IRS Enforcement Activity and Audits Drop as Inflation Reduction Act Funds Deplete
A report from the Treasury Inspector General for Tax Administration (TIGTA) reveals that IRS enforcement activity dropped in fiscal year 2025 following workforce reductions and the exhaustion of supplemental funding. Even as enforcement metrics weakened, total federal tax revenue climbed to a record $5.3 trillion, representing a 13.2% increase compared to fiscal year 2023. This total revenue expansion was propelled primarily by a 17% rise in individual income tax collections.
The decline in enforcement reflects a significant contraction of the IRS examination and collection staff. Funded by the Inflation Reduction Act of 2022, enforcement staffing peaked at 27,217 employees at the end of fiscal year 2024. However, workforce levels dropped approximately 27% to 19,612 by the end of fiscal year 2025 and continued falling to 17,517 by January 10, 2026. The inspector general confirmed that the IRS completely exhausted its remaining supplemental enforcement funding under the Inflation Reduction Act as of December 31, 2025.
These staffing drops produced an immediate slowdown in audit initiatives across income levels. Individual audit starts decreased by 30% from fiscal year 2024 to fiscal year 2025, while audit starts for taxpayers earning above $400,000 fell by 27%. Tax revenue generated directly from IRS examination activities dropped 35% in fiscal year 2025 after having surged 41% between fiscal years 2023 and 2024. Additionally, proposed extra taxes from examinations dropped from $31.9 billion in fiscal year 2023 to $26.8 billion in fiscal year 2025.
While overall enforcement revenue dipped from a record $98.7 billion in fiscal year 2024 to $93.8 billion in fiscal year 2025, it remained higher than fiscal year 2023 levels. According to TIGTA, this sustained revenue was supported primarily by automated collection actions rather than broad audit activity. Collections revenue rose 17% between fiscal years 2023 and 2025, largely because the agency restarted automated collection notices that had been intermittently paused during the COVID-19 pandemic.
For high-income earners, investors, and business owners, these metrics indicate a temporary shift in compliance enforcement dynamics. While complex field examinations and high-income audit initiatives have slowed due to labor constraints, automated compliance systems remain active and effective. Taxpayers should not interpret lower current audit rates as a permanent decline in IRS oversight, as TIGTA noted that the downstream consequences of these staffing reductions will likely unfold over time.
Source: Journal of Accountancy
