IRS Approved 57% Fewer Tax Debt Settlements in FY2025 Even as Applications Rose 29%

The Numbers

Since fiscal 2023, the IRS has gone from approving about 12,700 offers in compromise a year to roughly 5,500 in fiscal 2025, a 57% drop, according to agency data reported by CNBC. Over the same stretch, submitted offers rose 29%, to about 38,800. More people are asking for help. Far fewer are getting it.

The dollar value of the deals tells the same story. Accepted offers were worth $214.5 million in fiscal 2023. In fiscal 2025, that fell to $98.1 million, according to the same agency figures cited by CNBC and independently confirmed by Traders Union.

An offer in compromise lets a taxpayer settle a debt for less than the full amount owed when they can't pay it or paying would cause real financial hardship. The IRS itself calls it a legitimate option on IRS.gov. Congress has allowed some version of this since 1864.

Nobody Can Say Why, Exactly

Nina Olson, executive director of the Center for Taxpayer Rights and a former National Taxpayer Advocate at the IRS from 2001 to 2019, told CNBC she's "never seen a number that low." Leslie Book, a law professor who runs Villanova University's Tax Clinic for low-income filers, called the drop "alarming."

None of the experts CNBC interviewed could pin down the exact cause. Emily Yaun, who directs the Philip C. Cook Low-Income Taxpayer Clinic at Georgia State University, said it's "just more difficult than it used to be" to get an offer approved, but couldn't say why. An IRS spokesperson declined to explain the drop to CNBC.

The obvious suspect is staffing. A June report from the Treasury Inspector General for Tax Administration found the IRS workforce fell by about 31,000 employees, roughly 28%, from early 2025 to January 2026, according to Traders Union's reporting on that watchdog data. That's the same period Elon Musk's Department of Government Efficiency drove sweeping federal layoffs and buyout offers.

Traders Union also flagged something CNBC's piece didn't dwell on. The decline in approvals appears to have started before the current workforce cuts took hold, and the IRS says its acceptance rate among cases that actually reach a final determination has stayed relatively steady, around 53%, in fiscal 2026. If the per-case approval rate hasn't moved much, the real problem may be a backlog of applications stuck in limbo rather than the IRS getting stingier on the merits of each case. Applications are also notoriously technical, and experts told CNBC that filing errors can knock cases out before they're ever formally decided.

Enforcement Is Shrinking Too

The offer-in-compromise slide isn't happening in isolation. Revenue from IRS audits plunged 35% in fiscal 2025, to $6.5 billion from $10 billion a year earlier, according to an August 26, 2026 report from the Treasury Inspector General for Tax Administration cited by CBS News. The number of employees in auditing and collections dropped to 17,517 as of January 2026, nearly 10,000 fewer than fiscal 2024.

Audits of individuals earning over $400,000 fell 26%, to about 43,000, and the IRS's Global High Wealth program lost 27% of its staff. New business-partnership audits fell 30%. Large corporate audits actually rose 17%, the one enforcement category that grew.

Then-IRS Commissioner Billy Long told Congress in April that the agency is leaning on artificial intelligence to close the gap, saying "our advanced data and analytic strategies allow us to catch instances of tax evasion that would have been undetectable just a few years ago." Total federal tax revenue collected still rose to $5.3 trillion in fiscal 2025, up 4.2% from a year earlier, per the TIGTA report, even as audit-specific revenue fell. Senator Elizabeth Warren, the Massachusetts Democrat who has long pushed a federal wealth tax, raised concerns to CBS News about what the enforcement pullback means for scrutiny of wealthy filers.

Brookings' IRS Spotlight project, an ongoing tracker of the agency's condition, documents a broader erosion. A quarter of the workforce is gone, most senior leadership has been turned over, the commissioner's seat sits vacant, and what Brookings calls unresolved questions about political interference exist, including a lawsuit brought by the president personally against the agency and reports of attempted targeting of audits against perceived political opponents. Brookings frames those as documented concerns for a nonpartisanship timeline, not adjudicated findings, and no investigation tied specifically to the offer-in-compromise numbers has been announced.

The Other Half of the Squeeze

For taxpayers already underwater, the timing is rough on both ends. While it's getting harder to settle a debt with the IRS, promised relief in the other direction looks shaky too. Douglas Holz-Eakin, a former Congressional Budget Office director who now runs the American Action Forum, told Fox News Digital he doesn't expect President Trump's promised $5,000 dividend checks, tied to tariff revenue, or the administration's proposed $9,000 payments to stay-at-home mothers to materialize soon. "I would be skeptical that any of these checks are gonna be in your mailbox very soon," Holz-Eakin said, noting Trump lacks clear legal authority to issue tariff-funded checks the way DOGE savings were once promised to fund similar payments.

Whether the offer-in-compromise decline is a temporary processing bottleneck, as the IRS's own 53% acceptance-rate-on-determined-cases figure suggests, or a lasting policy shift, isn't something the agency has explained on the record. Taxpayer advocates say the next data point to watch is whether fiscal 2026's full-year numbers show the backlog clearing or growing.