On March 4, the IRS announced through a two-paragraph statement posted to its website, that under the automatic sequester cuts, any section 7623 whistleblower awards paid between March 1, 2013, and September 30, 2013, will be reduced by a “sequestration reduction rate.” The IRS said that in conjunction with the Office of Management and Budget, it has determined that whistleblower awards will be reduced by 8.7 percent.  

Reducing the amount of any whistleblower awards is a step in the wrong direction and makes little sense if the IRS is looking to attract whistleblowers. However for the purposes of reducing discretionary spending, this position would make sense if it was limited to awards paid under the old Informant Rewards Program of section 7623(a). Because awards under the old Informant Rewards Program of section 7623(a) are discretionary, the reduction in the award amount would be a reduction in discretionary spending. However, award payments under the new Whistleblower Program as enacted by section 7623(b) are not discretionary, they are mandated by statute, and not available for reduction.

Section 7623(b) says that the Commissioner SHALL pay 15-30% awards to whistleblowers who meet the threshold requirements of that section. The problem with this sequestration reduction policy can be seen clearly by analyzing the effect of this policy on awards which are determined to be at the top and bottom of the statutorily required 15-30% scale. A 15% award determination that is then reduced 8.7% is a 13.7% award. The Commissioner has no more authority to pay 13.7% to a section 7623(b) whistleblower than he has to reduce a taxpayer’s child tax credit. On the top end of the scale a 30% award reduced by 8.7% is 27.4%. By effectively announcing that under no circumstance will the IRS pay an award above 27.4%, any award determination made under the sequestration reduction policy is on its face arbitrary, capricious, and unreasonable.

The Ferraro Law Firm will counsel any client whose award is reduced under the sequestration guidelines to challenge the unlawful reduction in the United States Tax Court. With respect, I suggest the IRS focus on using whistleblower information and collect the billions owed rather than waste time on invalid pronouncements that will only cost the government time and money in court.

  • Bubba Shawn

    Nothing new here. The IRS Whistleblower awards are only paid to those who are politically connected and represented by powerful law firms. The rest of us who have been waiting since 2007 are getting screwed again.

    The IRS didn’t conger up the sequester. So they can’t be blamed for this. Hopefully, the IRS will increase the award percentages to cover the sequester tax consequences. But that thinking requires granting the IRS the benefit of the doubt again and wishful thinking that the IRS really wants to pay the maximum award to whistleblowers. IRS executives and U.S. Senators expressing appreciation toward IRS whistleblowers is pure cow manure.

    Becoming an IRS whistleblower is more and more getting to be a hard sell.

  • Anon

    Greg,
    Thanks for posting about this important news. I wouldn’t be surprised if the WBO pushes through some awards immediately in an attempt to take advantage of those who are not aware of this inappropriate action. If you wouldn’t mind confirming – if a whistleblower receives a preliminary award letter during this timeframe and there is a reduction as a result of this sequestration they should absolutely dispute this (preferably through the assistance of an attorney)? Is there a way, since this is completely inappropriate, to accept the award and battle over the improper application of this emergency act?

  • anon

    The sequestration reduction to IRS Whistleblower payments is moot. The WO has just infomed me that the whole budget impasse now has all payments on hold and that two more WO analysts have just resigned as a result of the shambles that the whole program is in. Our only hope is a budget deal and/or Grassley’s office again withholding nominations over this ridiculous process.

  • Frustrated one

    The IRS always has an excuse why they cant pay their whistleblowers the money that is due to them. Maybe now we should bombard Grassley’s office with letters of how frustrated we are with what is going on. Make someone over there accountable for this fiasco.

  • impatient whistleblower

    Well, it is looking like the sequester issue was a moot issue. Unless whistle blowers are keeping their awards secret, it looks like another fiscal year with very few payments. And none since the sequester started.