A recent report from the Treasury Inspector General for Tax Administration (TIGTA) found that the Internal Revenue Service increased audits of high-income taxpayers during fiscal year 2024, in line with a 2022 Treasury Directive prohibiting increased audits on households and small businesses earning under $400,000 and instructing that enforcement resources shall focus on “high-end noncompliance.” The report highlights significant improvements in the IRS’s audit focus and staffing, but also raises concerns about the sustainability of these efforts due to the new administration’s efforts to significantly cut the IRS workforce and budget.
2022 Treasury Directive
The 2022 Treasury Directive was issued in August 2022 by the Secretary of the Treasury following the enactment of the Inflation Reduction Act (IRA), which provided the IRS with $79.4 billion in additional funding over a decade, including $45.6 billion earmarked for enforcement activities. The Treasury Directive, which remains in force under the new administration, specifically directed the IRS not to use any additional resources to increase audits on small businesses or households earning below $400,000 per year. This policy was intended to ensure that enhanced enforcement efforts and new funding would be focused on high-income individuals and entities with complex tax filings and high-dollar noncompliance, rather than on lower- and middle-income taxpayers or small businesses. (As of March 2025, Congress reduced IRA funding to $37.6 billion, reducing the enforcement allocation to $3.8 billion.)
2024 Improvements in High-Income Audit Coverage
The TIGTA report found that the IRS’s 2024 enterprise-wide examination plan marked a clear shift toward auditing high-income individuals. The number of planned audits for taxpayers with total positive income (TPI) over $400,000 was nearly 2.5 times the average of audits started in fiscal years 2019–2023. At the same time, the IRS did not increase audit rates for taxpayers earning at or under $400,000, in compliance with the Treasury Directive. In fact, the number of audits for this group decreased, particularly for Earned Income Tax Credit (EITC) recipients, where examinations dropped by 53% from FY 2023 to FY 2024.
The IRS also made significant progress in hiring revenue agents, who are responsible for conducting audits. In FY 2024, the Small Business/Self-Employed (SB/SE) Division increased its revenue agent staffing by 22 percent, and the Large Business and International (LB&I) Division increased by 51 percent. This expansion was critical to supporting the increased focus on high-income and complex tax returns.
An Uncertain Future
Despite the increased audits and hiring gains during FY2024, the IRS’s ability to sustain and expand high-income audit coverage is threatened by recent federal cost-cutting measures. In early 2025, a government-wide hiring freeze and multiple reduction-in-force initiatives were implemented by the new administration, resulting in a reduction of more than 25 percent of the entire IRS workforce as of early June 2025 (see prior coverage here). LB&I and SB/SE, the two IRS divisions responsible for high-income audits, are down by more than 20 and 35 percent, respectively. The total number of IRS revenue agents has declined by an astonishing 31 percent since January. These deep reductions in IRS personnel, particularly in the revenue agent function, will undoubtedly make it difficult for the IRS to continue the shift to high-income audits seen in FY2024 and calls into jeopardy the entire initiative.
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