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Whistleblower awards and IRS budget cuts

The federal budget cuts known as the "sequester" stated taking effect at the beginning of this month. They affect federal agencies across the board - and that includes the IRS.

The IRS has already indicated that furloughs of employees because of the mandated budget reductions will not start until after the tax filing deadline of April 15. But there is another way that the sequester cuts are affecting the IRS, besides temporary furloughs of employees. That other way is reductions in reward payments made under the agency's whistleblower program.

Indeed, the IRS has already announced that it will be cutting whistleblower payments by 8.7 percent. It is unclear, however, how such a reduction can be squared with the Congressional legislation that created the statutory structure for the whistleblower program.

Congress passed that legislation in 2006. It contains language that says whistleblowers who provide information that enables the government to collect more than $2 million in unpaid taxes are to receive from 15 to 30 percent of what is collected. The whistleblower program also provides for awards for when the amount collected is less than $2 million.

But it is the awards for collections that exceed $2 million that have especially drawn the ire of critics. The critics contend that the 8.7 percent reduction in awards would reduce them below the 15 percent minimum mandated by Congress in the 2006 authorizing legislation for the whistleblower program.

Regardless of how this aspect of the whistleblower program is resolved, it should be noted that the program plays an important role in a number of cases in which allegations of tax fraud are made. That is not likely to change, no matter what happens with the federal governments' sequester drama.

Source: "IRS Uses The Sequester To Give Whistleblowers Another Kick In The Teeth," Forbes, Erika Kelton, 3-6-13

Our firm handles situations similar to those discussed in this post in Miami and throughout South Florida. To learn more about our practice, please visit our page on tax fraud.