The IRS Shrank. Will That Lead to More Tax Cheating?

Summary

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Podcast Summary:

The Journal – "The IRS Shrank. Will That Lead to More Tax Cheating?"
Date: April 14, 2026
Hosts: Jessica Mendoza, Ryan Knutson
Guests: Richard Rubin (Wall Street Journal tax policy reporter), various tax professionals

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Episode Overview

This episode arrives as Americans confront tax filing day, focusing on one of taxpayers’ least-favorite agencies: The Internal Revenue Service (IRS). Hosts Jessica Mendoza and Ryan Knutson, with insights from WSJ reporter Richard Rubin, explore the recent and dramatic shrinkage of the IRS workforce under the Trump administration and the consequences for tax enforcement. The episode examines how fewer agents, evolving technology, and shifting political priorities may embolden tax cheating—and what this means for fairness and future government revenue.

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Key Discussion Points & Insights

1. Immediate Context: Public Frustrations and the IRS’s Image

• The episode opens with “tax day” anxiety and complaints (“I just paid my taxes today, and never before have I ever wanted to commit tax fraud as badly as I do right now.” – [00:16])
• Jessica Mendoza highlights persistent public grievances: the agency’s unpopularity and confusion over why the IRS can’t directly calculate bills for most Americans.

2. The IRS’s Shrinking Workforce

• Decline in Enforcement Capacity:
  • The IRS currently employs about 70,000 people—30,000 fewer than when Biden left office.
  • Civil tax enforcement staff, particularly auditors and revenue agents, have been cut deeply.
  • Richard Rubin:

    “There are fewer people doing tax enforcement now...15 months ago when the Trump administration took office.” ([01:26])

• Why Shrink the IRS?
  • Advances in automation since the 1990s have reduced staffing needs for basic processing, but not for audits or investigations.
  • Political priorities have played a major role: After a boost under Biden (including an $80B investment), Trump’s administration reversed course aiming for a smaller IRS.
  • Staff are even being reassigned, with some proposed for redeployment to immigration enforcement ([09:23]).

3. IRS Enforcement: What’s At Stake?

• Three Main Functions:
  • Audits: Verifying the legitimacy of returns and claims (e.g., checking income, deductions, and credits).
  • Collections: Retrieving taxes owed, starting with letters and sometimes escalating to in-person visits.
  • Criminal Investigations (IRS CI): Hunting down true tax criminals—akin to law enforcement, known for taking down figures like Al Capone ([06:37]).
• Financial Impact:
  • Enforcement brings in an extra $80–$90 billion a year, which is relatively small compared to voluntary payments but crucial for deterring cheating ([07:08]).
  • The threat of being caught is a key motivator for compliance (“The threat of enforcement keeps people honest.” – Jessica Mendoza, [07:22])

4. Political Cycles & Their Impact

• Shifting Priorities:
  • Enforcement receives more attention when scandals or revenue needs arise, and is dialed back during fears of government overreach.
  • “There’s been this sort of steady cycle...it mattering to people in power and then it kind of retrenching.” ([08:23] – Richard Rubin)
• Trump Administration’s Approach:
  • Focused remaining IRS resources on service (processing, refunds, call centers) instead of enforcement ([10:43])
  • Administration halted hiring and cut enforcement budgets further, resulting in a sharp drop in staff and a clear decline in audit rates.
  • Plans to cut staff by another 1,000–2,000 are in the 2027 budget ([10:04]).

5. Technology as a Substitute?

• AI and Automation:

  • IRS leadership touts investments in moving taxpayer processes online and supporting agents with better data tools ([12:20]).
  • There’s growing use of AI to select cases for audit and investigation, aiming to “do more with less” ([12:39]).
  • But, “The idea being that you could do with fewer people, sort of the same amount of work, but with technology helping it out.” ([11:52])

• Limitations:

  • Despite technology, the practical effect is less enforcement. Audits for those with $10 million+ income dropped 9% last year and are on track for a further 39% decline ([12:47]).
  • Many large partnership, hedge fund, and private equity audits—previously ramped up—are once again waning ([13:06]).

