise would be subject to
classification for prevailing rate systems, or for senior-level positions. OPM may
require the Secretary of the Treasury to submit information relating to broad-banded
systems at the IRS. Except as otherwise provided, employees under a broad-banded
system shall continue to be subject to the laws and regulations of the pay system that
would otherwise apply to them.
OPM criteria shall, at a minimum: (A) ensure that the structure of any broad-
banded system maintains the principle of equal pay for substantially equal work; (B)
establish the minimum and maximum number of grades that may be combined into
pay bands; (C) establish requirements for setting minimum and maximum rates of
pay in a pay band; (D) establish requirements for adjusting the pay of an employee
within a pay band; (E) establish requirements for setting the pay of a supervisory
employee whose position is in a pay band or who supervises employees whose
positions are in pay bands; and (F) establish requirements and methodologies for
setting the pay of an employee upon conversion to a broad-banded system, initial
appointment, change of position or type of appointment (including promotion,
demotion, transfer, reassignment, reinstatement, placement in another pay band, or
movement to a different geographic location), and movement between a broad-
banded system and another pay system. With the approval of OPM and in
accordance with his/her implementation plan, the Secretary of the Treasury may
provide for variations from current law on grade and pay retention for IRS employees
covered by a broad-banded system.
Details
Section 9510(c) of P.L. 105-206 provides that current law limiting details and
renewals of details to 120 days will not apply to the IRS.
Voluntary Separation Incentive Payments
Section 1202 of P.L. 105-206 authorizes the IRS Commissioner to pay voluntary
separation incentive payments (VSIP) to any employee to the extent necessary to
carry out the plan to reorganize the IRS. "Employee" means an employee (as defined
by 5 U.S.C. 2105) who is employed by the IRS and serving under an appointment
without time limitation, and has been currently employed for a continuous period of
at least three years. It does not include a reemployed annuitant; an employee having
a disability on the basis of which the employee would be eligible for disability
retirement; an employee who has received a specific notice of involuntary separation
for misconduct or unacceptable performance; an employee, who upon completing an
additional period of service, would qualify for a VSIP under the Federal Workforce
Restructuring Act of 1994; an employee who has previously received any VSIP by
the federal government and has not repaid the payment; an employee covered by
statutory reemployment rights who is on transfer to another organization; or any
employee who, during the 24-months preceding the separation date, has received a
recruitment or relocation bonus, or who, within the 12-months preceding the
separation date, received a retention allowance.

CRS-23
A voluntary separation incentive payment shall be paid in a lump sum after the
employee's separation, shall be paid from appropriations or funds available for the
payment of employee basic pay, and shall be equal to the lesser of (1) an amount
equal to the amount of severance pay the employee would be entitled to receive, or
(2) an amount determined by the agency head not to exceed $25,000. A VSIP may
be made to a qualifying employee who voluntarily separates (whether by retirement
or resignation) before January 1, 2003, shall not be a basis for payment, and shall not
be included in the computation, of any other type of government benefit, and shall
not be taken into account in determining the amount of any severance pay to which
the employee may be entitled, based on any other separation.
In addition to any other payments which it is required to make, the IRS shall
remit to OPM for deposit in the U.S. Treasury to the credit of the Civil Service
Retirement and Disability Fund an amount equal to 15% of the final basic pay of
each employee who is covered by the Civil Service Retirement System or the Federal
Employees Retirement System, to whom a voluntary separation incentive has been
paid. Final basic pay of an employee means the total amount of basic pay which
would be payable for a year of service by the employee. It is computed using the
employee's final rate of basic pay, with appropriate adjustment for other than full-
time service.
An individual who has received a VSIP and accepts any employment for
compensation with the federal government, or who works for any federal agency
through a personal services contract, within five years after the separation date on
which the payment is based, shall be required to pay the entire amount of the VSIP
to the IRS. Payment must be made prior to the first day of employment.
Voluntary separations are not intended to necessarily reduce the total number
of full-time equivalent (FTE) positions in the IRS. The IRS may redeploy or use the
FTE positions vacated by voluntary separations to make other positions available to
more critical locations or more critical occupations.
