2016 Tax Sequestration Rate Reduces Whistleblower Awards

Today, November 3, 2015, the IRS Whistleblower Office announced that it will continue to reduce Whistleblower Awards by 6.8%.  The IRS claims that the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, allows it to reduce whistleblower award payments because of sequestration.

Therefore, award payments made to whistleblowers under Section 7623 on or after October 1, 2015, and on or before September 30, 2016, will be reduced by the fiscal year 2016 sequestration rate of 6.8 percent. The fiscal year 2015 sequestration rate was 7.3 percent.

The sequestration reduction rate will be applied unless and until a law is enacted that cancels or otherwise impacts the sequester, at which time the sequestration reduction rate is subject to change.

The sequestration reduction will be applied after the Whistleblower Office determines the amount of collected proceeds and the applicable award percentage to be paid under section 7623.

Currently, the Tax Whistleblower Law Firm has several court cases on appeal that are currently pending before the United States Tax Court challenging the authority of the IRS to unilaterally reduce these awards for sequestration.  In addition, the whistleblower statute, I.R.C. § 7623, provides “Any amount payable under …. shall be paid from the proceeds of amounts collected by reason of the information provided, and any amount so collected shall be available for such payments.”  This alone would lead one to believe that the payment of the award, once it is determined, is not discretionary.

IRS Whistleblower Program: Changing of the Guard

Effective August 3, 2015, Director of the IRS Whistleblower Office, Stephen Whitlock, was replaced by Lee Martin from the IRS Office of Professional Responsibility.  Although Mr.  Martin is neither a lawyer nor an accountant, he was selected by Deputy Commissioner John Dalrymple, perhaps in an effort to bring (good) change the IRS Whistleblower program.

In February 2007, Director Stephen Whitlock was given the responsibility to establish the IRS Whistleblower Office.  His accomplishments include centralizing the whistleblower program in Washington DC, where whistleblower claims are now being reviewed and paid in a consistent and objective manner.  Current claims are no longer being lost in the system as they were before the enactment of I.R.C. § 7623(b).  Mr. Whitlock can be credited with a great many accomplishments including establishing a qualified team consisting of 43 personnel as of September 30, 2014.  Many of the whistleblower analysts in this office process and monitor whistleblower claims and often act as whistleblower advocates fighting on behalf of the whistleblowers.  Mr. Whitlock has been responsible for providing on going guidance to IRS personnel as well as whistleblowers and practioners.  The Internal Revenue Manual and Treasury Regulations have been updated under his reign.  Mr. Whitlock has put a good team together and will be missed within the IRS as well as from the IRS whistleblower attorneys for whom he gave so much guidance.

Although lacking a tax background, Director Martin is known for his organizational skills and for being an independent thinker.  He brings his ethics background to the Whistleblower Office from his time with the Office of Professional Responsibility.  In addition, Mr. Martin has significant experience with Information Technology which could be utilized to better organize the flow of information within the IRS Whistleblower Office.  As time will tell, Mr. Martin will begin the next chapter of making the IRS whistleblower program even more successful as it is quickly being recognized as the most powerful tools ever given to the IRS by Congress for the enforcement of the Internal Revenue Code. 

Director Martin likely will be facing similar oppositions from within the IRS that has been plaguing the program since the program started.  There seems to be ongoing resistance by Counsel as well as IRS executives to promote the program.  Many within the IRS continue to interpret the law narrowly resulting in the lack of communications with the Whistleblower, delaying payment of awards as well as diminishing and or eliminating awards altogether.  We hope that the new Director will only build on the program for which he took over and garner the support of the Commissioner and Secretary of Treasury. 

The Tax Whistleblower Law Firm (TWLF) has the deepest respect for Director Whitlock and wishes the best of luck to him in his new position as well as thanks him for his past leadership.