Part I. Rulings — Internal Revenue Bulletin 2005-45

Section 42.—Low-Income Housing Credit

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2005. See Rev. Rul. 2005-71, page 923.

Section 280G.—Golden Parachute Payments

Federal short-term, mid-term, and long-term rates are set forth for the month of November 2005. See Rev. Rul. 2005-71, page 923.

Section 382.—Limitation on Net Operating Loss Carryforwards and Certain Built-In Losses Following Ownership Change

The adjusted applicable federal long-term rate is set forth for the month of November 2005. See Rev. Rul. 2005-71, page 923.

Section 412.—Minimum Funding Standards

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2005. See Rev. Rul. 2005-71, page 923.

Section 467.—Certain Payments for the Use of Property or Services

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2005. See Rev. Rul. 2005-71, page 923.

Section 468.—Special Rules for Mining and Solid Waste Reclamation and Closing Costs

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2005. See Rev. Rul. 2005-71, page 923.

Section 482.—Allocation of Income and Deductions Among Taxpayers

Federal short-term, mid-term, and long-term rates are set forth for the month of November 2005. See Rev. Rul. 2005-71, page 923.

Section 483.—Interest on Certain Deferred Payments

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2005. See Rev. Rul. 2005-71, page 923.

Section 642.—Special Rules for Credits and Deductions

Federal short-term, mid-term, and long-term rates are set forth for the month of November 2005. See Rev. Rul. 2005-71, page 923.

Section 807.—Rules for Certain Reserves

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2005. See Rev. Rul. 2005-71, page 923.

Section 846.—Discounted Unpaid Losses Defined

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2005. See Rev. Rul. 2005-71, page 923.

Section 995.—Taxation of DISC Income to Shareholders

2005 base period T-bill rate. The “base period T-bill rate” for the period ending September 30, 2005, is published as required by section 995(f) of the Code.

Rev. Rul. 2005–70

Section 995(f)(1) of the Internal Revenue Code provides that a shareholder of a DISC shall pay interest each taxable year

in an amount equal to the product of the shareholder’s DISC-related deferred tax liability for the year and the “base period T-bill rate.” Under section 995(f)(4), the base period T-bill rate is the annual rate of interest determined by the Secretary to be equivalent to the average of the 1-year constant maturity Treasury yields, as published by the Board of Governors of the Federal Reserve System, for the 1-year period ending on September 30 of the calendar year ending with (or of the most recent calendar year ending before) the close of the taxable year of the shareholder. The base period T-bill rate for the period ending September 30, 2005 is 3.18 percent.

Pursuant to section 6222 of the Code, interest must be compounded daily. The table below provides factors for compounding the base period T-bill rate daily for any number of days in the shareholder’s taxable year (including a 52–53 week accounting period) for the 2005 base period T-bill rate. To compute the amount of the interest charge for the shareholder’s taxable year, multiply the amount of the shareholder’s DISC-related deferred tax liability (as defined in section 995(f)(2)) for that year by the base period T-bill rate factor corresponding to the number of days in the shareholder’s taxable year for which the interest charge is being computed. Generally, one would use the factor for 365 days. One would use a different factor only if the shareholder’s taxable year for which the interest charge being determined is a short taxable year, if the shareholder uses the 52–53 week taxable year, or if the shareholder’s taxable year is a leap year.

For the base period T-bill rates for the periods ending in prior years, see Rev. Rul. 2004–99, 2004–2 C.B. 720, Rev. Rul. 2003–111, 2003–2 C.B. 1009, Rev. Rul. 2002–68, 2002–2 C.B. 808, Rev. Rul. 2001–56, 2001–2 C.B. 500, and Rev. Rul. 2000–52, 2000–2 C.B. 516.

DRAFTING INFORMATION

The principal author of this revenue ruling is David Bergkuist of the Office of the Associate Chief Counsel (International).

2005–45 I.R.B. 919 November 7, 2005

For further information about this revenue ruling, contact Mr. Bergkuist at (202) 622–3850 (not a toll-free call).

