IRS cuts staff, leading to $696 billion in unpaid taxes

The IRS has seen a significant decline in tax collection due to staffing cuts made last year. A recent report from the Treasury Department's Inspector General for Tax Administration reveals that revenue from audits fell by 35% in fiscal year 2025. This drop translates into billions of dollars in unpaid taxes, coinciding with a 27% reduction in enforcement and collection staff at the agency.

The cuts to the IRS staff were part of a broader cost-cutting initiative aimed at streamlining government operations. However, the move has backfired, as it has hindered efforts to collect an estimated $696 billion in unpaid taxes, primarily from individuals and businesses that underreport their income. The IRS had previously increased its auditing ranks during the Biden administration, leading to a 41% rise in audit-related revenue in 2024. This progress has now been largely reversed, with over 25,000 employees, including about 3,600 tax examiners, laid off or taking early retirement last year.

Experts are raising concerns about the long-term implications of reduced IRS staffing. Natasha Sarin, a former counselor on tax policy to Treasury Secretary Janet Yellen, argues that cutting funding for the IRS is not a cost-saving measure; instead, it results in a loss of revenue due to less effective tax collection. Audit revenue plummeted from $10 billion in 2024 to just $6.5 billion in 2025, and this decline may have broader impacts on tax compliance. Sarin notes that audits serve a deterrent function, suggesting that fewer audits may lead to increased tax evasion.

As staffing levels at the IRS continue to decline, the agency's ability to enforce tax laws is under increased scrutiny. IRS CEO Frank Bisignano has defended the agency's record, claiming that technology is being used to enhance the efficiency of audits. However, the cuts have disproportionately affected audits of high-income earners, with partnership audits dropping by 76% between 2023 and 2025. This raises questions about the future of tax compliance, especially as proposals for further funding cuts to the IRS are anticipated in the coming years.