An Underfunded IRS Is a Gift to the Wealthiest Tax Cheats

In 2019 a team of reporters at ProPublica asked a simple question of the IRS's own data: where in the United States is a taxpayer most likely to be audited? The answer was not Manhattan, or Greenwich, or Palo Alto. It was Humphreys County, Mississippi, a rural, majority-Black county in the Delta where many families are poor. The reason had nothing to do with corruption in the cotton fields. Years of budget cuts had left the IRS without enough experienced examiners to untangle the returns of the very rich, whose audits take a skilled team months or years. So the agency leaned on the cheapest audits available, automated correspondence reviews of low-income families claiming the Earned Income Tax Credit, which can be handled by mail. The poorest county in a poor state had become the face of American tax enforcement. That is what an underfunded tax agency looks like, and it is why the fight over IRS money is not about bureaucracy. It is about who gets checked.

In short: For years the IRS lacked the staff to audit complex high-income returns, so enforcement fell disproportionately on low-income families and the wealthiest underpayers faced little risk. The Inflation Reduction Act of August 2022 gave the agency a decade of new funding aimed largely at enforcement against high earners, but Congress clawed back much of it and the agency lost tens of thousands of workers in 2025. I'd argue a well-funded IRS is one of the most progressive tools in government.

A decade of starving the collector

After Republicans won the House in the 2010 elections, the IRS budget was cut and then held roughly flat for years while the number of returns, and their complexity, kept growing. Adjusted for inflation, the agency had substantially less to work with by the late 2010s than at the start of the decade. Its enforcement workforce shrank. Experienced revenue agents, the people who can audit a partnership with dozens of layers or a fortune held in trusts, retired and were not replaced.

The consequences were predictable. Audit rates for millionaires fell sharply over that period. Large partnerships, the structures many wealthy people use to hold business and investment income, were audited at very low rates. Meanwhile, correspondence audits of working families claiming the EITC continued, because they are cheap. The share of audits falling on lower-income households rose, not because those families cheated more, but because they were easier to check.

Tax agencies do not choose this. Congress does, through appropriations. And it chose, year after year, to leave the agency unable to examine the returns where the largest dollars were at stake.

How big the gap really is

The IRS estimates the "tax gap," the difference between taxes legally owed and taxes paid on time, every few years. Its most recent estimates put the gross gap at several hundred billion dollars a year, close to $700 billion for tax year 2022 by the agency's projection. That is money owed under current law, not money that a new tax would raise.

Not all of it comes from the rich. Some is small-business income that goes unreported, some is ordinary mistakes. But researchers inside and outside the agency have found that the highest earners account for a disproportionate share of the unpaid amount, and that their underreporting is concentrated in income that is hard to see: partnership income, pass-through business profits, and offshore holdings. Wage earners, whose employers report every paycheck to the IRS, have almost no room to underreport even if they wanted to. The opportunity to cheat is concentrated at the top, because that is where income is least visible.

This is the crucial point for anyone who thinks of tax enforcement as something done to ordinary people. The ordinary person's income is already almost fully reported. Additional enforcement capacity, if pointed where the money is, lands on those who have the most complex returns and the most to hide.

Inside a hard audit

It helps to see why some audits are cheap and others are not. A correspondence audit of a working family begins with a computer match: the return claims a credit, and a letter goes out asking for proof that a child lived in the home for more than half the year. The family sends school records or a lease. A clerk compares the documents. Much of the process runs by mail, and the agency can send huge numbers of these letters with a small staff. For the family, the letter can be terrifying, and many never respond, sometimes because they moved, sometimes because they did not understand what was being asked, which means they can lose a credit they were entitled to.

Now picture the other end of the scale. A wealthy taxpayer's income flows through a partnership that owns interests in other partnerships, which own pieces of operating businesses, real estate and funds, some of them abroad. Each layer files its own return. Losses in one tier offset gains in another. Valuations of private assets can be debated for years. Auditing that structure requires an examiner who understands partnership tax law, accounting and the specific industry, backed by lawyers and economists, and willing to face a team of top advisers on the other side of the table. A single case can take years.

For a long time, partnerships posed a further obstacle: under the old rules, adjustments generally had to flow out to each individual partner, which made large partnerships with many partners extremely difficult to examine. Congress passed a new centralized audit regime for partnerships in 2015, which took effect for tax years starting in 2018 and lets the IRS assess some adjustments at the partnership level. It was a bipartisan fix, and a useful one. But a better rule does nothing without the people to apply it.

That is the mechanism behind the numbers. When the agency loses experienced examiners, it does not lose audits evenly. It loses the capacity to do the hard ones, and it keeps doing the easy ones. Budget cuts shift enforcement downward, toward the people with the least to gain from cheating and the least ability to fight back.

What the 2022 money was for

The Inflation Reduction Act, signed in August 2022, gave the IRS roughly $80 billion over ten years, the largest investment in the agency in decades. More than half of it was designated for enforcement, with the rest for operations, technology modernization and taxpayer services. The Treasury Department directed that the new enforcement resources not be used to raise audit rates on households earning under $400,000 relative to historical levels.