2005 ANNUAL RATE, COMPOUNDED DAILY

3.180 PERCENT

DAYS FACTOR

1 .000087123 2 .000174254 3 .000261393 4 .000348539 5 .000435692

6 .000522854 7 .000610022 8 .000697199 9 .000784383 10 .000871575

11 .000958774 12 .001045981 13 .001133195 14 .001220417 15 .001307647

16 .001394884 17 .001482129 18 .001569381 19 .001656641 20 .001743909

21 .001831184 22 .001918467 23 .002005757 24 .002093055 25 .002180361

26 .002267674 27 .002354995 28 .002442323 29 .002529659 30 .002617003

31 .002704354 32 .002791713 33 .002879080 34 .002966454 35 .003053836

2005 ANNUAL RATE, COMPOUNDED DAILY

3.180 PERCENT

DAYS FACTOR

36 .003141225 37 .003228622 38 .003316027 39 .003403439 40 .003490859

41 .003578286 42 .003665721 43 .003753164 44 .003840614 45 .003928072

46 .004015537 47 .004103011 48 .004190491 49 .004277980 50 .004365476

51 .004452979 52 .004540491 53 .004628009 54 .004715536 55 .004803070

56 .004890612 57 .004978161 58 .005065718 59 .005153283 60 .005240855

61 .005328435 62 .005416022 63 .005503618 64 .005591220 65 .005678831

66 .005766449 67 .005854075 68 .005941708 69 .006029349 70 .006116997

71 .006204654 72 .006292317 73 .006379989 74 .006467668 75 .006555355

2005 ANNUAL RATE, COMPOUNDED DAILY

3.180 PERCENT

DAYS FACTOR

76 .006643049 77 .006730751 78 .006818461 79 .006906178 80 .006993903

81 .007081636 82 .007169376 83 .007257124 84 .007344880 85 .007432643

86 .007520414 87 .007608192 88 .007695978 89 .007783772 90 .007871574

91 .007959383 92 .008047199 93 .008135024 94 .008222856 95 .008310695

96 .008398543 97 .008486398 98 .008574260 99 .008662131 100 .008750009

101 .008837894 102 .008925788 103 .009013689 104 .009101597 105 .009189513

106 .009277437 107 .009365369 108 .009453308 109 .009541255 110 .009629210

111 .009717172 112 .009805142 113 .009893119 114 .009981104 115 .010069097

November 7, 2005 920 2005–45 I.R.B.

