"We certainly are not satisfied with a B minus, but the trend is in the right direction," said IRS Commissioner Charles O. Rossotti.

The Federal Performance Project, in collaboration between Government Executive magazine and George Washington University's public administration department, seeks to provide an independent management assessment of federal agencies.

The IRS' highest rated area was managing for results, which received a grade of B. Driving the improved overall grade was the information technology sector, which improved to a C from a D. The project cited IRS e-file and the IRS.gov Web site as models of e-government.

The report cited the IRS's clearly stated mission, well-defined goals, bimonthly performance reviews and new performance measures as positives. Overall, the report noted that negatives such as decreased employee satisfaction, problems with computer systems and lack of management flexibility remain a problem.

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