6. Consequences: Compliance and Revenue Risks

• Lost Revenue:
  • The Budget Lab at Yale projects workforce reductions will cut $46B in federal spending but reduce tax collections by $643B over a decade ([13:26]).
  • Even Trump’s own budget states, “If you cut enforcement spending, there will be missed opportunities for the United States and lost revenue.” ([14:12] – Richard Rubin)
• Cultural Shift:
  • Tax professionals report that clients are more willing to “cut corners or cheat.”

    “There’s seemingly this mentality building, which is, ‘the IRS isn’t going to catch me.’” – Unnamed tax lawyer ([14:57])

  • The reduction in oversight is likened to “defunding the police” for the tax system ([15:23]).
• Fairness:
  • Most Americans want fair, evenhanded enforcement, regardless of income. Cuts risk undermining this trust.

    “People, I think, want a tax system that is fairly and evenly enforced, right.” ([15:45] – Richard Rubin)

7. Ordinary Taxpayers: Should They Worry?

• The IRS downsizing has minimal impact on most W2 earners’ refunds or routine filings ([16:42]).
• However, the erosion in enforcement could further encourage a “cheat if you can” attitude among higher-income individuals and erode faith in the system’s fairness.

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Notable Quotes & Memorable Moments

• On the reality of shrinking enforcement:

  “There are fewer people doing tax enforcement now ... Tax lawyers saw that directly. They saw cases get dropped.”
  — Richard Rubin, [01:26]

• IRS criminal investigators:

  “They are people with guns. They’re like a cross between police officers and nerds.”
  — Richard Rubin, [06:13]

• The psychological effect:

  “There’s seemingly this mentality building, which is, ‘the IRS isn’t going to catch me.’”
  — Unnamed tax lawyer relayed by Richard Rubin, [14:57]

• On fairness:

  “If I’m paying my taxes, I want everybody else to be paying their taxes.”
  — Jessica Mendoza, [16:18]

• Blunt budget math:

  “The administration’s budget literally says if you cut enforcement spending, there will be missed opportunities for the United States and lost revenue.”
  — Richard Rubin, [14:12]

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Key Timestamps

• Tax Day Woes & Public Gripes: [00:05] – [01:13]
• IRS Workforce Shrinking: [01:13] – [02:13]; [09:50] – [10:22]
• What IRS Enforcement Involves: [04:49] – [07:00]
• Political Cycles & Recent History: [07:39] – [09:08]
• Service vs. Enforcement, Trump’s Impact: [10:43] – [13:06]
• Technology & AI Attempt to Fill the Gap: [11:28] – [12:47]
• Lost Revenue Calculations: [13:26] – [14:12]
• Psychological Shift & “Defunding the Police” Analogy: [14:57] – [15:23]
• What Regular Taxpayers Should Know: [15:45] – [16:42]

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Conclusion

With tax day looming, “The Journal” dissects why a smaller IRS could have far greater consequences than slow refunds. As audit rates of the wealthy plummet and the perception of lax enforcement spreads, the very principle of a fair tax system may be under threat. While technology offers some hope for efficiency, the episode leaves listeners reflecting on whether enough eyes are left on the nation’s financial books—and who stands to benefit.

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Transcript

[Jessica Mendoza]

Tomorrow, your taxes are due in the United States. It's a task that most people generally hate but love to complain about online.

[Taxpayer 1]

Let me tell you something. I just paid my taxes today, and never before in my life have I ever wanted to commit tax fraud as badly as I do right now.

[Podcast Announcer]

I went and paid my taxes today.

[Jessica Mendoza]

I'm gonna cr. The agency in charge of collecting these taxes, the Internal Revenue Service, isn't very popular either. Today, the IRS went into my bank account and took $700 from me.

[Taxpayer 1]

How do you actually do your taxes? The IRS literally will like. They know exactly on the penny how much I made. They can't send me a paper with just how much I owe.

