The Treasury Department’s Inspector General released findings indicating that reductions in IRS staffing led to significantly lower tax collection rates. During fiscal year 2025, audit-related revenue fell 35%, translating to billions of dollars in unpaid taxes remaining uncollected. This decline corresponded with a 27% reduction in enforcement and collection personnel at the agency.
The IRS had previously expanded its auditing workforce during the Biden administration to address an estimated $696 billion annual tax gap resulting largely from underreported income by individuals and businesses. That expansion produced a 41% increase in audit revenue during 2024. However, more than 25,000 IRS employees were laid off or took early retirement in 2025, including approximately 3,600 tax examiners, reversing the earlier gains. Audit revenue dropped from $10 billion in fiscal year 2024 to $6.5 billion in 2025.
Experts have argued that the staff reductions represent a net loss rather than a savings. The revenue lost through decreased audit activity exceeds any financial gains from reduced payroll. Tax administration officials note that audit activity itself serves a deterrent function, encouraging voluntary compliance among taxpayers who know enforcement activity occurs.
Audits of partnerships experienced particularly steep declines, falling 76% between 2023 and 2025. The earlier staffing increases had disproportionately focused on high-income earners and business structures. Observers have noted that top earners account for a substantial portion of the overall tax compliance gap. IRS leadership has defended its current approach, citing technological improvements to targeting audits more efficiently, though staffing levels continued declining in the first four months of the current fiscal year. The Trump administration has proposed additional funding cuts for the agency in 2027.
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