Termination of Employment for Misconduct
Section 1203 of P.L. 105-206 authorizes the IRS Commissioner to terminate any
IRS employee if there is a final administrative or judicial determination that the
employee committed any act or omission in performing his/her official duties. The
termination shall be a removal for cause on charges of misconduct. The acts or
omissions which would result in termination are the following.
! (1) willful failure to obtain the required approval signatures on documents
authorizing the seizure of a taxpayer's home, personal belongings, or business
assets;42
42 The word "willful" was added in the conference committee.

CRS-24
! (2) providing a false statement under oath with respect to a material matter
involving a taxpayer or taxpayer representative;43
! (3) with respect to a taxpayer, taxpayer representative, or other employee of
the Internal Revenue Service, the violation of- (A) any right under the
Constitution of the United States; or (B) any civil right established under- (i)
title VI or VII of the Civil Rights Act of 1964; (ii) title IX of the Education
Amendments of 1972; (iii) the Age Discrimination in Employment Act of
1967; (iv) the Age Discrimination Act of 1975; (v) section 501 or 504 of the
Rehabilitation Act of 1973; or (vi) title I of the Americans with Disabilities
Act of 1990;44
! (4) falsifying or destroying documents to conceal mistakes made by any
employee with respect to a matter involving a taxpayer or taxpayer
representative;45
! (5) assault or battery on a taxpayer, taxpayer representative, or other IRS
employee, 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;46
! (6) violations of the Internal Revenue Code of 1986, Department of the
Treasury regulations, or IRS policies (including the Internal Revenue Manual)
for the purpose of retaliating against, or harassing, a taxpayer, taxpayer
representative, or other IRS employee;47
! (7) willful misuse of the provisions of section 6103 of the Internal Revenue
Code of 1986 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 of 1986 on or before the date prescribed therefor (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
43 The words "or taxpayer representative" were added in the conference committee.
44 As provided by the conference committee. Under the Senate-passed bill, the
provision read, "violation of the civil rights of a taxpayer or other employee of the IRS."
45 As provided by the conference committee. Under the Senate-passed bill, the
provision read, "falsifying or destroying documents to conceal mistakes made by the
employee with respect to a matter involving a taxpayer."
46 As provided by the conference committee. Under the Senate-passed bill, the
provision read, "assault or battery on a taxpayer or other IRS employee."
47 The words "taxpayer representative" were added in the conference committee.

CRS-25
! (10) threatening to audit a taxpayer for the purpose of extracting personal gain
or benefit.
For purposes of title VI or VII of the Civil Rights Act of 1964, title IX of the
Education Amendments of 1972, and the Age Discrimination Act of 1975, references
to a program or activity receiving Federal financial assistance or an education
program or activity receiving Federal financial assistance shall include any program
or activity conducted by the Internal Revenue Service for a taxpayer.48
The acts or omissions numbered (8), (9), and (10) which would result in
termination were contained in an amendment offered by Senator Phil Gramm which
was agreed to by the Senate by voice vote on May 7, 1998. Senator Robert Kerrey,
in commenting on the amendment, said that, "In general, this legislation is attempting
to change the culture by saying here are some things that, if you do it, there are going
to be severe penalties. . . . so that there is a new seriousness given to actions taken by
the IRS."49
The IRS Commissioner may take a personnel action other than termination for
an act or omission. The exercise of this authority shall be at the sole discretion of the
Commissioner and may not be delegated to any other officer. The Commissioner,
in his sole discretion, may establish a procedure which will be used to determine
whether an individual should be referred to the Commissioner for a determination on
a personnel action. Any determination of the Commissioner may not be appealed in
any administrative or judicial proceeding.
Basis for Evaluation of Internal Revenue Service Employees
Section 1204 of P.L. 105-206 provides that the IRS shall not use records of tax
enforcement results to evaluate employees or to impose or suggest production quotas
or goals with respect to such employees. The IRS
50
shall use the fair and equitable
treatment of taxpayers by employees as one of the standards for evaluating employee
performance. Each appropriate supervisor shall certify quarterly by letter to the IRS
Commissioner whether or not tax enforcement results are being used in a manner
prohibited by this section.