[Jessica Mendoza]

But taxes are important. Your income taxes, along the other money the government collects, fund most of the federal budget. These days, though, the IRS is pretty battered.

[Richard Rubin]

There are fewer people doing tax enforcement now. It's the very public shrinking of the IRS that we've seen over the past year.

[Jessica Mendoza]

That's our colleague Richard Rubin. He covers tax policy for the Wall Street Journal.

[Richard Rubin]

We know that the IRS has fewer people, particularly on auditors, revenue agents, the people who do the civil tax enforcement. There are fewer of them than there were a year ago, you know, 15 months ago when the Trump administration took office.

[Jessica Mendoza]

And with such a shrunken down irs,

[Richard Rubin]

people are feeling like it might be easier to get away with things than they used to. Tax lawyers saw that directly. They saw cases get dropped. They saw cases get passed between agents and taxpayers. You know, read the news and see that. You know, there's thousands fewer people doing enforcement at the irs. There's clearly a perception building that it may be easier to cheat, to skirt, to cut corners than it used to be a year or two ago.

[Jessica Mendoza]

Welcome to the Journal. Our show about money, business and power. I'm Jessica Mendoza. It's Tuesday, April 14th. Coming up on the show, will reduced tax enforcement lead to more cheating? Foreign.

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[Jessica Mendoza]

Since the IRS has shrunk, I wanted to ask Rich why. Why would the government make such huge cuts to the agency that receives its main source of revenue? Rich started with what the IRS actually does. The most basic, of course, is that it collects taxes. That used to involve a lot of paperwork. But since the 1990s, the agency has needed fewer and fewer people for that task because so much of it has been automated.

[Richard Rubin]

Back then, there was very minimal e filing. In the 90s, people would go and line up at the post office, and they would like, you know, you'd like, hand off your return to the person standing outside the post office. And there was this rush to physically mail things on April 15.

[Jessica Mendoza]

Here's an ad that shows just how many people it took to process a paper return back then.

[SAP Advertiser]

The IRS is currently testing for seasonal data transcribers, tax examiners, and clerks. You can receive paid training, 10% bonus for evening.

[Richard Rubin]

And so that's the biggest change of what the IRS looks like now as opposed to then.

[Jessica Mendoza]

The other thing the IRS does is enforcement for when people maybe don't pay their taxes. The agency does this in a few different ways. Can you just walk me through what are the three things that the IRS does when it comes to enforcement?

[Richard Rubin]

Yeah, the three main buckets would be audits, collections and criminal audits.

[Jessica Mendoza]

Collections and criminal investigations. Audits are when the IRS needs to verify documentation on a tax return. Like if a business says it received a million dollars, but the paperwork doesn't match. Or when they check whether you actually qualified for that tax break you claimed,

[Richard Rubin]

you're going to, like, be looking for some evidence of those credit card transactions and the cash that makes up the difference. You're going to be looking for documents that back up the mileage that the business owner drove, the equipment that they purchased, all those kinds of things. The audit is, did you do this right? Did you follow the law?

[Jessica Mendoza]

Collections are called in when someone owes money to the irs. Usually the agency starts by sending letters, but it'll also send revenue officers to businesses to collect what they owe. And then there's arguably the most exciting job in the IRS, Criminal Investigations, or the IRSci, which employs special agents to investigate crimes like tax fraud. Here's a recruiting video from 2023.

[Richard Rubin]

You could be doing surveillance one day. You could be doing a search warrant, and you just won't get that as an accountant. They are federal police officers in the truest sense. So they are people with guns. Those people are. They're highly trained. They're like a cross between police officers and nerds.

[Jessica Mendoza]

Are these like the people who caught Al Capone?

[Richard Rubin]

Yeah, they caught Al Capone. These are the agents who go after money laundering, transnational narco terrorists. It's these criminal special agents who have guns because they're often going to arrest dangerous people who are not just committing tax fraud, but they're committing tax fraud along with drug crimes or whatever else.

