IRS Enforcement Priorities in 2025: What CPAs Need to Know

The Shifting Focus of IRS Enforcement

The IRS has undergone significant changes in recent years, driven by increased funding, modernization initiatives, and evolving compliance challenges. For CPAs, both current practitioners and exam candidates, understanding where the IRS is focusing its enforcement resources provides critical context for tax planning, compliance work, and exam preparation.

The Inflation Reduction Act provided the IRS with approximately $80 billion in additional funding over ten years, with a substantial portion dedicated to enforcement activities. While subsequent legislative actions have modified this funding, the IRS has used the resources to expand its audit capabilities, particularly for high-income individuals, large corporations, and complex partnerships.

High-Income and High-Wealth Taxpayer Audits

The IRS has publicly stated its commitment to increasing audit rates for taxpayers earning more than $400,000 annually, with particular focus on those with incomes exceeding $1 million. Historically, audit rates for high-income individuals declined significantly due to resource constraints, but the IRS is now reversing that trend. This includes using advanced data analytics to identify returns with the highest compliance risk and deploying specialized teams to examine complex tax situations.

For CPA candidates, this focus on high-income taxpayers reinforces the importance of understanding topics such as passive activity loss limitations, the net investment income tax, alternative minimum tax computations, charitable contribution substantiation requirements, and the various phase-outs and limitations that apply at higher income levels.

Digital Asset Compliance

Digital assets, including cryptocurrency, non-fungible tokens (NFTs), and other blockchain-based assets, remain a top enforcement priority. Beginning with the 2024 tax year, all taxpayers must answer a digital asset question on their tax return. The IRS has issued guidance on the tax treatment of various digital asset transactions, including mining, staking, airdrops, and hard forks.

CPA candidates should understand the basic tax treatment of digital asset transactions: sales and exchanges are generally taxable events, with gain or loss measured as the difference between the amount realized and the adjusted basis. The character of the gain (ordinary versus capital) depends on how the taxpayer used the digital asset. Cost basis methods, holding period rules, and reporting requirements on Form 8949 are all testable concepts.

Partnership and Pass-Through Entity Compliance

Complex partnership structures have been identified as a significant area of noncompliance. The IRS has launched initiatives to examine large partnerships, particularly those using sophisticated structures to shift income, allocate losses, or defer tax. The centralized partnership audit regime, enacted as part of the Bipartisan Budget Act of 2015, gives the IRS new tools to audit and assess adjustments at the partnership level rather than requiring individual partner audits.

CPA candidates should understand the mechanics of the centralized partnership audit regime, including the role of the partnership representative, the imputed underpayment calculation, and the options available to partnerships for pushing adjustments out to reviewed-year partners. These topics are directly testable on the REG section.

Employee Retention Credit Compliance

The Employee Retention Credit (ERC) became a major compliance concern due to aggressive and sometimes fraudulent claims promoted by unscrupulous preparers. The IRS has implemented a moratorium on processing new ERC claims and has launched programs allowing taxpayers to withdraw improper claims or participate in a voluntary disclosure program. For CPA candidates, this situation illustrates the importance of due diligence obligations, Circular 230 requirements, and the ethical responsibilities of tax practitioners.

Information Reporting and Transparency

The IRS continues to expand its information reporting infrastructure. The Corporate Transparency Act requires many entities to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), though enforcement and deadlines have been subject to ongoing legal challenges. The IRS is also implementing new reporting requirements for digital asset brokers and payment platforms.

For practitioners, these changes mean additional compliance obligations for clients. For CPA candidates, they represent potential exam topics related to reporting requirements, penalties for noncompliance, and the broader framework of tax administration.

Technology and Data Analytics in Enforcement

The IRS is investing heavily in technology to improve its ability to identify noncompliance. Machine learning algorithms analyze returns to detect anomalies, and the IRS is building databases that cross-reference information from multiple sources, including international data sharing agreements. Understanding that the IRS has increasingly sophisticated tools to detect underreporting and noncompliance should inform both exam preparation and professional practice.

Key Takeaways for CPA Candidates

• Understand the current IRS enforcement priorities and how they connect to testable CPA exam content, particularly in the REG section.
• Study the tax treatment of digital assets, including basis determination, character of gain or loss, and reporting requirements.
• Review the centralized partnership audit regime, including the roles and procedures involved.
• Know the ethical and professional responsibilities of tax practitioners under Circular 230, including due diligence and competence standards.
• Recognize that IRS enforcement trends often signal areas of increasing complexity and importance in the tax profession.

IRS enforcement priorities reflect the areas where the government sees the greatest compliance risk. For CPA candidates, these priorities also indicate where the profession needs well-prepared practitioners who understand the rules and can help clients navigate an increasingly complex tax environment.