The Internal Revenue Service (IRS) is facing growing delays and cancellations of tax audits as its workforce continues to shrink, raising concerns that audits may decline even further.
Layoffs Directly Impact Taxpayers
Peter Son, CPA, told The Korea Daily that restructuring has already affected taxpayers. “We’ve seen cases where audits were postponed after staff layoffs and ultimately never carried out,” he said. According to tax experts, there are also cases where audits dragged on for more than a year before the responsible staff were dismissed or decisions delayed.
Audit Rates Hit Historic Lows
Audit delays are not a new issue. The IRS audit rate has steadily declined for years. The New York Times recently reported that between 2020 and 2023, the effective audit rate fell below 0.5%, roughly one-third of the rate in 2010 and the lowest since 1950.
While audit reductions have been seen across all income brackets, the sharpest drop has occurred among high earners. For households earning over $10 million annually, the audit rate plunged from 21.5% in 2010 to 11% in the 2020s.
Budget Cuts and Layoffs Drive the Decline
The main cause of the audit decline is staffing cuts. The IRS reduced its workforce by about 20% between 2010 and 2020. Although the Biden administration sought to bolster staffing through the Inflation Reduction Act (IRA), mass layoffs resumed after President Trump returned to office.
The Trump administration is now considering further layoffs that could slash the IRS workforce by half.
Billions in Lost Tax Revenue
Fewer audits have also hit tax collections. Audits of 2010 income yielded $11 billion in additional revenue, compared to around $4.5 billion for 2019 income (audits still ongoing). Internal IRS projections warn that tax revenue losses could reach as high as $2.4 trillion over the next 10 years.
Experts also warn that reduced audit enforcement could worsen tax evasion. Citing a study by the University of Pennsylvania, the New York Times noted that taxpayers who undergo random audits tend to pay more taxes over the next decade, generating nearly three times the initial audit’s revenue.
Automation on the Horizon, But Stay Prepared
Some argue the drop in audit rates may be temporary. The Division of Government Efficiency (DOGE) is advancing IRS automation initiatives, which could help offset staffing gaps once the systems stabilize.
James Cha, CPA, cautioned taxpayers not to become complacent. “Even with declining audit rates, you shouldn’t let your guard down,” he said. “Keep your records well organized and seek professional help if you’re audited.”
BY WONHEE CHO [cho.wonhee@koreadaily.com]
