A new report from the Treasury Department's Inspector General for Tax Administration found that revenue collected through IRS audits plunged 35 percent in fiscal year 2025.

Audits generated $6.5 billion last fiscal year, down from $10 billion in 2024. The decline followed a 27 percent reduction in enforcement and collection staffing at the agency.

More than 25,000 IRS employees left through layoffs or early retirement in 2025, including roughly 3,600 tax examiners. The cuts formed part of broader government efficiency initiatives led by the Trump administration.

The inspector general noted that the loss in audit revenue outweighed savings from the reduced headcount. Downstream effects of the staffing reductions are expected to become more apparent over time.

Individual audits fell sharply, with the IRS initiating 30 percent fewer examinations of individuals compared to the prior year. Audits of high-income taxpayers also declined, including a 26 percent drop for those earning over $400,000.

Despite the drop in audit proceeds, overall federal tax revenue rose 4.2 percent to $5.3 trillion in fiscal 2025. Collections from other compliance activities, such as mailed notices and phone contacts, remained largely steady.

The report comes as the agency continues to adjust following the expiration of prior supplemental funding and subsequent budget adjustments.