Over the past years, many government agencies have seen cuts to their employment budgets. The Internal Revenue Service (IRS) is not exempt from that trend. Since 2025, the agency has experienced significant workforce reductions, including cuts to enforcement staff. As a result, audit activity has also declined. And at the same time, the IRS is relying more heavily on data analytics and targeted enforcement rather than broad audit coverage. That being the case, taxpayers should not assume the risk of an audit has disappeared. Let’s look at the current climate of the IRS and audit risk.
In 2026, the likelihood of a traditional IRS audit appears to be declining. This is due to a combination of staffing reductions, budget constraints, and employee attrition. As a result, the IRS has fewer personnel available to conduct examinations and has reduced the number of audits it can perform compared to previous years.
The decline in audit activity has led some taxpayers to assume that the chances of attracting IRS attention are now minimal. However, that is not necessarily correct. What the IRS is focusing on is prioritizing cases where there is underreporting of income, questionable deductions, abusive tax strategies, and potential fraud. So while the IRS is examining fewer records overall, the agency is becoming more selective. For business owners, it’s critical to maintaining accurate records and documentation in case your business is selected for audit.
One reason the IRS can continue enforcing audits despite staffing challenges is its reliance on data analytics and technology. The IRS is using automated systems that compare information reported by taxpayers with data submitted by employers, financial institutions and other third parties. Items such as W-2s and 1099s are routinely matched against individual and business tax filings, and the technology quickly points out discrepancies. When those discrepancies appear, they can trigger the audit to be further examined by IRS personnel.
Advanced data analytics also allow the IRS to identify patterns associated with noncompliance. Rather than selecting returns randomly, the agency now focuses on returns that have consistently been plagued with errors, omissions or underreported income. As a result, taxpayers and business owners may face more targeted scrutiny than in the past.
It’s important to remember that even though the IRS is facing significant staffing shortages in 2026, that does not mean taxpayers and business owners are exempt from audits. Those shortages have mainly changed the way the IRS conducts audits. They are more targeted and the IRS is using technology and data analytics to be more selective. As a result, it’s important you continue to work with an experienced tax professional or tax attorney to review all your tax documentation. That kind of review and scrutiny is truly the only way to prevent an audit; or, keep it from going further than it needs to if you are faced with that situation.
Allison Soares is a partner and tax attorney at Vanst Law LLP. It doesn’t matter the issue: audits, collections, appeals, international disclosures, grumpy people— Allison enjoys fixing problems. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving EDD audits from San Francisco to San Diego.
