World Economy

IRS Audit Cuts Backfire as Tax Collections Plummet 35%

A Treasury Department Inspector General report shows that slashing IRS enforcement staff has cost the government billions in uncollected taxes. Revenue from audits dropped 35% in fiscal 2025, falling to $6 billion from $10 billion in the prior year. The decline followed a 27% reduction in enforcement and collection staffing, with more than 25,000 IRS employees laid off or accepting early retirement, including approximately 3,600 tax examiners. The move reversed gains made during 2024, when increased auditing ranks generated a 41% increase in audit-related revenue. The Inspector General warns that long-term damage will likely worsen over time. The estimated $696 billion in annual unpaid taxes—mostly from underreported income—continues growing as compliance monitoring weakens. Tax experts note the revenue loss from reduced collections far exceeds any operational savings from workforce reductions.