2005 ANNUAL RATE, COMPOUNDED DAILY

3.180 PERCENT

DAYS FACTOR

196 .017222039 197 .017310663 198 .017399294 199 .017487933 200 .017576580

201 .017665235 202 .017753897 203 .017842567 204 .017931245 205 .018019930

206 .018108624 207 .018197325 208 .018286033 209 .018374750 210 .018463474

211 .018552206 212 .018640945 213 .018729693 214 .018818448 215 .018907211

216 .018995981 217 .019084760 218 .019173546 219 .019262339 220 .019351141

221 .019439950 222 .019528767 223 .019617592 224 .019706424 225 .019795264

226 .019884112 227 .019972968 228 .020061831 229 .020150702 230 .020239581

231 .020328468 232 .020417362 233 .020506264 234 .020595174 235 .020684092

2005 ANNUAL RATE, COMPOUNDED DAILY

3.180 PERCENT

DAYS FACTOR

116 .010157098 117 .010245106 118 .010333122 119 .010421145 120 .010509177

121 .010597216 122 .010685262 123 .010773316 124 .010861378 125 .010949448

126 .011037525 127 .011125610 128 .011213703 129 .011301803 130 .011389911

131 .011478026 132 .011566150 133 .011654281 134 .011742419 135 .011830566

136 .011918720 137 .012006881 138 .012095051 139 .012183228 140 .012271412

141 .012359605 142 .012447805 143 .012536013 144 .012624228 145 .012712451

146 .012800682 147 .012888921 148 .012977167 149 .013065421 150 .013153682

151 .013241952 152 .013330229 153 .013418513 154 .013506806 155 .013595106

2005 ANNUAL RATE, COMPOUNDED DAILY

3.180 PERCENT

DAYS FACTOR

156 .013683413 157 .013771729 158 .013860052 159 .013948383 160 .014036721

161 .014125068 162 .014213421 163 .014301783 164 .014390152 165 .014478529

166 .014566914 167 .014655306 168 .014743707 169 .014832114 170 .014920530

171 .015008953 172 .015097384 173 .015185823 174 .015274269 175 .015362723

176 .015451185 177 .015539654 178 .015628131 179 .015716616 180 .015805109

181 .015893609 182 .015982117 183 .016070633 184 .016159156 185 .016247687

186 .016336226 187 .016424773 188 .016513327 189 .016601889 190 .016690459

191 .016779036 192 .016867621 193 .016956214 194 .017044815 195 .017133423

2005–45 I.R.B. 921 November 7, 2005

2005 ANNUAL RATE, COMPOUNDED DAILY

3.180 PERCENT

DAYS FACTOR

316 .027912205 317 .028001760 318 .028091323 319 .028180894 320 .028270472

321 .028360058 322 .028449653 323 .028539254 324 .028628864 325 .028718482

326 .028808107 327 .028897740 328 .028987381 329 .029077030 330 .029166687

331 .029256351 332 .029346023 333 .029435703 334 .029525391 335 .029615087

336 .029704790 337 .029794501 338 .029884220 339 .029973947 340 .030063682

341 .030153425 342 .030243175 343 .030332933 344 .030422699 345 .030512473

346 .030602254 347 .030692044 348 .030781841 349 .030871646 350 .030961459

351 .031051280 352 .031141109 353 .031230945 354 .031320789 355 .031410641

2005 ANNUAL RATE, COMPOUNDED DAILY

3.180 PERCENT

DAYS FACTOR

236 .020773017 237 .020861950 238 .020950891 239 .021039840 240 .021128796

241 .021217760 242 .021306732 243 .021395712 244 .021484699 245 .021573694

246 .021662697 247 .021751708 248 .021840726 249 .021929752 250 .022018786

251 .022107828 252 .022196877 253 .022285934 254 .022374999 255 .022464072

256 .022553152 257 .022642240 258 .022731336 259 .022820440 260 .022909551

261 .022998671 262 .023087798 263 .023176933 264 .023266075 265 .023355225

266 .023444383 267 .023533549 268 .023622723 269 .023711904 270 .023801093

271 .023890290 272 .023979495 273 .024068707 274 .024157928 275 .024247156

2005 ANNUAL RATE, COMPOUNDED DAILY

3.180 PERCENT

DAYS FACTOR

276 .024336391 277 .024425635 278 .024514886 279 .024604145 280 .024693412

281 .024782687 282 .024871969 283 .024961260 284 .025050558 285 .025139863

286 .025229177 287 .025318498 288 .025407827 289 .025497164 290 .025586509

291 .025675861 292 .025765222 293 .025854590 294 .025943966 295 .026033349

296 .026122741 297 .026212140 298 .026301547 299 .026390962 300 .026480384

301 .026569814 302 .026659253 303 .026748699 304 .026838152 305 .026927614

306 .027017083 307 .027106560 308 .027196045 309 .027285538 310 .027375038

311 .027464547 312 .027554063 313 .027643587 314 .027733118 315 .027822658

November 7, 2005 922 2005–45 I.R.B.

2005 ANNUAL RATE, COMPOUNDED DAILY

3.180 PERCENT

DAYS FACTOR

356 .031500501 357 .031590369 358 .031680244 359 .031770128 360 .031860019

361 .031949918 362 .032039825 363 .032129740 364 .032219662 365 .032309593

366 .032399531 367 .032489477 368 .032579431 369 .032669392 370 .032759362

371 .032849339

Section 1274.—Determi- nation of Issue Price in the Case of Certain Debt Instru- ments Issued for Property

(Also Sections 42, 280G, 382, 412, 467, 468, 482, 483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates; adjusted federal long-term rate and the long-term exempt rate. For purposes of sections 382, 642, 1274, 1288, and other sections of the Code, tables set forth the rates for November 2005.

