With the recent wave of personnel cuts at the IRS, a seemingly logical assumption has taken hold: fewer people must mean fewer audits.
In practice, the opposite is unfolding.
The US tax authority is navigating one of the most disruptive periods in its modern history. Headcount has fallen sharply, leadership turnover has created uncertainty, budgets are under sustained pressure, and, in the background, a White House known for abrupt policy shifts adds another layer of unpredictability. Historically, conditions like these might have led to a slowdown in enforcement activity.
That is not what we are seeing.
Rather than retreating, the IRS has recalibrated. The result is not a weaker institution, but a more selective, more analytical, and more surgical enforcer. Resource constraints have forced a shift away from volume and toward impact.
Broad, labor-intensive audits are increasingly being replaced by targeted interventions informed by data. Audit selection is now driven by sophisticated analytics, cross-jurisdictional consistency checks, and risk indicators drawn from multiple reporting streams. When an audit is opened, it is rarely exploratory. The IRS enters with a theory of the case, supporting datasets, and—often—a litigation posture already in mind.
In short: fewer cases, but far better prepared ones.
This transformation is particularly visible in transfer pricing and international tax, where enforcement remains a priority despite internal constraints:
· A sustained focus on intangibles, DEMPE alignment, and cost-sharing arrangements, especially where value creation and profit allocation diverge
· Systematic scrutiny of cross-border margins, recurring losses, and structures that appear economically misaligned with operational reality
· A growing willingness to assert penalties, particularly where documentation is not contemporaneous or where the IRS disagrees with the best method selection.
These developments change the risk landscape for multinational taxpayers. The margin for error is narrower. The tolerance for weak narratives, boilerplate benchmarking, or after-the-fact explanations is lower. And the consequences of being unprepared are more immediate and more severe.
The takeaway is clear: a lighter-staffed IRS does not translate into a lighter compliance environment. If anything, it raises the bar. Contemporaneous documentation and proactive risk assessment are no longer differentiators—they are baseline recommendations.
For multinational groups, now is a good time to reassess whether existing transfer pricing policies, documentation, and intercompany arrangements would withstand a more targeted and data-driven examination environment.
If you would like to discuss how these developments may affect your organization, feel free to reach out: Eduardo.emmerich@basefirma.com, Anamaria.rincon@basefirma.com, sol.assi@ibasefirma.com