IRS Enforcement Takes Another Big Hit As Budget Request Shrinks

The IRS saw a 27% reduction in total staffing between January and December 2025, falling from about 102,000 to 74,000 employees. The latest IRS budget proposal would eliminate another 4,000 positions, bringing IRS staffing to its lowest level in the modern era.

A Smaller Budget

Under the Trump Administration, the IRS has requested just $9.8 billion in discretionary funding for FY 2027, down from the $11.2 billion Congress enacted in FY 2026—a $1.4 billion reduction. Taxpayer services would see a small budget bump (3%), while spending on enforcement and technology & operations support would both be cut dramatically, by 18%.

Staffing Changes

The IRS estimates that a 4,875-employee staffing reduction “will yield significant savings to the taxpayer, once fully implemented,” amounting to nearly $778 million. The budget proposal would make staffing changes in three areas: taxpayer services, enforcement, and technology & operations support. Combined with cuts made in 2026, enforcement staff would fall by nearly 30% from fiscal 2025 and by 35% from its level in the last full year of the Biden Administration.

Enforcement

Enforcement would absorb essentially all of the staffing cuts, with staffing declining by 4,794 FTE (full time equivalents), or 17%, driven by the largest reductions in examinations and collections—that is, the core functions that enforce tax laws and ensure proper payment and reporting.

Smaller but still significant cuts would apply to Criminal Investigations and regulatory functions. Regulatory work includes developing published IRS guidance materials, interpreting tax laws, providing internal advice to the IRS on general non-tax legal issues, enforcing regulatory rules, laws, and approved business practices, and supporting taxpayers in the areas of pre-filing agreements, determination letters, and advance pricing agreements.

To raise revenue, it’s likely the IRS will lean heavily on its Automated Underreporter (AUR) Program—that’s a long way of saying forms matching. The program compares information returns filed by third parties (such as Forms W-2 and 1099) with amounts reported on individual tax returns. If discrepancies can’t be resolved, the IRS issues proposed notices and assessments. This is, as tax professionals call it, low-hanging fruit. And since the AUR program is largely data-driven and requires less staffing, expect more emphasis on this kind of enforcement activity and less on more resource-intensive work like offshore compliance and large partnership audits. The result? Uneven enforcement. Matching is effective in policing salaried workers and ordinary investors, but the high staff need partnership audits are key to auditing the very rich.

But the overall reductions in enforcement raise immediate questions about revenue, since IRS enforcement programs have historically delivered strong returns. According to the IRS’s own data, for every $1 the IRS spends on enforcement, it collects roughly $11 to $13 in revenue. That’s a pretty good ROI (return on investment) by most standards.

When it comes to collections, the numbers are even more impressive. In recent years, IRS collection activities have generated returns of approximately 33 to over 40 times their cost, making them the highest-return enforcement function. That is largely due to the overall cost, since collections often involve already-assessed liabilities and require less investigative work than audits. That makes it easier to achieve a high success rate per dollar.

This suggests the IRS is betting on fewer audits and reduced traditional compliance activity, expecting that technology and data targeting will offset some of the lost capacity. According to Frank Bisignano, the IRS’s “CEO” (a role that did not previously exist and has not been formally authorized by Congress), “The IRS is modernizing enforcement through expanded use of artificial intelligence, advanced analytics, and improved data integration.”

Historically, reduced enforcement resources have been associated with lower audit coverage and reduced deterrence, which can lead to increased noncompliance. Even modest reductions in enforcement visibility can lead to disproportionate increases in noncompliance, as former IRS CI Chief Guy Ficco highlighted recently.

Technology & Operations Support

That, of course, tees up the technology category. Under the new proposal, staffing in technology and operations support would remain essentially flat. The IRS would hold IT staffing constant to support modernization, but would expect those teams to operate more efficiently and absorb increased workload as other parts of the agency contract.

That sounds like better news than it is, considering that the leveling off follows a period of steep decline. At an industry event earlier this year, IRS Chief Information Officer Kaschit Pandya said the agency lost approximately 40% of its IT staff and nearly 80% of its executives in 2025.