Rev. Rul. 2005–71

This revenue ruling provides various prescribed rates for federal income tax purposes for November 2005 (the current month). Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted

REV. RUL. 2005–71 TABLE 1

AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(2) for buildings placed in service during the current month. Finally, Table 5 contains the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520.

Applicable Federal Rates (AFR) for November 2005

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term

AFR 4.04% 4.00% 3.98% 3.97% 110% AFR 4.45% 4.40% 4.38% 4.36% 120% AFR 4.86% 4.80% 4.77% 4.75% 130% AFR 5.27% 5.20% 5.17% 5.14%

Mid-term

AFR 4.23% 4.19% 4.17% 4.15% 110% AFR 4.66% 4.61% 4.58% 4.57% 120% AFR 5.09% 5.03% 5.00% 4.98% 130% AFR 5.52% 5.45% 5.41% 5.39% 150% AFR 6.39% 6.29% 6.24% 6.21% 175% AFR 7.46% 7.33% 7.26% 7.22%

Long-term

AFR 4.57% 4.52% 4.49% 4.48% 110% AFR 5.03% 4.97% 4.94% 4.92% 120% AFR 5.49% 5.42% 5.38% 5.36% 130% AFR 5.97% 5.88% 5.84% 5.81%

2005–45 I.R.B. 923 November 7, 2005

REV. RUL. 2005–71 TABLE 2

Adjusted AFR for November 2005

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjusted 2.87% 2.85% 2.84% 2.83% AFR

Mid-term adjusted AFR 3.32% 3.29% 3.28% 3.27%

Long-term adjusted 4.22% 4.18% 4.16% 4.14% AFR

REV. RUL. 2005–71 TABLE 3

Rates Under Section 382 for November 2005

Adjusted federal long-term rate for the current month 4.22%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal long-term rates for the current month and the prior two months.) 4.24%

REV. RUL. 2005–71 TABLE 4

Appropriate Percentages Under Section 42(b)(2) for November 2005 Appropriate percentage for the 70% present value low-income housing credit 8.02%

Appropriate percentage for the 30% present value low-income housing credit 3.44%

REV. RUL. 2005–71 TABLE 5

Rate Under Section 7520 for November 2005

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest 5.0%

Section 1288.—Treatment of Original Issue Discount on Tax-Exempt Obligations

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2005. See Rev. Rul. 2005-71, page 923.

Section 7520.—Valuation Tables

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2005. See Rev. Rul. 2005-71, page 923.

Section 7804.—Other Personnel

26 CFR 801.1: Balanced performance measurement system; in general.

T.D. 9227

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 801

Balanced System for Measuring Organizational and Employee Performance Within the Internal Revenue Service

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains final and temporary regulations relating to the balanced system for measuring organizational and employee performance within the IRS. The temporary regulations prospectively amend the existing final regulations in 26 CFR Part 801 to clarify when quantity measures, which are not tax enforcement results, may be used in measuring organizational and employee performance. The portions of this document that are final regulations provide necessary cross-references to the temporary regulations. These regulations affect internal operations of the IRS and the systems it employs to evaluate the performance of organizations within the IRS. The text of the temporary regulations also serves as the text of proposed regulations

November 7, 2005 924 2005–45 I.R.B.

be used to evaluate the performance of such employees. The temporary regulations do not affect the continuing prohibition on the use of ROTERS to evaluate employee performance or to impose or suggest production quotas or goals for any employee.

Special Analyses

It has been determined that this is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. For applicability of the Regulatory Flexibility Act, please refer to the cross-reference notice of proposed rulemaking published elsewhere in this Bulletin. Pursuant to section 7805(f) of the Internal Revenue Code, these temporary regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Drafting Information

The principal author of these regulations is Karen F. Keller, Office of Associate Chief Counsel (General Legal Services). However, other personnel from the IRS participated in their development.

