IRS Audit Staff Cuts Slash Tax Enforcement Revenue by 35 Percent

The IRS’s 27% cut in auditing staff triggered a 35% plunge in tax enforcement revenue in fiscal year 2025.

The Treasury Department’s Inspector General for Tax Administration reports that these staffing reductions led to billions of dollars in unpaid taxes going uncollected, highlighting a structural weakening of the IRS’s ability to close the nation’s growing tax gap.

More than 25,000 IRS employees were laid off or took early retirement in 2025, including roughly 3,600 tax examiners, causing audit-generated revenue to fall from $10 billion in 2024 to $6.5 billion in 2025. Audits of partnerships declined 76% between 2023 and 2025. Natasha Sarin, former counselor on tax policy to Treasury Secretary Janet Yellen, emphasized that reduced enforcement is not cost-saving but rather a money-losing strategy due to diminished tax collection. The IRS previously increased auditing staff under the Biden administration to address an estimated $696 billion annual tax gap, concentrated heavily among the top 1% of earners.

Staffing levels have continued to decline in the first four months of the current fiscal year, and the Trump administration has proposed further cuts in 2027.

Montana businesses could feel indirect effects if federal tax enforcement weakens, potentially encouraging more aggressive tax strategies or reducing voluntary compliance locally. Given Montana’s dispersed population and economic diversity, reduced IRS oversight might complicate the state’s tax administration and economic predictability.

The IRS slashed its staff. One result? More taxes going uncollected
By Scott Horsley, NPR