And while staffing would hold steady, the dollars would not. The technology and operations support budget would drop 18%, with a steep 63% decline in infrastructure funding. The cuts to the technology budget were requested even as Bisignano framed the budget around three strategic priorities: (1) data-driven enforcement, (2) a digital-first taxpayer experience, and (3) enhanced privacy and cybersecurity.

Taxpayer Services

Staffing for taxpayer services is the only area projected to grow in the FY 2027 request, increasing by about 1,072 FTE, or 5%, entirely within filing and account services. These programs process paper and electronically submitted returns, issue refunds, and maintain taxpayer accounts. According to the budget proposal, the increase is directly tied to the One Big Beautiful Bill Act (OBBBA). Staffing and funding increases are intended to meet OBBBA-related phone and online demand and to implement outreach activities that inform taxpayers about new legislative initiatives and provide support to taxpayers and tax practitioners across multiple platforms to encourage voluntary tax compliance. This signals a clear prioritization of front-end operations—return processing, call centers, and account management.

Pre-filing taxpayer assistance would remain flat. Pre-filing taxpayer assistance and education covers all the IRS activities designed to help taxpayers understand and comply with tax laws before they file their returns. These activities include publishing forms and instructions, maintaining IRS.gov guidance, answering tax law questions by phone or in person, and supporting outreach programs such as VITA and Tax Counseling for the Elderly. The purpose is preventive: By improving clarity and access to information up front, the IRS reduces filing errors, the need for audits or corrections later, and supports voluntary compliance, making it a key, though often less visible, part of the agency’s overall compliance strategy.

The budget proposal also highlights the IRS toll-free customer service telephone operation, which the agency calls “a key part of the IRS’s service delivery.” Despite the push for more online services, taxpayer experience research continues to show that phone service remains a preferred channel.

Last year, the Treasury Inspector General for Tax Administration (TIGTA) evaluated the IRS’s efforts to improve telephone access and reduce taxpayer wait times when calling for assistance and found room for improvement.

In terms of dollars, the budget includes a $94.4 million increase to maintain customer service levels, including phone services. This reflects anticipated demand from the implementation of OBBBA, which introduces new tax provisions that require additional outreach, guidance, and taxpayer support. The IRS explicitly warns that failing to fund this increase would lead to longer call wait times, delayed responses in digital channels, and greater reliance on costly paper-based interactions.

Disappearing IRA Money And Other Resources

The 2027 Budget requests $9.8 billion from Congress, but notes that, “including other resources, the total request of $15.9 billion represents a change of -2.5 percent from FY 2026.”

Those other resources include existing funding, such as from the 2022 Inflation Reduction Act. The IRA provided $80 billion in funding to the IRS to improve enforcement and close the tax gap. However, of the roughly $80 billion initially appropriated, about $54 billion has been rescinded, with the remaining funds projected to be exhausted by FY 2028. The budget proposal notes that the disappearing IRA funds mean that the IRS “is in the process of re-evaluating its modernization plan to duly prioritize investments.”

The Job Of the IRS

In fiscal year 2025 (which ran from October 1, 2024, through September 30, 2025), the IRS collected more than $5.3 trillion in revenue, processed over 271 million returns, and issued approximately 113 million refunds totaling nearly $358 billion.

According to the IRS, the agency “delivered one of the most successful filing seasons in years” in April 2025, with telephone assistors answering 87% of calls received on our main telephone lines with an average wait time of just three minutes.

That assessment was echoed by Erin Collins, the National Taxpayer Advocate, in her Annual Report to Congress last year. But she also noted that cuts in personnel and the absence of consistent leadership have created “significant challenges.” And when referencing the 2026 budget, Collins raised concerns about funding, suggesting it would likely impact taxpayers and potentially revenue collected.

Collins made those comments when the IRS budget was just over $12 billion—and before OBBBA ushered in a new round of tax changes. That same year, nearly 141 million individual returns were received. The IRS expected to receive 164 million individual returns by April 15, 2026, an increase of approximately 16%.

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