Sequester Affects IRS Whistleblower Awards

Even whistleblower reward payments are being affected by the sequester. According to an announcement by the Internal Revenue Service, such rewards will be cut by 8.7%.

A biting article in a recent edition of Forbes remarks upon what Erika Kelton, a Forbes Contributor, calls a “wrongheaded” decision. She opines that the IRS did not provide a legal basis for this decision, which likely means there was none. She even goes so far as to say that decreasing the reward below that which the wording of the Tax Relief and Health Act of 2006 promises (15%) is a violation of the law that created the program in the first place. Cutting the reward by 8.7% will leave the minimum payment at a number below the amount designated by the 2006 law, 13.6%.

In an explanation of the sequester and how it supposed to be handled, the author remarks that any cuts that are made should fall into two categories: discretionary appropriations and direct spending. The awards given to IRS whistleblowers do not fall under either of the categories. Whistleblower awards are taken from the violator collection proceeds. They are not part of federal budget spending.

Kelton is surprised by the decision, saying that the move by the IRS would inevitably discourage individuals from coming forward during a critical time in which the government is attempting to make cuts that will decrease the deficit. The sequester will only cut $85 billion from the budget, while the gross tax gap remains to be over $450 billion annually. She writes that whistleblowers should be a valuable resource for the IRS, as they provide information that leads to the collection of tax revenue from those seeking to evade.

Despite efforts by the public and by the senator who was the driving force behind the program, Senator Chuck Grassley (R-IA), the IRS is still not on board with the program, according to Zelton. She predicts that the move by the IRS will trigger a response on the part of tax cheats that will only feed motivation to cheat the IRS of revenue, resulting in a tax gap that increases substantially rather than shrinks.


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