- - - -

Amendments to the Regulations

Accordingly, 26 CFR Part 801 is amended as follows:

PART 801—BALANCED SYSTEM FOR MEASURING ORGANIZATIONAL AND INDIVIDUAL PERFORMANCE WITHIN THE INTERNAL REVENUE SERVICE

Paragraph 1. The authority citation for Part 801 continues to read in part as follows:

Authority: 5 U.S.C. 9501 * * * Par. 2. Section 801.1 is amended by:

Adding the new center heading.
Removing and reserving paragraph (b).

The addition reads as follows:

(REG–114444–05) set forth in this issue of the Bulletin.

DATES: Effective Date : These regulations are effective on October 17, 2005.

Applicability Date : For dates of applicability, see §§801.7 and 801.8T.

FOR FURTHER INFORMATION CONTACT: Neil Worden, (202) 283–7900 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document amends final regulations in 26 CFR Part 801 (the Final Regulations) that implement the Balanced System for Measuring Organizational and Employee Performance within the IRS. The Final Regulations were published in the Federal Register on August 6, 1999 (T.D. 8830, 1999–2 C.B. 430 [64 FR 42834–42837]). The Final Regulations emanated from section 1201 of the Internal Revenue Service Restructuring and Reform Act of 1998, Public Law 105–206, 112 Stat. 685, 713 (1998) (the Act), which required the IRS to establish a performance management system for those employees covered by 5 U.S.C. 4302 that, among other things, establishes “goals or objectives for individual, group, or organizational performance (or any combination thereof), consistent with the IRS’ performance planning procedures, including those established under the Government Performance and Results Act of 1993, division E of the Clinger-Cohen Act of 1966 . . ., Revenue Procedure 64–22 . . ., and taxpayer service surveys.” Section 1201 further required the IRS to use “such goals and objectives to make performance distinctions among employees or groups of employees,” and to use “performance assessments as a basis for granting employee awards, adjusting an employee’s rate of basic pay, and other appropriate personnel actions . . . .”

In addition, section 1201 of the Act required that the IRS performance management system comply with section 1204, which prohibits the use of “records of tax enforcement results” (ROTERs) in the evaluation of IRS employees or to suggest or impose production goals for such

employees. Section 1204, however, does not prohibit the use of quantity measures in evaluating organizational and employee performance. The temporary regulations in this document amend the existing regulations in part 801 to clarify when quantity measures may be used in measuring organizational and employee performance.

Explanation of Provisions

The final regulations provide guidance and direction for the establishment of a balanced performance measurement system for the IRS. The three elements of this balanced measurement system are (1) customer satisfaction measures, (2) employee satisfaction measures and (3) business results measures. These organizational measures may be used to evaluate the performance of, or to impose or suggest production goals for, any organizational unit.

The temporary regulations contained in this document relate primarily to the business results measures. Business results are measured through quality measures and quantity measures. Quality measures are based on reviews of a statistically valid sample of cases handled by certain organizational units such as examination, collection and Automated Collection System units. The quality review of other work units is determined according to criteria established by the Commissioner or his delegate.

The IRS and Treasury Department have determined that the provisions of the existing Part 801 regulations that limit the use of quantity measures in evaluating organizational units and imposing or suggesting production goals for employees restrict the IRS’ ability to monitor program performance and track effectiveness of operations, and have caused confusion as to what types of data or measures may be discussed between managers and employees and reflected in manager and employee goals. These temporary regulations remove the limitations on the use of quantity measures in evaluating the performance of, or imposing or suggesting goals for organizational units. These temporary regulations also remove the limitations on the use of quantity measures to impose or suggest goals for employees. The regulations continue to provide that performance measures based on quantity measures will not

2005–45 I.R.B. 925 November 7, 2005

be evaluated pursuant to workplans, employment agreements, performance agreements, or similar documents entered into between the IRS and the employee.

