Budget Cuts and Workforce Reductions Threaten IRS Audits for High-Income Taxpayers

Matthew D. Lee of Fox Rothschild cites a new report from the Treasury Inspector General for Tax Administration (TIGTA) that confirms the IRS audits of high-income taxpayers in FY2024 have increased, aligning with a 2022 Treasury Directive mandating that additional enforcement resources avoid targeting households and small businesses earning under $400,000. 

However, the outlook has since reversed. A federal hiring freeze and budget cuts enacted in early 2025 have resulted in a 31% reduction in revenue agents and significant losses across critical divisions, severely limiting the agency’s capacity to maintain or expand high-income audit efforts.

The focus on high-income audits followed the 2022 Inflation Reduction Act (IRA), which originally allocated $79.4 billion to the IRS, with a significant portion designated for enforcement. However, subsequent congressional action has reduced that funding to $37.6 billion, sharply limiting enforcement resources.

According to TIGTA, the IRS significantly expanded its audit coverage of high-income individuals, with planned audits for those earning above $400,000 reaching nearly 2.5 times the average level seen from FY2019–2023. In parallel, IRS audits of lower-income filers decreased, including a 53% decline in Earned Income Tax Credit (EITC) examinations compared to the prior year. These trends reflect deliberate adherence to the Treasury Directive and a meaningful reallocation of resources.

While FY2024 marked a significant step toward fairer audit targeting, ongoing reductions in staffing and funding may erode progress and weaken future enforcement capabilities.