The IRS announced that whistleblower awards paid under section 7623 on or after October 1, 2017 and on or before September 30, 2018, will continue to be reduced by the “sequestration reduction rate”, which has now been lowered slightly to 6.6 percent. The 6.6 percent fiscal 2018 sequestration reduction rate represents a .3 percent decrease from fiscal 2017’s 6.9 percent. The sequestration reduction will unfortunately continue to be applied to whistleblower payments unless and until a law is enacted that cancels or changes the sequester or a court decides that it is improper.
The IRS and OMB have taken the position that whistleblower award payments are subject to the sequestration reductions required by the Balanced Budget and Emergency Deficit Control Act (“Budget Control Act”). We have asserted that reducing awards under section 7623(b) is contrary to the letter of the law and also makes little if any fiscal sense as awards are paid from collected proceeds. The IRS believes that reducing whistleblower awards is part of spending caps that are imposed on defense and non-defense spending by the Budget Control Act. If those caps are exceeded, spending is cut across-the-board, a consequence that neither Republicans nor Democrats want.
This is a year that we could see some meaningful change in or even elimination of the sequester because President Trump has called for substantial increases in military spending in his budget request. The House and the Senate passed their respective versions of the annual National Defense Authorization Act (“NDAA”) which authorizes budget appropriations for the Department of Defense. Both houses passed bills that exceed the President’s budget request and smash through the statutory caps on defense spending established by the Budget Control Act. Breaking these statutory caps triggers the across the board cuts commonly referred to as “sequestration.” Congress must either raise the spending caps or eliminate sequestration altogether to avoid the cuts that are despised by both parties.
In fact, Senator Tom Cotton (R-AK) attempted to repeal the sequester spending cuts for both defense and non-defense discretionary spending back in September but his amendment to the 2018 NDAA failed to receive votes and eventually died due to a lack of quorum. Democrats are taking the position that they didn’t support Cotton’s amendment because it only applied to discretionary spending and would not have repealed the automatic sequester of mandatory spending.
In early September the House and Senate voted on a continuing resolution which funds the federal government through December 8, 2017. As with years passed, we are likely to see increased political maneuvering between the parties as December approaches and the Senate and House budgets are reconciled. We are watching this year very closely with the hope that reduction of whistleblower awards becomes a thing of the past. We further understand that there are docketed cases in the U.S. Tax Court that are challenging the legality of the sequestration reductions to whistleblower award, but these cases have not been resolved yet. Stay tuned.