(d) General workforce . The performance evaluation system for all other employees will—

(1) Establish one or more retention standards for each employee related to the work of the employee and expressed in terms of individual performance;

(2) Require periodic determinations of whether each employee meets or does not meet the employee’s established retention standards;

(3) Require that action be taken in accordance with applicable laws and regulations, with respect to employees whose performance does not meet the established retention standards;

(4) Establish goals or objectives for individual performance consistent with the IRS’s performance planning procedures;

(5) Use such goals and objectives to make performance distinctions among employees or groups of employees; and

(6) Use performance assessments as a basis for granting employee awards, adjusting an employee’s rate of basic pay, and other appropriate personnel actions, in accordance with applicable laws and regulations.

(e) Limitations . (1) No employee of the IRS may use records of tax enforcement results (as described in §801.6T) to evaluate any other employee or to impose or suggest production quotas or goals for any employee.

(i) For purposes of the limitation contained in this paragraph (e), employee has the meaning as defined in 5 U.S.C. 2105(a). (ii) For purposes of the limitation contained in this paragraph (e), evaluate includes any process used to appraise or measure an employee’s performance for purposes of providing the following:

(A) Any required or requested performance rating.

(B) A recommendation for an award covered by Chapter 45 of Title 5; 5 U.S.C. 5384; or section 1201(a) of the Act. (C) An assessment of an employee’s qualifications for promotion, reassignment, or other change in duties.

REGULATIONS APPLICABLE BEFORE OCTOBER 17, 2005

§801.1 Balanced performance measurement system; in general.

- - - Par. 3. Section 801.7 is added to read as follows:

§801.7 Effective dates.

The provisions of §§801.1 through 801.6 apply before October 17, 2005. For the applicable provisions on or after October 17, 2005, see §§801.1T through 801.7T. Par. 4. Sections 801.1T through 801.8T and a new center heading are added to read as follows:

REGULATIONS APPLICABLE ON OR AFTER OCTOBER 17, 2005

§801.1T Balanced performance measurement system; in general (temporary).

(a) In general . (1) The regulations in this part 801 implement the provisions of sections 1201 and 1204 of the Internal Revenue Service Restructuring and Reform Act of 1998 (Public Law 105–106, 112 Stat. 685, 715–716, 722) (the Act) and provide rules relating to the establishment by the Internal Revenue Service (IRS) of a balanced performance measurement system.

(2) Modern management practice and various statutory and regulatory provisions require the IRS to set performance goals for organizational units and to measure the results achieved by those units with respect to those goals. To fulfill these requirements, the IRS has established a balanced performance measurement system, composed of three elements: Customer Satisfaction Measures; Employee Satisfaction Measures; and Business Results Measures. The IRS is likewise required to establish a performance evaluation system for individual employees.

(b) [Reserved].

§801.2T Measuring organizational performance (temporary).

The performance measures that comprise the balanced measurement system

will, to the maximum extent possible, be stated in objective, quantifiable, and measurable terms and will be used to measure the overall performance of various operational units within the IRS. In addition to implementing the requirements of the Act, the measures described here will, where appropriate, be used in establishing performance goals and making performance evaluations established, inter alia, under Division E, National Defense Authorization Act for Fiscal Year 1996 (the Clinger-Cohen Act of 1996) (Public Law 104–106, 110 Stat. 186, 679); the Government Performance and Results Act of 1993 (Public Law 103–62, 107 Stat. 285); and the Chief Financial Officers Act of 1990 (Public Law 101–576, 108 Stat. 2838). Thus, organizational measures of customer satisfaction, employee satisfaction, and business results (including quality and quantity measures as described in §801.6T) may be used to evaluate the performance of or to impose or suggest production goals for, any organizational unit.

§801.3T Measuring employee performance (temporary).

(a) In general . All employees of the IRS will be evaluated according to the critical elements and standards or such other performance criteria as may be established for their positions. In accordance with the requirements of 5 U.S.C. 4312, 4313, and 9508 and section 1201 of the Act, the performance criteria for each position as are appropriate to that position, will be composed of elements that support the organizational measures of Customer Satisfaction, Employee Satisfaction, and Business Results; however, such organizational measures will not directly determine the evaluation of individual employees.

(b) Fair and equitable treatment of tax- payers . In addition to all other criteria required to be used in the evaluation of employee performance, all employees of the IRS will be evaluated on whether they provided fair and equitable treatment to taxpayers.

