IRS Audit Revenue Fell 35% After Staff Cuts, Treasury Watchdog Finds

Money the IRS collects from audits dropped by more than a third in fiscal 2025. This decline lines up almost exactly with a sharp reduction in the agency’s enforcement staff. That is the core finding of an August 26, 2026 report titled “Trends in Compliance Activities Through Fiscal Year 2025,” issued by the Treasury Inspector General for Tax Administration (TIGTA). They are the independent watchdog that oversees IRS operations.

Audit collections fell to $6.5 billion in fiscal 2025.  Before that year, collections fell by $ 10 billion. This cost a 35% drop, equal to roughly $3.5 billion in lost revenue. TIGTA’s report ties the decline directly to workforce reductions. This hits the IRS’s examination and collections functions starting in early 2025. That 35% decline applies specifically to examination revenue. However, it didn’t translate into a comparable drop in the IRS’s overall enforcement take. Total enforcement revenue slipped only 5%, from $98.7 billion to $93.8 billion. Collection revenue held essentially steady at $81.8 billion, down just slightly from $82.1 billion the year before. TIGTA’s report ties the decline directly to workforce reductions. This hits the IRS’s examination and collections functions starting in early 2025.

A Shrinking Enforcement Workforce

The numbers behind the revenue drop are stark. IRS Examination and Collection staffing had fallen to 17,517 employees as of January 10, 2026. Which down 9,700 from the FY2024 level of 27,217. That is close to a one-third reduction in the workforce responsible for examining returns and pursuing unpaid taxes.

TIGTA was blunt about what that means going forward. “These losses present a challenge to improving taxpayer service and enforcing the nation’s tax laws,” the report states. The TIGTA also cautioned that the numbers released so far may understate the eventual toll. Noting that the downstream effects of these reductions are likely to become more apparent over time.

⚠️ Watch Out: Audit cases can take two years or more to move from opening to closing. So a chunk of the fiscal 2025 shortfall reflects staff who left mid-case rather than work that was never started. That also means some of the decline could be temporary; if remaining staff eventually close cases that are already in the pipeline, revenue could tick back up even without new hiring. TIGTA’s report does not promise that reversal, but it is a real caveat worth keeping in mind before assuming the trend is permanent.

How the IRS Lost So Many Auditors So Fast

This is not the first TIGTA report to flag the speed of the exodus. An earlier finding from the watchdog showed the IRS lost about one-third of its tax auditors in just the first three months of the Trump administration in 2025.

The cuts trace back to the Department of Government Efficiency (DOGE), the Elon Musk-led initiative that pushed federal agencies, including the IRS, to cut costs rapidly. At the IRS, that took the form of layoffs combined with deferred resignation offers that let employees leave payroll while still collecting pay and benefits for a set period. Together, those programs thinned out an examination workforce that had only recently been rebuilt.

Corporate Audits Rose While Wealthy and Partnership Audits Fell

The staffing cuts did not hit every part of the IRS’s enforcement work evenly. And the unevenness is one of the more telling parts of the TIGTA report.

Audits of large corporations actually increased 17% in fiscal 2025, even as the overall audit workforce shrank. By contrast, audits of new business partnerships fell 30%, a decline TIGTA links to a major agency reorganization, staff reassignments, and delays in training new revenue agents to handle the complex partnership returns that require specialized expertise.

The IRS started approximately 43,000 examinations of individuals with income over $400,000 in FY2025, a 27% decline from FY2024. The agency’s Global High Wealth program, created specifically to examine the returns of the wealthiest taxpayers and their related business entities, had 27% fewer employees as of January 2026 than it did before the fiscal 2025 cuts began.

The Treasury Department did not respond to requests for comment on these findings, according to CBS News, which first reported on the TIGTA findings.

The IRS Points to Rising Tax Receipts and New AI Tools

IRS leadership has pushed back on the idea that fewer auditors means weaker enforcement. In April 2026 congressional testimony, IRS Commissioner Frank Bisignano emphasized that the agency is leaning on technology to make up the difference. “The IRS is using artificial intelligence and advanced analytics to identify high-risk areas of non-compliance and fraud with greater accuracy,” Bisignano told lawmakers, framing data-driven targeting as a way to focus a smaller staff on the cases most likely to yield results.

The agency also points to a broader financial picture that looks healthy on its face. Total federal tax revenue climbed to $5.3 trillion in fiscal 2025, up 4.2% from the year before. That figure reflects the full tax system, including withholding and voluntary payments, not just audit-driven collections, so it does not directly contradict TIGTA’s narrower finding on enforcement revenue.

Warren Calls the Cuts a Win for Wealthy Tax Cheats

The TIGTA findings landed quickly in Washington’s ongoing fight over IRS funding. Sen. Elizabeth Warren (D-Mass.), a longtime advocate for taxing wealthy Americans more aggressively, cast the staffing cuts as a gift to exactly the taxpayers enforcement is supposed to catch.

“Gutting the IRS is a win for wealthy tax cheats and a loss for working people who play by the rules,” Warren said, framing the reduced audit rate for high earners as effectively rolling out the red carpet for tax avoidance among corporations and the wealthy.

How We Got Here: A Reversal of 2022 Funding Plans

The current cuts represent a near-complete reversal of the enforcement buildup Congress approved just a few years earlier. The 2022 Inflation Reduction Act, passed under President Biden, gave the IRS roughly $80 billion in supplemental funding. This means much of it was earmarked for hiring new auditors and modernizing enforcement technology. But that funding didn’t survive intact: subsequent legislation clawed back more than half of it, cutting the total to $37.6 billion, with just $3.8 billion specifically allocated to enforcement. According to the Treasury Inspector General for Tax Administration, that remaining enforcement funding was fully exhausted by December 31, 2025.

At the time, IRS forecasts suggested that investment could generate hundreds of billions of dollars in additional revenue over a decade by pursuing taxes that were legally owed but never collected. Republicans in Congress pushed back almost immediately, warning that a larger, better-funded IRS would end up auditing ordinary Americans rather than just the wealthy. That political fight led to a series of funding clawbacks, and the enforcement buildup never reached the scale originally planned.

What Comes Next: More Cuts on the Table

Rather than stabilizing after fiscal 2025, IRS funding appears headed for another round of reductions. The Trump administration has proposed additional cuts to the IRS budget for 2027, on top of the staffing losses already documented by TIGTA, NPR reports.

Policy researchers warn that further cuts would deepen a collections gap that is already historically wide. Analysts at the Center on Budget and Policy Priorities have pointed out that the IRS now employs far fewer experienced revenue agents than at almost any point since the 1950s, even though today’s economy and tax code are dramatically larger and more complex than they were seven decades ago. The group has also cited Congressional Budget Office analysis finding that money spent on IRS enforcement tends to pay for itself several times over, meaning cuts to that budget line do not so much save money as shift uncollected taxes onto the deficit.

None of this means every additional dollar spent on enforcement is guaranteed to come back as revenue, and reasonable people disagree about how large an IRS budget should be. The TIGTA report does establish a clear, documented link between last year’s staffing cuts and a real drop in audit collections, with the agency itself acknowledging that the full picture may not be visible yet.

The Bottom Line

The IRS collected $3.5 billion less from audits in fiscal 2025 than the year before, a decline TIGTA ties directly to losing nearly 10,000 enforcement employees. Corporate audits held up better than audits of wealthy individuals and new business partnerships, and the agency says AI tools and rising overall tax receipts should ease concerns about the staffing drop. Whether that technology can genuinely substitute for thousands of experienced auditors, especially as more proposed cuts move through Congress for 2027, is the question TIGTA says taxpayers can only answer over time.  

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