Underreporting accounted for $539 billion of the $696 billion in tax the IRS estimates went unpaid for 2022. Audits, which are how underreporting gets found, brought in $6.5 billion last year.
That $6.5 billion is the number in the headlines, because it is down 35 percent from $10 billion the year before. The Treasury's tax watchdog published it last week alongside the reason: the IRS lost about 27 percent of its examination and collection staff in fiscal 2025, and by January was down to 17,517 people from 27,217 at the end of fiscal 2024.
Total enforcement revenue barely moved. It fell 5 percent, from $98.7 billion to $93.8 billion, and audits were never where the money was. The collection function brought in $81.8 billion of that, 87 percent of the total.
Collection is not auditors. It is the notice stream — automated letters demanding payment, reminders, notices of intent to levy, and letters to people who never filed. The IRS paused most of it during the pandemic and switched it back on in February 2024. It sent no nonfiler notices in fiscal 2023, 1.7 million in 2024, and 3.2 million last year. Collection revenue rose 17 percent over the three years and covered the declines in every other category.
The two piles are made of different things. Collection chases tax that has already been declared and not paid, which the IRS puts at $94 billion, or 14 percent of the gap. Examination chases income that was never declared — $539 billion, or 78 percent. The watchdog puts it plainly: with the resources, the IRS could have more impact on underreporting by increasing enforcement.
None of this broke the year. Taxpayers paid $5.3 trillion in fiscal 2025, the most ever recorded, and enforcement revenue of any kind was 1.7 percent of that. The agency's chief executive told Congress in April that data and analytics now catch evasion that would have been invisible a few years ago.
What the report does say is that the audit number lags. Examination starts fell 30 percent last year, partnership examination starts went from 6,709 in 2023 to 1,589, and the high-wealth unit had 27 percent fewer staff in January than before the cuts. Examinations take years to close, so the $6.5 billion reflects work opened before any of this. The supplemental enforcement money ran out on December 31, and this year's enforcement spending is estimated 29 percent below last year's.
Automated notices work on tax somebody has already written down. The $539 billion is the part nobody has. That is the part that needs a person to go and look, and the examination and collection ranks are 9,700 people smaller than they were at the end of fiscal 2024.
Automated notices work on tax somebody has already written down.
