Corporate Audits Remain High-Impact Despite Lower Audit Counts and Smaller Year-End Workforce

The Internal Revenue Service (IRS) recently released its fiscal year (FY) 2025 Data Book, which offers an important message for corporate taxpayers: lower audit volume and reduced year-end staffing do not necessarily translate into lower corporate examination risk. The data supports what many practitioners expected—that the IRS would allocate resources to taxpayers with the most money at stake.

Although the IRS closed fewer total audits in FY 2025 and ended the year with substantially fewer employees, corporate income tax audits continued to generate outsized recommended adjustments. In particular, a relatively small number of corporate examinations accounted for nearly half of all recommended additional tax from IRS examinations. The trend is especially pronounced for corporations with $20 billion or more in assets, which represented a small fraction of corporate audit closures but generated most of the recommended additional tax from corporate examinations in FY 2025.

The FY 2025 Data Book covers IRS activity from October 1, 2024 through September 30, 2025. During that period, the IRS closed 497,621 examinations and recommended $26.8 billion in additional tax. Corporate income tax returns represented only 7,495 of those closed examinations, or approximately 1.5% of all audits, but generated approximately $12.0 billion in recommended additional tax, or roughly 45% of the total. That works out to approximately $1.6 million in recommended additional tax per closed corporate audit.

The largest corporate taxpayers accounted for most of the recommended tax adjustments. Corporations with $20 billion or more in total assets accounted for only 281 of the 7,495 corporate audit closures but generated approximately $8.59 billion, or about 72%, of corporate-recommended additional tax. Corporations with $5 billion to $20 billion in assets accounted for another 316 examinations and approximately $1.33 billion in recommended additional tax. Together, corporations with $5 billion or more in assets accounted for roughly 8% of corporate audit closures, but approximately 83% of corporate recommended additional tax.

The trend data for nearly 600 corporate groups with $20 billion or more in assets is particularly telling. The number of closed audits in that category was higher in FY 2025 than in FY 2023 and FY 2024. On a per-audit basis, the average recommended additional tax for the largest corporations increased from approximately $13.6 million in FY 2020 to approximately $30.6 million in FY 2025, with a notable peak of approximately $89.6 million per closed audit in FY 2023.

The corporate examination results are notable against the workforce backdrop. IRS employees fell from 99,628 to 80,967, with a high of more than 103,000 employees as of February 2025. The examinations and collections function showed a similar pattern: employees fell from 38,991 to 29,722. Thus, even with a reduced workforce, FY 2025 audits for large corporate taxpayers maintained a similar average recommended additional tax in FY 2025 to FY 2021 and FY 2022, as shown in the table above.

The unagreed-adjustment data also points to significant controversy in the pipeline. In FY 2025, the IRS reported 743 corporation examination closures with unagreed recommended additional tax, totaling approximately $8.74 billion. For corporations with $20 billion or more in assets, 55 closures accounted for approximately $7.37 billion of unagreed recommended additional tax. These unagreed figures underscore that large corporate examinations continue to involve material, contested issues.

The data also indicates a significant backlog of audits. Since 2020, there has been an increase in corporate audits “in process,” while the number of audits closed has decreased. This means that additional audits have been piling up in the pipeline each year.

In addition, more than 100 taxpayers remain in the Compliance Assurance Process (CAP). Our understanding is that many IRS agents involved in CAP have been more engaged in the process and have issued significantly more information document requests, suggesting increased audit risk for CAP taxpayers, too.

For corporate taxpayers, the practical takeaway is straightforward: a smaller year-end IRS workforce and fewer closed audits should not be read as a broad reduction in corporate tax controversy risk. The IRS appears to be devoting corporate examination resources to relatively few, higher-dollar field examinations, with the largest corporations producing the bulk of recommended adjustments. Companies should continue to maintain audit-ready documentation, evaluate positions likely to draw scrutiny, and prepare for a potentially resource-intensive field examination process even in an environment of lower overall audit counts.