Billions in Taxes Uncollected: How IRS Staff Cuts Backfired on Federal Revenue
The following is based on reporting by NPR1.
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Reversal of Recent Gains | Audits Do More Than Recover Money | Wealthy Filers and Partnerships See Less Scrutiny | More Cuts Are Expected | What This Means For You
Significant cuts to the IRS’s auditing staff were presented as a way to trim government spending. However, new evidence suggests the move may be costing the Treasury far more than it saves.
According to a recent audit from the Treasury Inspector General for Tax Administration (TIGTA), revenue collected through IRS audits fell by 35% during fiscal year 2025. A decline that translates into billions of dollars in taxes that will likely never be recovered. The decrease falls in line with a 27% reduction in the agency’s enforcement and collections staff, part of a broader push for government efficiency associated with Elon Musk’s initiative.
Reversal of Recent Gains
Under the Biden administration, the IRS had expanded its audit workforce specifically to chase down a portion of the roughly $696 billion in taxes that go unpaid annually – driven largely by individuals and businesses underreporting income. That investment appeared to pay off because audit-related revenue climbed 41% in 2024.
Much of that progress was lost in 2025. Due to layoffs and early retirement offers, the agency staff dropped more than 25,000 employees. Out of that loss, 3,600 were tax examiners. This has resulted in audit revenue declining from $10 billion in fiscal 2024 to just $6.5 billion in fiscal 2025.
Natasha Sarin, who previously advised former Treasury Secretary Janet Yellen on tax policy, argues the math doesn’t favor budget cutters. “Defunding the IRS is not a money-saving proposition because you have fewer employees,” said Sarin, now a professor at Yale Law School. “It is a money-losing one, because you do a less good job of collecting taxes.”
Audits Do More Than Recover Money
The report suggests the true cost of the cuts could extend well beyond the dollars lost in direct audit revenue. Audits don’t just recover unpaid taxes, they also discourage tax fraud in the first place by signaling that the IRS is watching.
Sarin compared the effect to traffic enforcement: “You’re less likely to speed when you know that there’s a cop on the beat.”
IRS Chief Executive Officer Frank Bisignano has pushed back on the narrative that enforcement has weakened, telling lawmakers earlier this year that the agency is leaning on technology to make its audit selection process more precise and efficient.
Wealthy Filers and Partnerships See Less Scrutiny
During Biden’s presidency, increased staffing had been aimed at ramping up oversight of high-income individuals and complex partnership structures. These are specific areas that saw the biggest pullback once auditors began leaving. Audits of partnerships, for instance, dropped 76% between 2023 and 2025.
Sarin says that decline matters disproportionately, since the wealthiest filers account for an outsized share of unpaid taxes overall. “Disproportionately, this is about the tip-top of the [income] distribution,” she said. “Something like the top 1% of earners are responsible for something like a third of the tax gap.”
More Cuts Are Expected
The IRS kept losing staff over the first four months of this fiscal year, and the Trump administration is pushing for additional funding reductions at the agency in 2027.
What This Means For You
Compliance still matters. Audit activity does more than recover unpaid taxes, it keeps people honest. Eventhough reporting behavior may loosen across the board over the next few years, that’s exactly why clean, well-documented returns matter most. This is both to protect you if you are selected for audit, and to keep you out of a pool of returns that eventually gets fresh enforcement attention once staffing rebuilds.
We strongly advise to treat this as a moment to be more disciplined, not less.
– Keep thorough records
– Document your positions on gray-area items
– Don’t assume a less active IRS means a lower bar
Enforcement priorities shift with funding and administrations. What’s overlooked today can become a priority again really quick, and the returns filed during a low-enforcement window don’t stop being auditable once staffing increases.
Resources:
1 NPR: The IRS slashed its staff. One result? More taxes going uncollected
TIGTA Report (Treasury Inspector General for Tax Administration) – PDF
U.S. Treasury Inspector General for Tax Administration: All Reports