By Chuck Gallagher — Business Ethics Keynote Speaker and Trainer
TL;DR: Chuck Gallagher, business ethics keynote speaker, argues that the sharp drop in IRS enforcement staffing documented by TIGTA doesn’t change anyone’s character — it widens opportunity, and rationalization always expands to fill the room opportunity creates.
There’s a conversation happening in small conference rooms all over the country right now, and nobody writes it down. Somebody says the number out loud. Audits are down thirty percent. Nobody answers. The meeting moves on to something else.
But everybody heard it.
That pause is the whole story. Not the return. Not the deduction. The three seconds after somebody in the room learns that the odds just changed.
What Did the Watchdog Actually Find?
On August 26, the Treasury Inspector General for Tax Administration released its annual look at IRS compliance activity, and the numbers are not ambiguous. IRS examination and collection staffing went from 20,098 employees at the end of fiscal 2023 up to 27,217 at the end of fiscal 2024, then down to 19,612 at the end of fiscal 2025 — a 27% loss in a single year. By January 10, 2026, it was 17,517. More than 25,000 IRS employees, roughly a quarter of the agency, had separated as of September 30, 2025.
The downstream effect showed up immediately. Individual examination starts fell 30% from fiscal 2024 to fiscal 2025. Examinations of taxpayers with income over $400,000 fell 27%. Partnership examination starts dropped from 6,709 in fiscal 2023 to 1,589 in fiscal 2025, a 76% collapse. As of January 2026, the Global High Wealth program had 27% fewer employees than before the reductions. The supplemental enforcement money from the Inflation Reduction Act ran out on December 31, 2025.
And here’s the part that gets misread: taxpayers still paid a record $5.3 trillion in fiscal 2025, up 13.2% from two years earlier. The money came in. The watching went down.
Why Do Falling Audit Odds Change Behavior?
As a business ethics keynote speaker, I’ve spent years explaining the Fraud Triangle to rooms of people who think it applies to somebody else. Pressure. Opportunity. Rationalization. What just happened at the IRS did not change anybody’s pressure and it did not change anybody’s character. It changed one leg of that triangle, and it changed it a lot.
Opportunity is not a moral category. It’s an arithmetic one. And when the arithmetic moves, the rationalization follows it almost instantly, because rationalization is the most creative thing human beings do. Nobody says “I’m going to cheat.” They say the guidance is unclear. They say the classification is defensible. They say everybody in this industry treats it that way. Those sentences get easier to say when the person who might have asked a follow-up question took the early retirement.
TIGTA makes this point in the driest possible language. IRS research has found that examinations carry an indirect multiplier effect: when one taxpayer gets audited, compliance shifts among people in that taxpayer’s network. Deterrence was never mostly about the audits. It was about the story people told each other about the audits.
Is a Lower Chance of Getting Caught an Ethical Argument?
So let’s take the argument seriously and then put it down. Does a lower chance of being caught make aggressive tax positions more defensible?
No. And you already knew that before you read this sentence.
What the enforcement decline actually reveals is how many people were relying on the wrong thing. If your filing behavior is a function of detection risk, then you were never in compliance. You were in a standoff, and you just noticed the other side blinked. That’s a different arrangement entirely, and it has never held up long for anybody I’ve watched try it.
Here’s the plainer version. Character is what you do when the odds stop mattering. Everything else is just risk management wearing a nicer suit.
What Does the Collection Data Actually Say About Risk?
There’s also a practical problem with treating this as an opening, and it’s the part most people miss because they only read the audit headline.
The enforcement machine didn’t stop. It got more automated. From fiscal 2023 through 2025, collection activity accounted for 84% of all enforcement revenue, and collection revenue rose 17% over that period, driven largely by automated notices that restarted in February 2024. The IRS sent zero nonfiler notices in fiscal 2023, about 1.7 million in fiscal 2024, and 3.2 million in fiscal 2025. At the end of fiscal 2025 it had identified 73.2 million potential individual nonfiler cases from tax years 2019 through 2023.