(c) Senior Executive Service and spe- cial positions . Employees in the Senior Executive Service will be rated in accordance with the requirements of 5 U.S.C. 4312 and 4313 and employees selected to fill positions under 5 U.S.C. 9503 will

November 7, 2005 926 2005–45 I.R.B.

(1) Cases started; (2) Cases closed; (3) Work items completed; (4) Customer education, assistance, and outreach efforts completed;

(5) Time per case; (6) Direct examination time/out of office time;

(7) Cycle time; (8) Number or percentage of overage cases;

(9) Inventory information; (10) Toll-free level of access; and (11) Talk time. (d) Definitions —(1) Tax enforcement results . A tax enforcement result is the outcome produced by an IRS employee’s exercise of judgment in recommending or determining whether or how the IRS should pursue enforcement of the tax laws. Examples of tax enforcement results include a lien filed, a levy served, a seizure executed, the amount assessed, the amount collected, and a fraud referral. Examples of data that are not tax enforcement results include a quantity measure and data derived from a quality review or from a review of an employee’s or a work unit’s work on a case, such as the number or percentage of cases in which correct examination adjustments were proposed or appropriate lien determinations were made.

(2) Records of tax enforcement results . Records of tax enforcement results are data, statistics, compilations of information or other numerical or quantitative recordations of the tax enforcement results reached in one or more cases. Such records may be used for purposes such as forecasting, financial planning, resource management, and the formulation of case selection criteria. Records of tax enforcement results may be used to develop methodologies and algorithms for use in selecting tax returns to audit. Records of tax enforcement results do not include tax enforcement results of individual cases when used to determine whether an employee exercised appropriate judgment in pursuing enforcement of the tax laws based upon a review of the employee’s work on that individual case.

§801.7T Examples (temporary).

(a) The rules of §801.3T are illustrated by the following examples:

(D) An assessment of an employee’s eligibility for incentives, allowances, or bonuses.

(E) Ranking of employees for release/recall and reductions in force.

(2) Employees who are responsible for exercising judgment with respect to tax enforcement results in cases concerning one or more taxpayers may be evaluated on work done on such cases only in the context of their critical elements and standards.

(3) Performance measures based in whole or in part on quantity measures (as described in §801.6T) will not be used to evaluate the performance of any non-supervisory employee who is responsible for exercising judgment with respect to tax enforcement results (as described in §801.6T).

§801.4T Customer satisfaction measures (temporary).

The customer satisfaction goals and accomplishments of operating units within the IRS will be determined on the basis of information gathered through various methods. For example, questionnaires, surveys and other types of information gathering mechanisms may be employed to gather data regarding customer satisfaction. Information to measure customer satisfaction for a particular work unit will be gathered from a statistically valid sample of the customers served by that operating unit and will be used to measure, among other things, whether those customers believe that they received courteous, timely, and professional treatment by the IRS personnel with whom they dealt. Customers will be permitted to provide information requested for these purposes under conditions that guarantee them anonymity. For purposes of this section, customers may include individual taxpayers, organizational units, or employees within the IRS and external groups affected by the services performed by the IRS operating unit.

§801.5T Employee satisfaction measures (temporary).

The employee satisfaction numerical ratings to be given operating units within the IRS will be determined on the basis of information gathered through various

methods. For example, questionnaires, surveys, and other information gathering mechanisms may be employed to gather data regarding satisfaction. The information gathered will be used to measure, among other factors bearing upon employee satisfaction, the quality of supervision and the adequacy of training and support services. All employees of an operating unit will have an opportunity to provide information regarding employee satisfaction within the operating unit under conditions that guarantee them anonymity.

§801.6T Business results measures (temporary).

(a) In general . The business results measures will consist of numerical scores determined under the quality measures and the quantity measures described elsewhere in this section.