51
This provision shall apply to evaluations conducted on
or after the enactment date of this act. Section 6231 of the Technical and
Miscellaneous Revenue Act of 1988 (Public Law 100-647; 102 Stat. 3734) is
repealed.
48 This provision was added by the conference committee.
49 Congressional Record, daily edition, vol. 144, May 7, 1998, p. S4486.
50 As provided by the conference committee. The Senate-passed bill provided that the
IRS shall not use records of tax enforcement results to evaluate employees and their
immediate supervisors, or to impose or suggest production quotas or goals for such
individuals.
51 As provided by the conference committee. The Senate-passed bill provided that each
appropriate supervisor shall certify quarterly by letter to the IRS Commissioner that tax
enforcement results are not used in a prohibited manner.

CRS-26
Employee Training Program
Section 1205 of P.L. 105-206 requires the IRS Commissioner, not later than 180
days after enactment of the act, to implement an employee training program and
submit an employee training plan to the Senate Committee on Finance and the House
Committee on Ways and Means. The training plan shall:
52
! detail a comprehensive employee training program to ensure adequate
customer service training;
! detail a schedule for training and the fiscal years during which the training will
occur;
! detail the funding of the program and the relevant information to demonstrate
the priority and commitment of resources to the plan;
! review the organizational design of customer service;
! provide for the implementation of a performance development system; and
! provide for at least 16 hours of conflict management training during fiscal
year 1999 for employees conducting collection activities.
Provisions Unique to the House-Passed Bill, and Not in
P.L. 105-206
Involuntary Reassignments and Removals of Career Appointees in the
Senior Executive Service. Current law prohibiting involuntary reassignments and
removals of career appointees in the Senior Executive Service (SES) would not have
applied to the IRS under Section 9303(c) of H.R. 2676, as passed by the House.
The House Ways and Means Committee report that accompanied H.R. 2676
clarified this provision, which would have authorized the Commissioner to reassign
or remove career appointees in the SES immediately upon taking office. “While the
Committee does not intend for any Commissioner to make wholesale management
changes without thorough evaluations, [it] believes that if the Commissioner is to be
held accountable, then [he or she] must have the flexibility to recruit [his or her] own
management team.”53
Carol Bonosaro, President of the Senior Executives Association, said the
Association opposed the proposed change. According to her, it has been suggested
without anyone demonstrating that a problem exists or that the solution is going to
impact positively, and that no IRS Commissioner has said that current law either
52 As provided by the conference committee. Under the Senate-passed bill, the
implementation date was not later than 90 days after enactment.
53 Ways and Means Committee Report, p. 49.

CRS-27
precluded them from solving a management problem or created a management
problem. Further, Ms. Bonosaro said that, “unless a Commissioner has psychic
powers it is difficult to imagine that he or she can determine the capabilities and
merits of individual executives in the absence of some reasonable, albeit brief period
to assess them.” She questioned how Congress would conduct oversight and how the
executive workforce would be managed if the proposal were enacted, and viewed the
proposal as “continuing a disturbing trend of pecking away at the SES statute.”54
Senate Hearings
The personnel flexibilities provisions were discussed during hearings conducted
by the Senate Finance Committee on January 28 and 29, 1998. Treasury Secretary
Robert E. Rubin and Internal Revenue Service Commissioner Charles O. Rossotti
testified on the first day. Both advocated personnel management reforms that would,
in the words of the Secretary, “go further in improving managerial flexibility in
selecting and managing personnel.” Specifically, Commissioner Rossotti said that
55
the IRS would be seeking “several additional flexibilities, particularly in the areas of
compensation and workforce restructuring.” He said that the IRS would also seek
reauthorization of the buyout authority as “Flexibility to reposition the current IRS
workforce will be critical to implementing a new organization that is designed around
the needs of the taxpayers.”56
Several previous IRS Commissioners and representatives of finance-related
professional organizations testified on the second day of the hearings. Donald
Alexander, Commissioner from 1973 to 1977, said that “easing the present restrictive
rules is a highly meritorious idea.” He noted, however, that “much of the proposed
flexibility cannot be implemented without the Union’s consent,” something that
“should be reconsidered.”57
Sheldon Cohen, Commissioner from 1965 to 1969, addressed three issues in his
testimony. As to staffing, he observed that, “The continuity of the career staff is
important in accomplishing long term projects and providing a history of what works
and what has failed.” He characterized as healthy, “introduc[ing] career officials from
other agencies.” With regard to the union, he noted that the legislation seems to give
it “extraordinary powers ... absolute veto ... when it comes to apply[ing] the
employee flexibility rules to a unit where [it] has exclusive bargaining rights.” While
advocating pay flexibility for top staff, he stated that, the IRS should never operate
on a quota system for revenue agents or collections personnel.” According to him,
