Mar 7th 2013
By Frank Byrt
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It didn't take long for the federal budget cuts known as sequestration to hit home at the IRS. On March 4, the IRS announced it has been forced to trim awards paid to whistleblowers, to reduce refundable credits for certain types of tax-exempt bonds, and to reduce the refundable portion of the Small Business Health Care Tax Credit for some small tax-exempt employers – all by 8.7 percent.
The IRS said the reductions, which went into effect March 1, come pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended.
The sequestration reductions will be applied until the end of the fiscal year (September 30, 2013) unless Congress intervenes, in which case the rate is subject to change.
Whistleblower Award Amounts Reduced
The IRS lowered the total award it would pay whistleblowers who turn in corporate or individual tax cheats by 8.7 percent. Prior to the reduction, under Section 7623 of the Tax Code, the IRS would pay awards of 15 to 30 percent of the amount collected if the taxes, penalties, interest, and other amounts in dispute exceeded $2 million.
In its Fiscal Year 2012 Report to the Congress on the Use of Section 7623 published in February, the IRS said it paid 128 whistleblower awards totaling $125.4 million, including one for $104 million, in fiscal year ended September 30. Because of the program, the IRS said it collected $592.5 million in those cases, meaning the awards amounted to 21.2 percent of the money collected.
The 2012 report said the number of payments "is not projected to grow dramatically in fiscal year 2013."
Small Business Health Care Tax Credit Refund Reduced
The IRS also reduced the refundable portion of the Small Business Health Care Tax Credit for certain small tax-exempt employers under IRC Section 45R by 8.7 percent.
The Small Business Health Care Tax Credit, which was included as part of the Patient Protection and Affordable Care Act of 2010, was created to help small businesses and small tax-exempt organizations afford the cost of covering their employees' health insurance. It is specifically targeted at employers of low- and moderate-income workers, so that those employees can get coverage for the first time or maintain coverage they already have, according to the IRS.
Cuts in Refundable Credits for Certain Tax-Exempt Bonds
The 8.7 percent reduction is on refundable credits under IRC Section 6431 and is applicable to certain qualified bonds claimed by an issuer on any Form 8038-CP, Return for Credit Payments to Issuers of Qualified Bonds, filed with the IRS that results in a payment to the issuer on or after March 1, 2013.
The reduction rate applies to issuers of the following:
- Build America Bonds
- Qualified School Construction Bonds
- Qualified Zone Academy Bonds
- New Clean Renewable Energy Bonds
- Qualified Energy Conservation Bonds
The IRS said in its website posting: "Affected issuers will be notified through correspondence that a portion of their requested payment was subject to the sequester reduction. Issuers should use this correspondence to identify the portion(s) of amounts requested that were subject to the sequester reduction."
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