Automated systems do not take early retirement. And the assessment window on a return you file today does not shrink because staffing shrank this year — for a return the government later considers fraudulent, that window doesn’t close at all. You are not making a bet against 2026. You are making a bet against every budget cycle between now and whenever somebody looks. Congress appropriated $11.2 billion to the IRS in January 2026. Budgets move both directions.
What Should Business Owners Do Right Now?
So what does a business owner actually do with this?
Document the reasoning while you still have it. The single most valuable thing in any examination is a contemporaneous record of why a position was taken — written when the decision was made, not reconstructed three years later by somebody who is now afraid. Get a competent tax professional to look at anything genuinely uncertain, and take the answer even when you don’t like it.
Then watch what you say out loud. As a business ethics keynote speaker, this is the part I push hardest with leadership teams, because it costs nothing and nobody does it. When an owner jokes in front of the bookkeeper that nobody’s checking anymore, that’s not a joke. That’s a policy announcement. Your staff will remember it long after you’ve forgotten saying it, and one of them will act on it in a way you never intended.
I’ll say the uncomfortable part plainly. I once believed I would not get caught, and for a while I was right. That’s the trap. Not getting caught doesn’t teach you that you were clever. It teaches you that the rules are optional, and it teaches you that lesson slowly enough that you never notice you’ve learned it.
Every choice has a consequence. The consequence just doesn’t always arrive on schedule.
Frequently Asked Questions
Did IRS audits really drop after the staffing cuts?
Yes. According to the Treasury Inspector General for Tax Administration’s August 2026 report, individual examination starts fell 30% from fiscal 2024 to fiscal 2025, and examinations of taxpayers with income above $400,000 fell 27%. Partnership examination starts fell 76% between fiscal 2023 and fiscal 2025. IRS examination and collection staffing dropped about 27% in a single year and continued falling into 2026.
If audit risk is lower, is aggressive tax positioning safer now?
Lower detection risk is not the same as lower exposure. Collection activity, which runs largely on automated systems, accounted for 84% of IRS enforcement revenue from fiscal 2023 through 2025, and automated nonfiler notices rose from zero in fiscal 2023 to 3.2 million in fiscal 2025. The assessment window on a return also extends well past the year it was filed, and enforcement budgets change. Anyone weighing a genuinely uncertain position should get advice from a qualified tax professional rather than from the audit statistics.
Why does enforcement staffing affect honest taxpayers at all?
IRS research cited by TIGTA has found that examinations produce an indirect multiplier effect on compliance — when one taxpayer is audited, behavior shifts among others in that person’s network. Deterrence works through visibility more than through volume. When visibility drops, the social signal that compliance is normal drops with it, which affects people who never intended to cut a corner.
What is the Fraud Triangle and how does it apply to tax compliance?
Chuck Gallagher, business ethics keynote speaker, uses the Fraud Triangle — pressure, opportunity, and rationalization — to explain why ordinary people make choices they’d have called unthinkable a year earlier. Reduced enforcement doesn’t change a person’s pressure or character, but it widens opportunity considerably, and rationalization tends to expand to fill whatever room opportunity creates.
What should a small business do to stay compliant in a low-enforcement period?
Document the reasoning behind uncertain positions at the time the decision is made rather than reconstructing it later. Have a qualified tax professional review anything genuinely ambiguous and follow the answer. Most importantly, pay attention to what leadership says casually about enforcement, because employees treat offhand remarks about nobody watching as permission.
Falling enforcement doesn’t create dishonest people. It just removes the friction that was quietly keeping some honest ones in line — and that’s a leadership problem long before it’s a tax problem. Chuck Gallagher speaks to companies, associations, and professional groups about how ethical failure actually happens: gradually, reasonably, and one defensible decision at a time. To discuss a keynote or workshop on ethical decision-making, fraud risk, and consequences, visit ChuckGallagher.com.
Five Questions for Reflection
1. If you knew with certainty that no one would ever check, would your filing change? What does your honest answer tell you?
2. Where in your business does someone currently have both the opportunity and the reason to cut a corner?
3. When was the last time you documented why you took a position, rather than just taking it?
4. What have you said out loud about enforcement that an employee might have heard as permission?
5. Think of a time you weren’t caught. What did that experience actually teach you about yourself?
