October 1st 2014 marks the beginning of fiscal year 2015 and a new sequestration reduction rate for whistleblower awards.  According to an OMB Report on the reductions for fiscal year 2015, every award payment made to a whistleblower under section 7623 on or after October 1, 2014, and on or before September 30, 2015, will be reduced by the sequestration rate of 7.3 percent.  That reduction rate is up slightly from fiscal year 2014’s reduction rate of 7.2 percent.

It has been and continues to be the position of The Ferraro Law Firm that whistleblower awards should not be reduced by sequestration.  As a technical matter, the reduction of award amounts paid to whistleblowers is in direct conflict with the statutory language of section 7623(b) which unambiguously states that a whistleblower “shall” receive as an award “at least 15 percent” of the collected proceeds.  The sequestration reduction is illegally defying the language and intent of the statute.  As a practical matter, reducing the amount paid to whistleblowers makes zero sense.  The entire purpose of sequestration is to ensure that tax dollars are saved and the nation’s debt is reduced.  Because whistleblower awards are paid directly from collected proceeds; proceeds that in all likelihood would not have been collected absent the whistleblower’s information; these award payments do not have a negative effect on the nation’s debt.  The whistleblower is actually assisting the government in raising money, not causing government to spend money.  As a matter of equity, whistleblowers came forward in reliance on the 2006 law and trusted that the statute would apply to them as written. The fact that the sequestration reduction can arbitrarily impact awards relating to claims made by whistleblowers many years ago, to us, is a prohibited retroactive change in the law.

Unfortunately, the IRS will continue to apply the sequestration reduction rate unless and until a law is enacted by congress that cancels or otherwise impacts the sequester.  A bi-partisan budget agreement has not yet been reached by congress.  The government will be funded through a Continuing Resolution that was passed by the House and Senate which generally maintains current spending at fiscal 2014 levels until December 11, 2014.