[Jessica Mendoza]

How much money is brought in through this type of enforcement? You know, the IRS going after money that isn't necessarily handed over voluntarily.

[Richard Rubin]

Oh, so this is actually really interesting. If you look at the data about what enforcement actually does, it's really just adding, you know, 80, $90 billion a year on top of what people just pay.

[Jessica Mendoza]

That's small potatoes in the grand scheme of tax collections. But the threat of enforcement keeps people honest. And so how much of a priority would you say is enforcement to the IRS and to the federal government broadly?

[Richard Rubin]

So this has gone through boom and bust cycles, tax enforcement.

[Jessica Mendoza]

Those cycles are often fueled by, on the one hand, public outrage against tax dodging, and then, on the other, public frustration with aggressive enforcement. Republicans often see it as an example of government overreach, while Democrats often see it as a necessary part of effective governance. Like in 2022, when Joe Biden was president, he made tax enforcement a priority, getting Congress to invest $80 billion in the agency.

[ServiceNow Advertiser]

Now President Biden is trying to change that with his infrastructure plan, asking for 80 billion bucks to help the IRS close loopholes and crack down on tax cheats.

[Richard Rubin]

And so I think there's been this sort of steady cycle of it mattering to people in power and then it kind of retrenching a little bit. And we're right now in one of those retrenching cycles.

[Jessica Mendoza]

President Trump has never been a big fan of the irs. Even before he came into office, Trump

[Richard Rubin]

has complained about his own audits. That was both before he was president and he was, you know, had a business in those. Those audits. And his tax returns have been written about extensively. And also while he was president, there's a mandatory audit of presidents. So. And he's also at the same time suing the IRS for, for a contractor's disclosure of his tax return. So it's like a very convoluted kind of relationship. And he's still, like, in Charge of the irs.

[Jessica Mendoza]

Now in his second term, as Trump has tried to shrink the size of the federal government, the IRS became one of his administration's main targets.

[Trump Administration Official]

On day one, I immediately halted the hiring of any new IRS agents. You know, they hired.

[Jessica Mendoza]

Some of the staff he didn't cut were shifted away from white collar crimes to focus more on immigration enforcement.

[Trump Administration Official]

Maybe we'll move him to the border. I think we're going to move him to the border.

[Jessica Mendoza]

So in the grand scheme of things, would you say that the IRS has been hit harder in this administration than it has been in sort of the more recent turns?

[Richard Rubin]

Oh, yeah. I mean, headcount isn't the absolute perfect measure, but it's one of the best ones that we have over time. And the IRS headcount is now around 70,000.

[Jessica Mendoza]

That's 30,000 fewer employees than it had when Biden left office.

[Richard Rubin]

And they want to reduce it another thousand or two. And it's sudden. We have a. We can't show charts on a podcast, but, you know, you see this steady uptick of IRS employees, and then it just drops in 2025. So, yeah, it's a sudden reversal, unlike what we've seen.

[Jessica Mendoza]

And in the face of a beleaguered irs, some are seeing an opportunity to cheat. That's next. The Trump administration says it's trying to make the IRS more effective and efficient.

[Richard Rubin]

The administration has really tried to keep the focus of the IRS and where they've protected it somewhat on the service side, on making sure that returns get processed, refunds go out, people can get phone calls answered. That's been more of the priority.

[Jessica Mendoza]

And enforcement is still happening. The IRS said the total enforcement revenue was up 12% through the first five months of fiscal 2026. The agency also initiated more audits of large corporations and opened more criminal investigations last year than in 2024. One way that the IRS under Trump is trying to do more with less is by focusing on technological upgrades, especially AI, for things like supporting IRS employees on the back end.

[Richard Rubin]

The easier it is for a revenue agent to pull up past year's returns, comparable company's returns, any sort of information they can get. The easier that you make someone's job, the more efficient that's going to be. And sometimes the IRS is bureaucratic and cumbersome. Right. So the more you can cut, there's some real benefits to be gained from cutting through some of that.