The early results were real, if modest. The agency answered more phone calls and processed returns faster. It launched initiatives aimed at large partnerships and at high-income people who had not paid assessed taxes, and reported collecting large sums from wealthy taxpayers who had ignored tax bills for years. It began rebuilding its examiner corps, though training an auditor for the most complex returns takes years. And it piloted Direct File, a free way for taxpayers with simple returns to file directly with the government, which participants rated highly.

The clawbacks and the cuts

Almost immediately, the money became a political target. Opponents claimed the funding would unleash tens of thousands of armed agents on ordinary families, a claim that misrepresented both the hiring plan, which included customer-service and technology staff and replacements for retiring workers, and the agency's stated focus on high-income returns.

In the 2023 debt ceiling deal, Congress rescinded part of the funding and agreed to redirect more of it, and later spending bills reduced it further. Then, in 2025, the new administration's push to shrink the federal workforce hit the IRS hard. Through firings of probationary employees, deferred resignation offers and reorganization, the agency lost tens of thousands of workers over the year, including many revenue agents and auditors. The agency also cycled through a series of acting commissioners and a short-lived confirmed one. Direct File was not continued for the 2026 filing season.

The result is an agency that, once again, lacks the capacity to examine the returns where the most money is at stake. The returns that are easiest to audit will still be audited. The ones that are hardest, the multi-layered partnerships and the trusts, will mostly go unexamined.

The strongest case against more funding

The other side has arguments worth answering, not just a talking point about armed agents.

Fear of overreach. Many Americans, across the political spectrum, distrust the IRS. Memories of the controversy over the agency's scrutiny of political groups seeking tax-exempt status in the early 2010s linger. A more powerful tax agency, some argue, is a more dangerous one.

Spending efficiency. Skeptics question whether a large, fast funding increase can be spent well by an agency with an aging technology base and a history of failed modernization projects.

Simplify instead. A more coherent conservative position holds that the real problem is the complexity of the tax code, and that simplification, not enforcement, is the cure.

Each of these has something to it. The answer is that oversight and enforcement are compatible: Congress can and should require the IRS to report where its audits fall by income level, and the agency's inspector general already audits its conduct. Modernization is exactly what the funding was meant to pay for; starving the agency guarantees that the old systems persist. And simplification is a fine goal that has eluded Congress for decades; meanwhile, the existing code has to be enforced or it becomes optional for those who can afford advisers. Enforcement also has an unusually strong return. Research by economists working with the Treasury has found that audits of high-income taxpayers bring in several times their cost, before even counting the deterrent effect on others.

Why this is a fairness issue, not just a budget line

Here's the argument in its plainest form. A tax system has two parts: the rules on paper and the probability that the rules are enforced. Progressives spend most of their energy on the first part, the rates and brackets. The second part can matter as much. A 37 percent top rate that is enforced on wage earners but rarely on business owners with complex returns is, in practice, a lower rate for the second group. Weak enforcement is a regressive tax cut that never comes to a vote.

It also corrodes trust. The nurse whose taxes are withheld from every paycheck plays by rules she cannot avoid. When she learns that the people best able to pay face the least scrutiny, she is right to feel cheated. Honest small-business owners lose too, since they compete with businesses that cut corners on taxes. A functioning IRS is a protection for the honest majority, of every party, against the dishonest few.

And it is a budget issue in the most practical sense. Every dollar of tax legally owed and not paid is a dollar the rest of the country makes up, through higher taxes on others, more borrowing or fewer services. The people who bear that cost are the ones who already pay what they owe.

What the next Congress could do

When Democrats take control of both chambers in January 2027, they will not control the White House, so any change must survive negotiation and the president's signature. Some steps could still attract support across party lines.

1. Stable, multi-year funding for enforcement and customer service, so the agency can hire and train auditors on a timeline that matches how long the training takes.
2. Required public reporting of audit rates by income level, so that every taxpayer can see whether enforcement lands on the top or the bottom.
3. Better information reporting for opaque income, such as partnership and pass-through earnings, which is how wage income became almost fully visible.
4. Protection for low-income filers, including simplifying the EITC so that honest mistakes do not trigger audits of the families the credit is meant to help.

Several of those ideas have had Republican supporters in the past, especially better customer service and protections for taxpayers caught in slow audits.

What you can do

• Ask your members of Congress about IRS enforcement funding and audit transparency by income. Find your representative and senators and ask whether they will back stable, multi-year funding for high-income audits.
• Track the dismantling of federal agencies. Our page on a government gutted follows staff cuts, reorganizations and their effects across Washington, including at the IRS.
• Comment when Treasury or the IRS proposes rules. Some tax regulations open for public comment, and you can see what is open now on the comment periods page.
• Get free tax help if you need it. Volunteer tax preparation programs and legal aid clinics help low-income filers answer IRS letters. The nonprofit directory lists legal aid groups by state.

The family in Humphreys County never asked to be the most audited place in America. They became it because Congress chose not to pay for checking anyone else. That choice can be unmade, and the people who would gain most from unmaking it are not the auditors or the politicians. They are the waitress, the welder and the small-town shop owner who already pay every dollar they owe and deserve a system that asks the same of everyone.