54 Telephone conversation with CRS, Nov. 20, 1997.
55 Statement of Robert E. Rubin, Secretary of the Treasury, before the Senate Finance
Committee, Jan. 28, 1998, p. 2. (Unpublished)
5 6 Statement of Charles O. Rossotti, Commissioner, Internal Revenue Service, before
the Senate Finance Committee, Jan. 28, 1998, p. 8. (Unpublished)
5 7 Statement of Donald C. Alexander before the Senate Finance Committee, Jan. 29,
1998, p. 4. (Unpublished)

CRS-28
“You want the staff to do the right thing, not necessarily the thing which brings in the
most revenue.”58
Said Fred Goldberg, Commissioner from 1989 to 1991: “Provide workforce
flexibility to change the way the IRS does business, enable the IRS to recruit and
retain those who measure up -- and get rid of those who don’t.” He also stated that
the Commissioner should be given “the authority and tools to build his own senior
management team, and hold those individuals accountable for performance.”59
According to Margaret Milner Richardson, Commissioner from 1993 to 1997,
“Without maximum personnel flexibilities so that the best qualified people can be
recruited, trained, and retained, any new structure will fail.” She said that “a major
shortcoming” in the legislation is that its “effectiveness will be limited by the fact
that members of the union, probably seventy-five to eighty percent of the workforce,
are exempt from the bill’s personnel flexibilities provisions.”60
The president of the National Society of Accountants stated that “no IRS
employee should receive a cash reward based on tax enforcement results.” He
recommended redrafting of the cash awards criteria “to highlight the point that
customer service should be considered as an important, positive factor with respect
to any determination to make a cash award to an IRS employee.”61
“Granting the Commissioner greater discretion in recruiting, rewarding, and
retaining the agency’s top managers is critical to ... ensuring that taxpayers deal only
with IRS employees who are trained adequately and possess the skills and tools
necessary to do their jobs well” said the national president of the Tax Executives
Institute. He also observed that, “the last thing the IRS needs is massive turnover in
senior management ranks whenever a new Commissioner is appointed.” He also
advocated that the IRS “refine its performance measures to guard against real or
perceived quotas” and “evaluati[ng] examination and collection personnel on the
basis of increased production.”62
A representative of the National Association of Enrolled Agents said that the
proposals on posts of duty, employee details to other functions, compensation
schemes, and bonus and award structures “could go a long way towards making the
upper management of the Service more competitive and more motivated and help the
58 Statement of Sheldon S. Cohen before the Senate Finance Committee, Jan. 29, 1998,
pp. 5,7,10. (Unpublished)
5 9 Statement of Fred T. Goldberg, Jr. before the Senate Finance Committee, Jan. 29,
1998, p. 4. (Unpublished)
