IRS audit revenue plunged following mass layoffs, Treasury watchdog finds
Revenue from IRS audits plunged 35% in fiscal 2025 as the agency shed thousands of enforcement workers, according to a new report from the Treasury Inspector General for Tax Administration, an agency watchdog.
The IRS collected a total of $6.5 billion from audits in fiscal 2025, which ended Sept. 30, down from $10 billion a year earlier, TIGTA said in its Aug. 26 report.
The group said that the number of IRS employees working in auditing and collections had dropped to 17,517 as of January 2026, a decline of almost 10,000 workers from fiscal 2024. The report added that the impact of the staff reductions may "become more apparent over time."
"These losses present a challenge to improving taxpayer service and enforcing the nation's tax laws," the tax 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 findings come after TIGTA last year found that the IRS lost one-third of its tax auditors during the first three months of the Trump administration. The employment decline was due to cost-cutting efforts by Elon Musk's Department of Government Efficiency, or DOGE, which sought to slash the federal workforce through a combination of layoffs and so-called deferred resignations.
The Treasury watchdog noted that because audits can take years to complete, some of the declines could be reversed as more cases are closed.
The IRS initiated 17% more large corporate audits in fiscal 2025 than a year earlier. But audits of new business partnerships fell 30% as a major reorganization at the agency shifted employees and delayed training for some revenue agents, the report said.
The IRS also started fewer audits of wealthy taxpayers. Agency staffers opened about 43,000 examinations of individuals with income over $400,000 in fiscal 2025, down 26% from a year earlier. As of January 2026, the agency's Global High Wealth program had 27% fewer employees than 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."