[Jessica Mendoza]

The idea being that you could kind of do with fewer people, sort of the same amount of work, but with technology helping it out.

[Richard Rubin]

Basically, yeah. And that's the basic idea, is that you can approximate the same level of work that you could get with poor people, with fewer people.

[Jessica Mendoza]

Last month, the IRS chief executive, Frank Bisignano, told the Congressional committee that the agency's efforts to move more processes online has been paying off, and a large

[Trump Administration Official]

amount of Americans access their data online and would prefer to do that. We've invested a lot. We're seeing the returns this year. I think we'll see much better returns in 27.

[Jessica Mendoza]

There are also plans to use AI to help in the enforcement of tax law.

[Richard Rubin]

They've got AI that they're starting to incorporate that's helping them be more efficient in deciding which cases to select for audit or for criminal investigations.

[Jessica Mendoza]

But with 30,000 fewer employees, Rich says there will be reduced tax enforcement. In fact, we're already seeing it. Audits of people with at least $10 million in income dropped 9% last year, and they're on track to decline another 39% this year.

[Richard Rubin]

There's just fewer people around. We've seen audits of really high income people drop over the past year. We've seen partnerships, complex hedge funds, private equity firms, the administration and the IRS a few years ago ramping up scrutiny, and then that declines. And so we know that there's like fewer people looking.

[Jessica Mendoza]

In fiscal 2025, the IRS collected less direct revenue from audits and appeals than in any year since at least 2012, though the money can arrive years after the audit start and less enforcement could create problems in the future. The IRS workforce reductions so far would cut an estimated 46 billion in federal spending over the next decade and also reduce revenue collections by 643 billion. That's according to the Budget Lab at Yale, a non partisan center run by former Biden officials. And The Trump administration's IRS budget for 2027 proposes to cut nearly 2,000 more staffers. That same budget acknowledges these cuts will reduce revenue for the country.

[Richard Rubin]

The administration's budget literally says if you cut enforcement spending, there will be missed opportunities for the United States and lost revenue. It lays out the exact sort of return on investment from the government perspective. Return on investment for tax enforcement that every IRS commissioner I've ever covered has talked about. And then they do that and say,

[Jessica Mendoza]

and we're going to cut it with reduced enforcement. What have you heard from people you talk to about the risk that tax crimes will be missed?

[Richard Rubin]

So there's definite risk that both tax crimes and civil tax violations will be missed. There's no doubt that the fewer people in the system to look at things, the less that they will do.

[Jessica Mendoza]

Tax lawyers that Rich interviewed also say they see more taxpayers saying they're eager to cut corners or cheat. One lawyer told him, quote, there's seemingly this mentality building, which is the IRS isn't going to catch me from the

[Richard Rubin]

tax lawyers that I've talked to. The retrenchment at the IRS is creating a mindset among some taxpayers that getting away with things is going to be easier than it's been.

[Jessica Mendoza]

Another tax lawyer Rich spoke to describes it as defunding the police. So if you're sort of the average person who just pays your income tax, you know, especially the ones who get it out of a W2, how would this development with the IRS affect them? Like, why should they care?

[Richard Rubin]

People, I think, want a tax system that is fairly and evenly enforced, right. So there are all sorts of laws and norms built into the way that we do tax enforcement. Trying to have even handed tax enforcement that holds high income people, middle income people and low income people accountable across the system so that people feel confident that everyone is paying helps sort of that norm of compliance. We have a very strong norm of people wanting to, like, do the right thing.

[Jessica Mendoza]

Right? Right. You're like, if I'm paying my taxes, I want everybody else to be paying their taxes.

[Richard Rubin]

Right? Right. And they find, they find the law confusing and difficult and stressful to deal with. But I think by and large, people want, want to comply and want, however defined, a fair system.

[Jessica Mendoza]

Oh, and by the way, if you're worried about your federal tax refund, don't. This IRS overhaul probably won't affect it. That's all for today. Tuesday, April 14th. The Journal is a co production of Spotify and the Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.

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