IRS audit revenue fell sharply in fiscal 2025, dropping 35% as the agency lost thousands of enforcement employees, according to a new report from the Treasury Inspector General for Tax Administration, the agency’s watchdog.
The IRS brought in $6.5 billion from audits during fiscal 2025, which ended Sept. 30, compared with $10 billion in the prior fiscal year, TIGTA said in its Aug. 26 report.
The watchdog found that the number of IRS employees assigned to auditing and collections had fallen to 17,517 by January 2026, nearly 10,000 fewer than in fiscal 2024. TIGTA cautioned that the full effect of those staffing cuts may “become more apparent over time.”
“These losses present a challenge to improving taxpayer service and enforcing the nation’s tax laws,” the watchdog said. “We are concerned about how staffing losses are impacting the IRS’s ability to ensure that it meets department priorities.”
Tax auditor exodus
The new findings follow a TIGTA review last year that found the IRS lost one-third of its tax auditors during the first three months of the Trump administration. The decline was tied to cost-cutting efforts led by Elon Musk’s Department of Government Efficiency, known as DOGE, which pushed to shrink the federal workforce through layoffs and so-called deferred resignations.
TIGTA noted that audit cases often take years to resolve, meaning some of the drop in collections could be offset later as additional examinations are completed and closed.
The report showed a mixed picture across enforcement categories. The IRS opened 17% more audits of large corporations in fiscal 2025 than it did a year earlier, but new audits of business partnerships declined 30% as a major agency reorganization moved employees into new roles and slowed training for some revenue agents.
The agency also reduced audits of high-income individuals. IRS employees began roughly 43,000 examinations of taxpayers earning more than $400,000 in fiscal 2025, a 26% decrease from the previous year. By January 2026, staffing in the IRS Global High Wealth program was down 27% from levels before the fiscal 2025 workforce reductions.
The IRS and Treasury didn’t immediately respond to requests for comment.
Despite the decline in audit revenue, the IRS collected more total tax revenue in fiscal 2025 than the prior year, with federal taxes paid by taxpayers rising to $5.3 trillion, up 4.2% from the prior fiscal year, according to the Treasury watchdog group.
IRS funding cuts
The drop in audit revenue marks a reversal from 2024, when the IRS planned to boost tax revenue through audits of wealthy taxpayers and corporations. Under the Biden administration, the Inflation Reduction Act directed $80 billion in funding to the IRS, enabling it to hire more auditors and revenue collectors.
In early 2024, the IRS forecast that the additional funding would help it reap hundreds of billions of dollars in additional tax revenue by pursuing overdue and unpaid taxes. However, Republican lawmakers warned that IRS auditors would target everyday Americans and cut billions in IRS funding.
The Trump administration has proposed additional IRS funding cuts for 2027. Policy experts have warned that further shrinking the agency’s budget could make it harder to collect overdue taxes and go after tax cheats.
“The agency has fewer revenue agents, who audit the most complicated tax returns, than it has had since the 1950s, when the economy was far smaller and the tax code was far less complex,” tax analysts with the Center on Budget and Policy Priorities, a nonpartisan think tank, wrote in a June blog post.
They added, “Research shows that every dollar spent on IRS tax enforcement raises multiple dollars in revenue, which means that every dollar cut from IRS enforcement loses more than a dollar of revenue and adds to the deficit.”
Alain Sherter
