By Karen Hube

The tax cuts enacted last month aren't the only good news for high-income taxpayers.

The risk of an in-depth audit by the Internal Revenue Service is likely to ease this year, reversing a two-year trend of rising scrutiny of higher earners and partnerships, tax experts say.

Last year, taxpayers making in excess of $400,000 were more than twice as likely to get audited than in previous years, according to the U.S. Treasury Inspector General for Tax Administration (TIGTA). High-end audits brought in $1.3 billion by the end of last year, the IRS reports.

The rise in high-end audits was enabled by an increase in IRS agents and technological improvements after nearly $80 billion in extra funding was allotted for the agency over 10 years under the Inflation Reduction Act (IRA) of 2022.

The surplus funding was an effort by former President Joe Biden to strengthen the IRS after a decade of budget cuts left the agency under-staffed with a dismal taxpayer service record, antiquated computers and historically low audit rates. That included near-zero audit rates for certain groups with suspected large tax underpayments, like partnerships.

Now, a 25% reduction in staff in the first half of this year under President Donald Trump, along with a freeze in IRA funds and the administration's threat to cut the IRS's annual budget, will leave fewer resources to do the kinds of investigative audits to recover big sums that taxpayers owe but haven't paid.

The IRS, which collected $5.1 trillion in 2024 taxes, estimates there is about $700 billion that goes uncollected each year, a shortfall referred to as the tax gap.

"The IRA gave a boost to audits, and the administration is reversing that boost right now," says Alex Muresianu, senior policy analyst at the Tax Foundation.

Whether recent years' progress in bumping up high-end audits has been entirely reversed isn't known, because audit data takes years to compile, Muresianu says.

"We can make sound predictions about the direction of trends, but the magnitude of the impact will take years to come out," he says.

People making less than $400,000 annually weren't a target of the IRS's ramped up enforcement last year, and actually saw audit rates decline, according to TIGTA.

The IRS didn't reply to requests for comment.

While staff has been cut across the IRS -- the most recent staff count is 76,000, down from last year's 102,000 -- some of the deepest cuts are to areas critical to recovering uncollected taxes.

According to a July TIGTA report, the number of tax examiners -- workers who collect taxes and determine tax liabilities -- was down by 27% as of May. And the number of agents who conduct audits was down 26%.

The size of the IRS's criminal investigations unit, responsible for uncovering criminal tax evasion, was down by more than 10% by June, according to the National Taxpayer Advocate.

Tax pros say that some audits that were opened last year have stalled.

"Some of our partners have had audits suspended. That doesn't mean the cases were closed, it means they're in limbo," says Ryan Losi, a partner at CohnReznick Advisory. "What you don't know if you're one of those taxpayers being audited is whether the IRS will pick it back up and conclude things. It's a wait and see process."

Sean McKay, a partner at UHY, says that communication with the IRS over an audit that was opened in May of last year has gone dark.

"We sent the IRS stuff, then they asked for more stuff and I submitted a second round of documents in November of 2024, but since then I haven't heard from them," McKay says. "It's weird they wouldn't have reached out at this point."

While last year he saw a notable increase in audits, "it seems we're not going to get many of the more in-depth audits in the near future," McKay says.

But don't get complacent. Some firms report that new audits are still being opened up.

"There was a pause for a few months, but we have seen existing cases being looked at again, and I've seen a few new cases," says Miri Forster, a partner and national leader of the tax controversy and dispute resolution practice at Eisner Advisory Group.

Part of the IRS's pre-2025 improvements using IRA funds included incorporating artificial intelligence to scour returns for signs of potential underpayments.

Whether the agency will be able to advance those efforts remains to be seen -- the IRS information technology department lost 25% of its staff recently -- but improvements already in place could help the IRS continue to increase its correspondence audits, says Brett Bissonnette, leader of Plante Moran's tax controversy services practice.

These audits are usually by mail and focus on a specific taxpayer claim on a single year's tax return, rather than broadly examining a taxpayer's multiyear tax returns.

"Maybe we'll see less of the face-to-face exams, because there are fewer agents. But the IRS might say, 'Send us proof of the $170,000 mortgage interest deduction you've claimed,'" he says. "The IRS is learning to do more and be more targeted with data analytics."

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August 09, 2025 04:00 ET (08:00 GMT)

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