60 Statement of Margaret Milner Richardson before the Senate Finance Committee, Jan.
29, 1998, pp. 4, 10. (Unpublished)
6 1 Statement of Douglas C. Burnette before the Senate Finance Committee, Jan. 29,
1998, p. 6. (Unpublished)
6 2 Statement of Paul Cherecwich, Jr. before the Senate Finance Committee, Jan. 29,
1998, pp. 6,8. (Unpublished)

CRS-29
Service retain more of the truly excellent people they have working in their executive
ranks.”63
According to a representative of the American Institute of Certified Public
Accountants, “The IRS has been a very closed organization, with its executive
leadership consisting almost exclusively of IRS career employees.” Therefore, he
advocated adding to the executive leadership “[p]eople with varied backgrounds and
expertise.” He proposed that “Some positions now reserved for career civil service
employees [should] be open for professional appointees, selected based on their
professional and managerial competence rather than political affiliation.” These
appointees would be placed “in positions managing program execution rather than
solely in policy-making positions.” “To prevent [them] from dealing directly with
specific taxpayer cases, no such appointments outside the National Office should be
for positions below the Regional Commissioner level.” He also favored flexible
compensation “to encourage qualified IRS career executives to remain with the
IRS.”64
The chair-elect of the section on taxation of the American Bar Association
strongly endorsed personnel flexibilities. According to him, “Historically, civil
service rules have tied the Commissioner’s hands, making it extremely difficult, if
not impossible, for the Commissioner, to hire the best people from the private sector
and pay them at appropriate levels.”65
Managerial flexibility and accountability in reforming the IRS were discussed
at the March 12, 1998, hearing conducted by the Senate Committee on Governmental
Affairs. The IRS Commissioner and representatives of the Office of Management
and Budget (OMB), Office of Personnel Management (OPM), and General
Accounting Office (GAO) testified. The Commissioner is seeking flexibilities in
addition to those provided in H.R. 2676. Specifically, these flexibilities are as
follow.
! Streamlined authority for the Secretary of the Treasury to appoint and fix the
compensation of up to 40 individuals at any one time to critical, technical,
professional, and management positions at the IRS. The appointments would
be made without regard to Title 5 United States Code provisions on
competitive service or Senior Executive Service (SES) appointments. Total
annual compensation could not exceed $175,400, the Vice President's salary,
and the term of appointment would not exceed four years. These positions
would not be available to current IRS employees.
6 3 Statement of Bryan E. Gates before the Senate Finance Committee, Jan. 29, 1998,
p. 4. (Unpublished)
64 Statement of Michael E. Mares before the Senate Finance Committee, Jan. 29, 1998,
p. 5. (Unpublished)
65 Statement of Stefan F. Tucker before the Senate Finance Committee, Jan. 29, 1998,
p. 5. (Unpublished)

CRS-30
! Authority for OMB to approve requests for critical position pay which would
exceed the current law cap of Executive Level I ($151,800, as of January
1998) and could extend to $175,400.
! Authority for the Secretary of the Treasury, with OPM approval, to provide
recruitment, retention, and relocation incentives which could vary from the
current law requirements that they not exceed 25% of base pay, that
recruitment and relocation bonuses must be paid in a lump sum, and that a
retention allowance may be paid only on a pay period basis.
! Authority to make no more than 20 additional limited emergency and term
appointments to career reserved positions in the SES. OPM approval would
be required when the individual is not being immediately appointed from a
career or career-conditional position outside the SES.
! Authority for the Secretary of the Treasury to pay a performance bonus to
senior IRS executives with program management responsibility over
significant agency functions. The bonus could exceed the current law
limitation of 20% of base pay and total annual compensation would be capped
at $175,400.
! Authority to grant voluntary separation incentive payments through December
31, 2002. This "would enable the IRS to free up full time equivalent positions
that can be redeployed to critical locations or occupations."66
The Acting Deputy Director for Management at OMB expressed support for the
personnel flexibilities, but said that the agency would "want to ensure that OPM's
governmentwide oversight of the civil service system, including any new flexibilities
and tools, is maintained." OPM's Associate Director for Merit Systems Oversight
67
and Effectiveness likewise supported the personnel flexibilities, but emphasized that
OPM's oversight roles for personnel demonstration projects and the civil service in
general should be maintained. OPM also believes that the IRS should not be exempt
from the current law moratorium on involuntary reassignments and removals from
the SES. "The moratorium provides a get acquainted period for new political
appointees to become familiar with the skills and expertise of their career executives.
