Fewer Agents, Fewer Audits: How IRS Staff Cuts Are Changing Enforcement

Significant reductions in the IRS workforce appear to be increasing the number of 'no change' audit closures. The shift could potentially increase the overall tax gap — the difference between taxes that should have been paid and those that were.

By Bill Smith

published 18 June 2025

in Features

A wooden IRS Audit stamp sits atop a stack of papers next to a calculator and magnifying glass. — (Image credit: Getty Images)

In May, the U.S. Treasury Inspector General for Tax Administration (TIGTA) released a report examining the details of the reduction in workforce that the IRS has been experiencing since the dismissal of probationary employees and the deferred resignation program (DRP) went into effect.

The report found that the IRS has seen an 11% reduction in its workforce, with even larger reductions in specific areas.

For example, the number of revenue agents, the employees responsible for conducting IRS taxpayer audits, was reduced by almost one-third (31%).

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Other groups were also hit harder. For example, the Tax Exempt & Government Entities (TE/GE) Division was also reduced by 31%, the Large Business and International (LB&I) Division by 25%, and the Small Business/Self-Employed (SB/SE) Division by 21%.

To further complicate matters, in May the administration released a budget proposal that would slash IRS funding by $2.5 billion, about 20% of its $12.3 billion budget from the prior fiscal year.

And the Senate Finance Committee advanced the nomination of Billy Long as the next IRS commissioner. Kiplinger.com’s Kelley R. Taylor, senior tax editor, noted this about Long:

“[T]he former congressman's background as a certified auctioneer with limited tax experience and no college degree distinguishes him from typical IRS commissioner nominees. … [In] Long’s May 20 Senate confirmation hearing … [s]ome senators pressed Long on his role in marketing so-called ‘tribal tax credits’ that the IRS says don't exist, and his financial gains from those activities.”

This begs the question of how such employee and budget reductions, and potential leadership changes, are impacting IRS audits.

Our anecdotal evidence

While the IRS and TIGTA have not released any information, we at the CBIZ National Tax Office are receiving anecdotal evidence that audits are being closed with “no change.”

Practitioners in the middle of active audits have been surprised to receive letters stating: “We've completed the review of the examination of your tax return for the year(s) shown above. We made no changes to your reported tax.”

While the letters do not give the specific reason for the no-change closure, our practitioners have been told that a lack of personnel was, in fact, the issue.

Sometimes the message is more direct. This comes from a letter that we received following up on a voicemail:

“[Practitioner], I left you a message earlier this morning. I wanted to let you know we are in the process of closing your case as a ‘no change’ due to resource constraints and you will receive a letter once the case is processed for closure. If you had any [Information Document Requests] you were working on, you can disregard them.”

Counterintuitively, audits that have gone to the Appeals office seem to be receiving expedited treatment. Again, anecdotally, we have experienced numerous situations in which Appeals officers have been much more proactive than they had been historically in contacting taxpayer representatives and resolving issues.

How will this impact the IRS approach to audits?

Examination rates, even before the impact of the recent reductions, have historically been very low. The IRS reported as recently as April 2025:

“The exam coverage rate for TY 2019 (the most recent year outside the statute of limitations period) of individual taxpayers reporting total positive income (TPI) of $10 million or more was 11.0%. The rate for taxpayers with TPI of $5 million-$10 million was 3.1%, and 1.6% for those with TPI of $1 million-$5 million.”

The rate for individuals with earnings under $1 million is below 1%.

We expect those numbers to dip even further with the new personnel constraints. The IRS has been moving toward improved technology to catch errors and impose deficiencies without the need for revenue agent audits.

However, those technology improvements have also taken a hit as Congress chips away at the $80 billion budget increase the IRS received for the 10-year period ending in 2031 under the Inflation Reduction Act.

In January 2024, the Tax Policy Center painted a grim picture of IRS resources before the current reductions, including:

Between 2010 and 2022, Congress cut the IRS’ appropriations by 24% (in 2023 dollars). The biggest cutbacks were in funding for enforcement, down 28%.
IRS employment dropped by 30% from 1993 to 2022. Over half of the drop in FTE occurred since 2010, in large part because of the combination of a seven-year hiring freeze and a workforce reaching retirement age.

This puts the IRS in a quandary, especially since there are more returns and refunds to process every year. It will need to be tactical in its approach to audits, and we anticipate the focus will continue to shift from individuals to high-income entities to get a higher return on the audit investment.

This will apply particularly to large pass-through entities, whose audit rates are out of line compared with corporations with similar income levels.

This approach, however, means the IRS will be auditing entities much more likely to receive competent tax advice and, as a result, showing fewer potential audit changes.

How will this affect professional advice and taxpayer behavior?

Tax professionals are bound by a series of rules that determine what type of advice we are allowed to give. All of those rules make it very clear that we cannot advise a taxpayer to take a position on a return based on the possibility of whether it will be audited.

So, we don’t anticipate that reputable tax professionals will ignore their professional obligations when advising clients about reporting “risky” positions on their tax returns.

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Taxpayers, of course, are not bound by such constraints. They are also less able to assess the risk level of certain tax positions and more likely to be influenced by the potential tax savings derived from taking a position.

Ultimately, we believe the combination of these two factors involving taxpayers and their advisers is likely to result in two shifts in philosophy and activity:

Tax professionals who have traditionally been conservative in advising their clients (for example, to eliminate any risk in the event of an audit) may be more open to advising them to take positions that involve higher risk upon audit but still fall into the category where the preparer can sign the return without disclosure of the position (an “allowed position”).
More taxpayers will be open to taking riskier allowed positions.

Due to further audit rate decreases, these changes will clearly result in loss of revenue collected by the IRS and a corresponding increase in the tax gap — the spread between all taxes that should have been paid and those that were.

That being said, as long as a position is an allowed position, tax professionals are permitted to advise clients that the preparer can sign the returns that include those positions, and taxpayers are equally allowed to take the positions on their returns.

Ultimately, the evolving landscape will require both taxpayers and tax professionals to navigate this changing environment strategically and responsibly.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Bill Smith, National Director of Tax Technical Services at CBIZ's National Tax Office, consults nationally on a broad range of tax services for corporations, partnerships, LLCs and individuals. He has more than 40 years of experience in both the public and private sectors representing businesses of all sizes and high-net-worth individuals in developing and implementing tax strategies.