The Internal Revenue Service (IRS) collected a record-breaking $5.1 trillion in tax revenue during the 2024 fiscal year, marking a 9% increase over 2023 and accounting for around 96% of all federal spending. Through the first nine months of fiscal year 2025 (October 2024 to June 2025), according to the Monthly Treasury Statements posted by the Department of the Treasury, the United States Government has collected over $4 trillion in taxes, compared to the $3.75 trillion it had collected in that same time frame the previous year. However, this record collection comes amid budget pressures. The House subcommittee approved a bill in July that would reduce the IRS budget from $12.3 billion in FY2025 to $9.5 billion in FY2026. Agency leaders caution that continued funding reductions will lead to staffing shortages, resource constraints, and decreased customer services.
Budget Cuts
The White House initially sent out an offer for deferred resignations at the start of the year, resulting in the loss of 1,836 employees. A second offer, also for deferred resignations, led to the loss of 4,896 employees. An additional 829 employees opted for early retirement or voluntary separation.
Digital Tools, Higher Engagement
Despite technological advances and revenue growth, the IRS has faced significant resource constraints. Staffing has not kept pace with rising workloads, and some legacy equipment still used within the IRS is 25+ years old. The IRS continues to shift toward digital-first services to modernize its interactions with taxpayers. In 2024, the agency logged more than 2 billion digital interactions, representing a 47% increase from the previous year. This includes self-service tools, account updates, and online correspondence, which are part of a broader effort to enhance the taxpayer experience and make filing claims through the IRS a more seamless and pleasant process.
Traditional support also had an increase in demand. IRS representatives handled 62.2 million taxpayer assistance interactions, a 3.2% rise from 2023. Phone calls alone increased by 11% to 19.7 million, underscoring the continued demand for live support.
The IRS originally launched its Paper Processing Initiative in 2023, aiming to have all requests and filings processed electronically. The initiative was supposed to take effect during the 2025 filing season but has been delayed, with no new established deadline.
Compliance and Enforcement
Tax enforcement remained a priority, yielding significant gains in 2024. The IRS collected $77.6 billion in unpaid taxes, a 13.6% increase, while installment agreement collections reached $16 billion, representing a 12% increase from 2023.
Audit and revision efforts identified $29 billion in potential underpayments across 527,000 return cases. Though audit rates remain low, with 0.4% of individual returns and 0.7% of corporate returns being audited, the agency continues to focus on improving and expanding enforcement, particularly among high-income earners and large businesses.
The IRS has been focusing heavily on Identity theft prevention and resolution. There were around 387,000 cases of fraudulent tax returns filed using a stolen identity handled by the Identity Theft Victim Assistance (IDTVA), with the average resolution time lasting 20 months, well over the 120-day expected resolution time.
Looking Ahead
Although the IRS managed to collect record tax revenue while significantly decreasing the time spent servicing requests and processing data, some are worried that if funding and staffing continue to deteriorate, processing times will drastically increase, and their ability to prevent and detect fraud will be hindered. IRS leadership has urged Congress to restore and stabilize funding, warning that recent gains could be short-lived without sustained funding. The agency plans to continue its modernization efforts, expanding its digital services, and improving fraud detection in 2025.
