Here's a number that might make you wince if you're a tax cheat: the revenue the IRS brings in from its audit function just took a nosedive. In fiscal 2025, examination-related revenue fell 35% to $6.5 billion, according to a new report from the Treasury Inspector General for Tax Administration (TIGTA). The reason? The agency's enforcement workforce is shrinking, and the effects are starting to show.
The report notes that workforce reductions began hitting enforcement activity during fiscal 2025, and the full impact may only become clearer as time goes on. It's a bit like a slow leak in a tire—you don't notice it right away, but eventually you're riding on the rim.
IRS Examination Activity Declines
Let's put some numbers on this. In fiscal 2024, the IRS had 27,217 employees working in its Examination and Collection functions. By fiscal 2025, that number had dropped to 19,612—a 27% decline. And as of Jan. 10, 2026, it stood at 17,517. That's a lot of empty desks.
The report found that examination starts declined 30% in fiscal 2025 compared with fiscal 2024. Audits of individuals with income above $400,000 fell 27%. Large corporation examination starts actually increased 7% from fiscal 2023 to fiscal 2025, reaching 1,491 in fiscal 2025. But partnership examination starts? They cratered, falling 76% from 6,709 to 1,589.
On the flip side, the IRS initiated 3.16 million nonfiler notices in fiscal 2025, compared with none in fiscal 2023. And collection revenue increased 17% from fiscal 2023 to fiscal 2025, largely because automated collection notices resumed after pandemic-related pauses.
The Treasury watchdog didn't mince words: "These losses present a challenge to improving taxpayer service and enforcing the nation's tax laws." They added, "We are concerned about how staffing losses are impacting the IRS's ability to ensure that it meets department priorities." The IRS didn't immediately respond to a request for comment.
Workforce Cuts Raise Enforcement Concerns
This isn't exactly a surprise. Former acting IRS Commissioner Douglas O'Donnell had warned that the effects of the cuts would likely become visible over time. He said, "I've been very concerned with the ability of the agency to carry out on its mission, whether it's at the services level or enforcement level, but also just in general to be a functioning federal government agency going forward."
O'Donnell also painted a vivid picture of the problem in the large corporate space: "In the large corporate space, just over time, losing employees, you just basically reduce what you can get to, and you cover less of it." He added, "Over time, that diminishes the ability of leaders in the IRS to have confidence that taxpayers are complying because you're not getting to a large enough number of them to be sure about that."
Earlier government data showed enforcement revenue fell 5%, or nearly $5 billion, in fiscal 2025, while the IRS opened more than 120,000 fewer audits. The enforcement division also lost roughly 5,000 employees heading into 2026.
Tax Revenue Still Reached $5.3T
Despite the drop in examination revenue, total federal tax revenue paid to the IRS rose to $5.3 trillion in fiscal 2025, up 4.2% from fiscal 2024. So the government is still raking in the dough, but the question is whether that can continue without robust enforcement.
IRS CEO Frank Bisignano is betting on technology to fill the gap. During congressional testimony in April, he pointed to AI and advanced analytics as key tools. "Our advanced data and analytic strategies allow us to catch instances of tax evasion that would have been undetectable just a few years ago," Bisignano said. "Along those lines, the IRS is using artificial intelligence (AI) and advanced analytics to identify high-risk areas of non-compliance and fraud with greater accuracy," according to CBS News.
The TIGTA report noted that the Inflation Reduction Act provided $3.8 billion for enforcement, which was exhausted by Dec. 31, 2025. Congress appropriated $11.2 billion to the IRS in January 2026, including $5 billion for enforcement—8% below the fiscal 2025 enforcement allocation.
Sen. Elizabeth Warren (D-Mass.) had some choice words about the situation. She called the workforce reductions a "dream come true" for high-income earners and corporations that avoid taxes. "Gutting the IRS is a win for wealthy tax cheats and a loss for working people who play by the rules," Warren said in a statement to CBS News.
The TIGTA report made no recommendations. IRS officials were given an opportunity to review the report and agreed with its facts and conclusions before issuance.
Disclaimer: This content was produced with the help of AI tools and was reviewed and published by MarketDash editors.