It is flexible enough to allow the agency head to appoint key staff in a new
administration during this 120-day period."68
The Associate Director for Federal Management and Workforce Issues at GAO
testified in support of the personnel flexibilities and suggested that they be tested
before being made permanent. According to GAO, whether the IRS is successful in
6 6 Statement of Charles O. Rossotti, Commissioner, Internal Revenue Service, before
the Senate Governmental Affairs Committee, Mar. 12, 1998, pp. 6-8. (Unpublished)
67 Statement of G. Edward Deseve before the Senate Governmental Affairs Committee,
Mar. 12, 1998, p. 2. (Unpublished)
68 Statement of Carol J. Okin before the Senate Governmental Affairs Committee, Mar.
12, 1998, pp. 3-5. (Unpublished)

CRS-31
aligning its mission and goals with employee performance "will require a culture
change in IRS driven by a long-term managerial commitment."69
House Hearings
The House Subcommittee on Government Management, Information, and
Technology conducted an oversight hearing on the IRS on April 15, 1998, during
which the IRS Commissioner, the former Chief Financial Officer at IRS, and
representatives of the GAO, the American Bar Association, the American Institute
of Certified Public Accountants, and the National Academy of Public Administration
testified. The Commissioner reiterated his earlier statements that he "must have the
ability to recruit and retain a top-notch leadership and technical team." Anthon
70
y
Musick, former Chief Financial Officer at the IRS, discussed the GAO and Inspector
General findings that the FY1997 financial statements for the IRS were reliable. A
representative of the GAO testified on IRS' restructuring plans and "the critical
importance of resolving IRS' financial management issues."71
The American Bar Association's representative said that the IRS Commissioner
should be given hiring and pay flexibilities to attract "the best and the brightest" to
government. According to him, "That cannot and will not happen unless flexibility
in hiring is increased and unless the Commissioner is given the ability to pay such
individuals at levels that will attract them away from high paying private sector
jobs."
72 A representative for the American Institute of Certified Public Accountants
told the subcommittee that "The IRS has been a very closed organization, with its
executive leadership consisting almost exclusively of IRS career employees. People
with varied backgrounds and expertise need to be added to that leadership to provide
the IRS with different insights and to help generate innovative approaches to the
many challenges confronting the IRS." He said that "some positions now reserved for
career civil service employees [should] be open for professional appointees ... [who
would be] selected based on their professional and managerial competence rather
than political affiliation ... appointed by the Commissioner with the approval of the
[Oversight] Board ... [used] in positions managing program execution rather than
solely in policy-making positions. To prevent such appointees from dealing directly
with specific taxpayer cases, no such appointments outside the National Office
should be for positions below the Regional Commissioner level."73
69 Statement of Michael Brostek before the Senate Governmental Affairs Committee,
Mar. 12, 1998, pp. 5, 12. (Unpublished)
70 Statement of Charles Rossotti before the House Subcommittee on Government
Management, Information, and Technology, Apr. 15, 1998, p. 1. (Unpublished)
7 1 Statement of Gene Dodaro before the House Subcommittee on Government
Management, Information, and Technology, Apr. 15, 1998, p. 18. (Unpublished)
72 Statement of Stefan Tucker before the House Subcommittee on Management,
Information, and Technology, Apr. 15, 1998, p. 4. (Unpublished)
73 Statement of Michael Mares before the House Subcommittee on Government
Management, Information, and Technology, Apr. 15, 1998, pp. 4-5. (Unpublished)

CRS-32
According to the National Academy of Public Administration's (NAPA)
representative, H.R. 2676 should be amended to "make clear that the organizations
with responsibility for dealing with violations of merit principles through appellate
and oversight processes under the 1978 civil service reform and earlier legislation
(MSPB [Merit Systems Protection Board] and its Special Counsel, as well as the
Office of Personnel Management) still retain this responsibility with respect to IRS."
NAPA also suggested that the bill be amended to ensure that all employees below the
Commissioner "(1) be selected on a non-political and non-partisan basis; and (2) be
selected strictly on the basis of merit and qualifications."74
Additional Views
The National Treasury Employees Union (NTEU) represents IRS employees.
