The IRS has shed tens of thousands of employees since 2025, which may sound like a reason for small business owners to celebrate. After all, fewer IRS workers means fewer audits, right?
Not so fast. The truth is, we don’t actually know how these cuts have affected audit risk yet. Add in the fact that the IRS also has other tools at its disposal for audits, and you’ll see why it’s a smarter idea to slip the celebratory champagne back into the fridge and keep playing by the rules. Here’s what you need to know.
The numbers behind the IRS shakeup
Between January 2025 and January 2026, over 31,000 IRS employees separated from the agency, accepted deferred-resignation offers, or left through other incentives. Here’s a breakdown of those numbers:
- The total separations accounts for about 30% of the IRS’s workforce.
- Roughly 33% of revenue agents (the employees behind the audits) left the agency.
- 9,796 employees from the Small Business/Self-Employed division separated from the IRS. This represents about 39% of that division’s workforce.
You don’t have to be a math major to see that these cuts left substantially fewer humans in the mix.
Fewer auditors, fewer audits?
If you’re worried about a small business IRS audit, fewer auditors sounds like good news. But the annoyingly unsatisfying truth is that there’s no actual proof of this yet. That’s because audit data lags behind staffing changes since examinations (AKA audits) can start or remain open for years after a return is filed. As a result, recent IRS cuts can’t just be plugged into the latest audit numbers to calculate a new percentage.
What we do know is that the IRS was still auditing plenty of returns in fiscal year 2025. The IRS closed nearly half a million tax return audits, resulting in a recommended $26.8 billion in additional tax. Could fewer auditors eventually affect the numbers? Sure, but there isn’t enough data at this time to confidently say your IRS audit chances have changed.
And there’s another snag to keep in mind. The IRS didn’t lose the data businesses send every year – or the technology it uses to sort it.
Find out what’s working behind the scenes to pick up some of the slack.
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Bring in the backup
The IRS already uses computerized screening to identify returns that may need a closer look. This system also compares what taxpayers report to W-2s, 1099s, and other information supplied by third parties. Think of it this way. If your W-2 says you made $50,000 and you only report $40,000 on your return, the computer is smart enough to call out the mismatch.
The IRS also uses artificial intelligence and machine learning in its return selection process. Now, before you think that Robo-Auditor 3000 is demanding to see your mileage log, just know that these tools help identify and prioritize issues for human examination.
Basically, the IRS audit process doesn’t rely on thousands of people marking returns with neon yellow highlighters. The agency continues to use its computerized tools to flag certain tax returns.
sPEAKING OF RECEIPTS…
The IRS shakeup isn’t the adult equivalent of the teacher leaving the classroom. Whether your audit risk is up, down, or sideways, it doesn’t matter. The staff numbers changed. Tax requirements did not.
W-2s, 1099s, and other information can still be matched against your return. As a business owner, it’s still your responsibility to report all income, claim only the credits and deductions you qualify for, and make sure the numbers are accurate before filing.
There isn’t enough information to say exactly how the IRS cuts changed audit risk for small businesses. What we do know is that fewer employees did not eliminate computerized screening, info matching, or AI. Clean books, solid records, and an accurate return are part of a great tax strategy. We can’t say the same for making the IRS headcount part of your tax plan.
