December 1, 2015
The IRS recently announced that awards paid to whistleblowers under Code Section 7623 on or after Oct. 1, 2015, and on or before Sept. 30, 2016, will be reduced by 6.8 percent.
Legislation passed in 1985, which was known as “The Balanced Budget and Emergency Deficit Control Act of 1985,” requires that whistleblower award payments issued under Code Section 7623 be subject to sequestration.
The 6.8 percent amount is the sequestration rate for fiscal year 2016. The rate changes yearly based on a number of factors.
Code Section 7623 allows the IRS to pay a fee to persons who provide information that enables the service to detect and bring to trial persons guilty of violating the Internal Revenue laws resulting in an underpayment of tax.
If an individual provides the IRS with information that leads to the service being able to collect tax from a delinquent taxpayer, the person providing the information could receive a fee ranging from 15 percent to 30 percent of the collected fees.
When the IRS determines the amount of collected fees, it takes into account the amount of tax, penalties, interest and additions to tax.
Under the present rules, let’s suppose, for example, that someone substantially helped the IRS recoup $1 million in income tax and various fees and the service rewarded that person with 30 percent of that amount, or $300,000. The payment amount would be reduced by 6.8 percent. The reduction would be $20,400, thus netting the person a $279,600 fee.
This article was originally posted on December 1, 2015 and the information may no longer be current. For questions, please contact GRF CPAs & Advisors at firstname.lastname@example.org.