(b) Quality measures . Quality measures will be determined on the basis of a review by a specially dedicated staff within the IRS of a statistically valid sample of work items handled by certain functions or organizational units determined by the Commissioner or his delegate such as the following:

(1) Examination and collection units and Automated Collection System Units (ACS) . The quality review of the handling of cases involving particular taxpayers will focus on such factors as whether IRS personnel devoted an appropriate amount of time to a matter, properly analyzed the facts, and complied with statutory, regulatory, and IRS procedures, including timeliness, adequacy of notifications, and required contacts with taxpayers.

(2) Toll-free telephone sites . The quality review of telephone services will focus on such factors as whether IRS personnel provided accurate tax law and account information.

(3) Other work units . The quality review of other work units will be determined according to criteria prescribed by the Commissioner or his delegate.

(c) Quantity measures . Quantity measures will consist of outcome-neutral production and resource data that does not contain information regarding the tax enforcement result reached in any case that involves particular taxpayers. Examples of quantity measures include, but are not limited to—

2005–45 I.R.B. 927 November 7, 2005

Example 1 . (i) Each year Division A’s Examination and Collection functions develop detailed workplans that set goals for specific activities ( e.g., number of audits or accounts closed) and for other quantity measures such as cases started, cycle time, overage cases, and direct examination time. These quantity measure goals are developed nationally and by Area Office based on budget allocations, available resources, historical experience, and planned improvements. These plans also include information on measures of quality, customer satisfaction, and employee satisfaction. Results are updated monthly to reflect how each organizational unit is progressing against its workplan, and this information is shared with all levels of management.

(ii) Although specific workplans are not developed at the Territory level, Headquarters management expects the Area Directors to use the information in the Area plans to guide the activity in their Territories. For 2005, Area Office 1’s workplan has a goal to close 1,000 examinations of small business corporations and 120,000 taxpayer delinquent accounts (TDAs), and there are 10 Exam Territories and 12 Collection Territories in Area Office 1. While taking into account the mix and priority of workload, and available staffing and grade levels, the Examination Area Director communicates to the Territory Managers the expectation that, on average, each Territory should plan to close about 100 cases. The Collection Area Director similarly communicates to each Territory the expectation that, on average, they will close about 10,000 TDAs, subject to similar factors of workload mix and staffing.

(iii) Similar communications then occur at the next level of management between Territory Managers and their Group Managers, and between Group Managers and their employees. These communications will emphasize the overall goals of the organ

ization and each employee’s role in meeting those goals. The communications will include expectations regarding the average number of case closures that would have to occur to reach those goals, taking into account the fact that each employee’s actual closures will vary based upon the facts and circumstances of specific cases.

(iv) Setting these quantity measure goals, and the communication of those goals, is permissible because case closures are a quantity measure. Case closures are an example of outcome-neutral production data that does not specify the outcome of any specific case such as the amount assessed or collected.

Example 2 . In conducting a performance evaluation, a supervisor is permitted to take into consideration information the supervisor has developed showing that the employee failed to propose an appropriate adjustment to tax liability in one of the cases the employee examined, provided that information is derived from a review of the work done on the case. All information derived from such a review of individual cases handled by the employee, including time expended, issues raised, and enforcement outcomes reached should be considered and discussed with the employee and used in evaluating the employee.

Example 3 . When assigning a case, a supervisor is permitted to discuss with the employee the merits, issues, and development of techniques of the case based upon a review of the case file.

Example 4 . A supervisor is not permitted to establish a goal for proposed adjustments in a future examination.

(b) [Reserved].

§801.8T Effective dates (temporary).

(a) The provisions of §§801.1T through 801.7T apply on or after October 17, 2005. (b) The applicability of §§801.1T through 801.7T expires on or before October 14, 2008.

Mark E. Matthews, Deputy Commissioner for Services and Enforcement.

Approved October 3, 2005.

Eric Solomon, Acting Deputy Assistant Secretary

(Tax Policy).

(Filed by the Office of the Federal Register on October 14, 2005, 8:45 a.m., and published in the issue of the Federal Register for October 17, 2005, 70 F.R. 60214)

Section 7872.—Treatment of Loans With Below-Market Interest Rates

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2005. See Rev. Rul. 2005-71, page 923.

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