IRS audit revenue fell sharply in fiscal 2025 as workforce reductions cut deeply into the agency’s enforcement ranks. This is according to a new Treasury Inspector General for Tax Administration report.
Revenue generated by IRS examinations dropped 35% to $6.5 billion in fiscal 2025, down from $10 billion a year earlier. The reversal followed a 41% increase in examination revenue in 2024, when the agency expanded staffing with money from the Inflation Reduction Act.
The decline coincided with a 27% reduction in the IRS’s examination and collection workforce. Those teams fell from 27,217 employees at the end of fiscal 2024 to 19,612 a year later. By Jan. 10, 2026, staffing slipped EVEN MORE to 17,517, roughly 36% below the 2024 level.
More than 25,000 IRS employees, equal to about a quarter of the agency’s workforce, entered deferred resignation programs, received termination notices, retired or otherwise left by the end of September 2025.
High-Income and Partnership Audits Take a Hit
The impact was particularly visible in audit activity. The number of individual examinations started fell 30% in fiscal 2025, while examinations of taxpayers with incomes above $400,000 declined 27%.
Partnership audits have fallen even more sharply. Examination starts dropped from 6,709 in fiscal 2023 to 1,589 in fiscal 2025, a 76% decline. TIGTA said staffing disruptions were one of several factors behind the decrease.
The contraction matters because the IRS estimates the annual gross “tax gap” — taxes owed but not paid voluntarily and on time — at $696 billion for tax year 2022. About $539 billion, or 77%, was linked to underreported income.
Total IRS enforcement revenue did not fall as steeply as audit revenue. It declined about 5% from a record $98.7 billion in fiscal 2024 to $93.8 billion in 2025. This was largely because automated collection notices continued generating a lot of revenue.
TIGTA warned that the full effects of the staffing reductions may take longer to emerge because audits can take years to complete.
The pressure may not ease soon. TIGTA estimates enforcement spending in fiscal 2026 will be 29% lower than actual 2025 spending after supplemental Inflation Reduction Act enforcement funds were exhausted. The White House’s fiscal 2027 budget proposal also calls for another $1.4 billion reduction in IRS funding.
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