Recent reports (“Reports”) from the Treasury Inspector General for Tax Administration (“TIGTA”) indicate that IRS enforcement revenue, which includes amounts collected through audits, appeals and collection activities, declined significantly (by 35%) from fiscal year (FY) 2024 to FY 2025, coinciding with a 27% reduction in audit and collection staffing. According to TIGTA, IRS generated $93.8 billion in FY 2025, down from $98.7 billion in FY 2024. The decrease largely comes from the drop in audit revenue. Notably, total revenue increased from $5.1 trillion to $5.3 trillion over the same period.

The Reports noted that audit activity declined sharply with respect to partnerships and higher-income individuals. Partnership audits dropped from 6,709 in FY 2023 to 1,589 in FY 2025, a 76% decrease. The decline is attributed to IRS efforts to launch a new passthrough exam unit, as well as staffing cuts that occurred during 2025. Individual audit activity fell as well. Between FY 2024 and FY 2025, the IRS opened 27% fewer audits for individuals making more than $400,000 per year, with the total amount of individual audits decreasing by 30% during the same period. However, revenue collected from IRS collection functions, which includes automated collection notices, increased by 17% from FY 2023 to FY 2025, with TIGTA stating that the contributing factors included (i) the restarting of notice programs (e.g., the balance due notices and notices of intent to levy) in February of 2024 that were paused during the pandemic, and (ii) revenue from the IRS automated collection system, which is a centralized computerized collection system used to handle balance-due accounts and delinquent return investigations that are not assigned directly to field collection revenue agents. Interestingly, the automated collection system revenue increased from $12.7 billion in FY 2024 to $14.1 billion in FY 2025 after losing 1,971 employees. In addition to resuming collection notices, the IRS sent nearly 1.7 million notices in FY 2024 and 3.2 million notices in FY 2025 to taxpayers who failed to file tax returns in tax years 2018 through 2023.

As audit activity declines, some taxpayers may be more tempted to take aggressive tax reporting positions. However, we cannot help but wonder the extent to which AI will evolve to enhance the IRS’s ability to identify tax returns for audit. As tax professionals, we must remember that a reporting position must have, at a minimum, reasonable basis, which is defined in Reg. §1.6662-3(b)(3) as “a relatively high standard of tax reporting, that is, significantly higher than not frivolous or not patently improper.” Attaching Form 8275 or Form 8275-R to the return to take penalties off the table is often recommended when reporting a tax position that has reasonable basis but may lack substantial authority.

Registration is in full swing for this year’s Tax Planning Forum® and Fundamentals of Flow-Through® programs. We hope that you will consider attending either or both of these virtual or in-person programs or our new Fundamentals QAS self-study program. We encourage you to register soon, especially if you are interested in either of our in-person programs in Las Vegas or Orlando where space is limited.