It “supports the personnel flexibilities section of H.R. 2676 [as] they will allow the
IRS to experiment with a broad range of personnel matters outside the restrictions of
government wide civil service laws in order to find more effective ways of
accomplishing its mission.” According to NTEU, “The bill uses current law on
demonstration projects as a model, which will allow the IRS and its employee
representatives to work collaboratively to bring about needed changes.”75
The Federal Managers Association (FMA), which represents the interests of the
200,000 managers in the federal government, “believes that the new IRS
Commissioner needs to have adequate personnel flexibilities in order to make
reforms work,” but that the Merit System principles must be ensured. FMA is
concerned about the veto authority given to the union. It “fear[s] that managers could
end up being treated unfairly in a system where the union could veto any personnel
changes as they apply to bargaining unit employees while managers would have no
such veto power on changes that impact them.”76
7 4 Statement of Thomas Stanton before the House Subcommittee on Government
Management, Information, and Technology, Apr. 15, 1998, p. 9. (Unpublished)
7 5 National Treasury Employees Union, Memorandum on Personnel Flexibilities of
H.R. 2676, Feb. 20, 1998, 1p. Sent to CRS by facsimile.
76 Letter to the Honorable William V. Roth, Jr., Chairman, Senate Finance Committee,
Re: Internal Revenue Service Restructuring and Reform Act of 1997, H.R. 2676, from
Michael B. Styles, National President, Federal Managers Association, Feb. 25, 1998, 2p.

CRS-33
Appendix
Table 1. Overview of Personnel Flexibilities
in 105th Congress Legislation
Provision
House-
P.L. 105-
H.R. 2292/
H.R. 2428/
Passed
2061
S.1096
S. 1174
H.R. 2676
General
Sec. 9301
Sec. 1201:
Sec. 9301
Sec. 9501
Requirements
Sec. 9501
Flexibilities Relating to Performance Management
Performance
Sec.
Sec.
Sec.
Sec.
Management System
9302(a)
9508(a)(b)
9302(a)
9508(a)
Awards
Sec.
Sec.
Sec.
Sec.
9302(b)
9508(c)
9302(b)
9508(b)
Notice/Appeal
Sec.
Sec.
Sec.
Sec.
9302(c)
9508(d)
9302(c)
9508(c)
Staffing Flexibilities
Permanent
Sec. 9303
Sec.
Sec.
Sec.
Competitive Service
(a)(1)(2)
9510(a)
9304(a)
9510(a)
Appointment
Rating Systems
Sec.
Sec.
Sec.
Sec.
9303(b)
9510(b)
9304(b)
9510(b)
Involuntary
Sec.
N/A
Sec.
N/A
Reassignments/
9303(c)
9304(d)
Removals of Career
Senior Executive
Service
Probationary Periods
Sec.
Sec.
Sec.
Sec.
9303(d)
9510(d)
9304(e)
9510(d)
Provisions
Sec.
Sec.
Sec.
Sec.
Remaining
9303(e)
9510(e)
9304(f)
9510(e)
Applicable
Details
N/A
Sec.
Sec.
Sec.
9510(c)
9304(c)
9510(c)

CRS-34
Provision
House-
P.L. 105-
H.R. 2292/
H.R. 2428/
Passed
2061
S. 1096
S. 1174
H.R. 2676
Other Flexibilities
Flexibilities Relating
Sec. 9304
Sec. 9507
Sec. 9305
Sec. 9507
to Demonstration
Projects
Pay Authority for
N/A
Sec. 9502
N/A
Sec. 9502
Critical Positions
Streamlined Critical
N/A
Sec. 9503
N/A
Sec. 9503
Pay Authority
Recruitment,
N/A
Sec. 9504
Sec.
Sec. 9504
Retention, and
9303(e)
Relocation Incentives
and Relocation
Expenses
Performance Awards
N/A
Sec. 9505
N/A
Sec. 9505
for Senior Executives
Limited
N/A
Sec. 9506
N/A
Sec. 9506
Appointments to
Career Reserved SES
General Workforce
N/A
Sec. 9509
Sec. 9303
Sec. 9509
Classification and
(a)-(d)
Pay
Voluntary Separation
N/A
Sec. 1202
N/A
N/A
Incentive Payments
Termination of
N/A
Sec. 1203
N/A
N/A
Employment for
Misconduct
Basis for Evaluation
N/A
Sec. 1204
N/A
N/A
of Internal Revenue
Service Employees
Employee Training
N/A
Sec. 1205
N/A
N/A
Program
1. The conference agreement on H.R. 2676 followed the Senate-passed
version of the bill, with modifications, and H.R. 2676 was enacted as P.L.
105-206.