It’s getting harder to reach the IRS, and not just because of phone queues. In 2025, the agency has shed over 11,000 employees, including nearly 30% of revenue agents and thousands of frontline support reps, that’s 11% of its total workforce, gone in just months.
If you're running a small business, this is a red flag. Fewer IRS staff means slower refunds, delayed notices, and less real-time help. Meanwhile, tax laws are only getting more complicated. So, assuming the system will catch your mistakes (or cut you slack) could leave you exposed.
You need a plan before you need it. Let’s break down what’s shifting, why it matters, and how to build a cash-first compliance strategy that gives you control, no matter what’s happening in Washington.
Staffing Reductions Are Real—and Rapid
The Treasury Inspector General for Tax Administration (TIGTA) confirmed that as of March 2025, 11,443 IRS employees had either accepted deferred resignation or been terminated during probationary periods. Those departures fell heavily in compliance-critical areas: revenue agents and frontline support staff. The impact is already visible: one Reuters analysis details the steep rise in risk for businesses navigating trade-related tax complexity without adequate agency guidance .
By July, the workforce had shrunk to 25 %, leaving fewer than 77,500 active employees, down from over 103,000 earlier in the year. According to the National Taxpayer Advocate Erin Collins, these cuts threaten the 2026 filing season's stability, particularly amid proposed further budget reductions.
What This Means for Small Businesses
The IRS workforce cuts aren’t just a policy footnote; they’re reshaping the day-to-day reality for small business owners. With fewer agents to review returns, process paperwork, or answer calls, the responsibility for getting it right (and staying ahead of red flags) is shifting squarely onto your shoulders. Here’s how that plays out, and why it matters more than ever to prioritize cash flow, documentation, and proactive planning.
Slower Refunds and Delays in Critical Credits
The IRS is already warning that refunds and credit disbursements may face longer processing times due to reduced staff capacity. That includes essential liquidity tools like R&D tax credits and pandemic-era employee retention credits (ERC), which many businesses still rely on for quarterly cash flow. According to the Taxpayer Advocate Service, refund delays from previous backlog surges averaged over 6 months for certain business credits, and current staff reductions are expected to worsen turnaround times.
Late Responses to IRS Notices Create Risk
With fewer revenue agents, response times to IRS notices (such as CP2000 underreporting notices or math error letters) are expected to slow, potentially leaving unresolved issues lingering for months. That creates exposure to interest accrual, penalty compounding, or even automated collection enforcement if deadlines pass without resolution.
TIGTA has identified a growing gap between the IRS's correspondence volume and capacity, noting significant delays in notice processing and taxpayer outreach as of Q2 2025.
Increased Audit Risk for High-Stakes Credits
While fewer audits might sound like good news, the opposite may be true for businesses claiming aggressive deductions or credits, particularly the ERC, R&D credit, or Section 179 expensing. With less nuanced human review, the IRS may rely more heavily on automated filters to trigger enforcement, casting a wider net that catches legitimate filers in documentation audits. The IRS Criminal Investigation Division has increased scrutiny of ERC claims in 2025, even as overall audit rates have fallen, according to a May 2025 Reuters analysis. Expect more document requests and longer timelines, not fewer.
More Complexity, Fewer Answers
New tax laws, particularly those related to energy credits, international tariffs, and accelerated depreciation, have made compliance more complex. However, with 30% fewer agents trained to explain new rules, small businesses are left to interpret dense IRS guidance on their own or rely on third-party CPAs with incomplete information. Reuters reports that businesses in manufacturing and logistics have seen a sharp rise in tariff-related tax questions this year, with limited clarity from the IRS due to the staffing decline.
Build Compliance Into Your Cash Strategy—Before You Need It
If the IRS is operating with fewer agents, slower timelines, and rising complexity, then your tax strategy needs to operate with more rigor, clarity, and control. That’s not just a matter of compliance, but also about protecting your liquidity and your ability to act quickly when the unexpected happens.
Here’s how to build a system that makes your business resilient, even in a thinned-out enforcement landscape.
Documentation Is the First Line of Defense
Your paperwork is your shield. Every payroll run, depreciation entry, invoice trail, and credit claim must be thoroughly documented and organized before any audit or notice arrives. When IRS agents are stretched thin, your return won’t get a follow-up call for clarification. You’ll get a letter, a deadline, and a potential penalty. Clean records reduce your risk and increase your leverage.
This isn't a theory. It’s happening on the ground. One services firm we worked with expected a $60,000 payroll credit refund, only to face an unannounced IRS delay. Without documented support, the issue dragged on. They had to take an expensive short-term loan just to make payroll. Documentation could’ve prevented the scramble.
Forecast for Delay
The IRS slowdown isn’t just about audits. It affects refund cycles, response times to notices, and credit processing timelines. That means you can no longer build your cash flow model on expected payment dates. A 13-week rolling forecast lets you map scenarios: what if a refund takes 90 days? What if a tax credit is reduced or denied? What happens if a notice interrupts a key deduction?
Planning for friction keeps your cash flow from collapsing.
Don’t Let a Minor Notice Become a Major Liability
When IRS support staff is reduced, minor notices take longer to resolve, and that lag time increases risk. Ignored notices can escalate quickly. Build internal systems for identifying, tracking, and responding to IRS correspondence. Whether it’s a mismatched 1099-K or a late deposit notice, early engagement is now essential. Even one retail business we reviewed had to deploy personal funds to meet payroll while waiting for a minor reconciliation audit to resolve. Speed matters when no one’s picking up the phone.
Go Conservative Where Oversight Is Weak
A shrinking IRS might feel like a green light for aggressive strategies, but that’s a trap. With more enforcement now handled by algorithms and AI flagging systems, missteps can lead to automated penalties rather than nuanced reviews. High-risk credits, like late-stage ERC claims or micro-captive structures, invite scrutiny, and without strong documentation, they can backfire. When oversight is inconsistent, the smartest move is clarity and conservatism.
Operationalize Compliance Into Your Workflow
This isn’t about adding one more task to your to-do list. It’s about turning risk mitigation into a core function of how your business runs. That means:
- Model refund timing directly into your cash flow forecast. Assume delays and don’t base payables on wishful thinking.
- Submit returns early, even if you need to amend. The earlier the process starts, the less cash stress you’ll face downstream.
- Review credits with rigor, documenting every assumption with receipts, calculations, and legal references.
- Train your team to recognize notices and escalation triggers. Don’t rely on one person to manage IRS contact.
- Proactively reach out to vendors if a tax disruption is imminent. Trust and communication buy time and flexibility.
Conclusion
In 2025, the IRS isn’t the backstop it used to be—and that means your business can’t afford to wait for clarity or correction. With fewer agents, slower response times, and increasing complexity in the tax code, the burden is shifting inward. If you're not proactively managing cash, documentation, and compliance today, you’re setting yourself up for unnecessary risk tomorrow.
This isn’t about paranoia. It’s about preparation. In an environment where enforcement is inconsistent and timelines are unpredictable, businesses that build disciplined systems will have the edge—enjoying more liquidity, greater agility, and increased peace of mind.
Don’t just aim to “pass” an audit. Build a business that doesn’t flinch if one comes.
Sources
Discover What Grows Wealth with Minimum Effort & Minimum Risk
