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AGENCY

FINANCIAL

REPORT

IRS MISSION

Provide America’s taxpayers top-quality service by helping them understand and meet

their tax responsibilities and enforce the law with integrity and fairness to all.

IRS VALUES

► Honesty and Integrity: We uphold the public trust in all that we do; we are

honest and forthright in all of our internal and external dealings.

► Respect: We treat each colleague, employee, and taxpayer with dignity and

respect.

► Continuous Improvement: We seek to perform the best that we can today,

while embracing change, so that we can perform even better in the future.

► Openness and Collaboration: We share information and collaborate,

recognizing that we are a team.

► Personal Accountability: We take responsibility for our actions and decisions

and learn and grow from our achievements and mistakes.

THE ICONIC IRS EAGLE LOGOMARK

The original Internal Revenue Service (IRS) Eagle logomark was designed in 1965.

The IRS Eagle logomark, commonly referred to as the eagle, is the cornerstone of the

identity of the IRS. While the logotype and name have been used in different ways over

the history of the organization, the IRS Eagle logomark has remained unchanged.

The eagle is a national symbol of the United States (U.S.). In the IRS Logo, the eagle is

combined with imagery illustrating the scales of justice, to convey that the Service’s

operations will be conducted in fair and honest ways, and the olive branch, a symbol

of peace and conciliation.

TABLE OF CONTENTS

About this Report

iii

Message from the Chief Executive Officer

MANAGEMENT’S DISCUSSION AND ANALYSIS

About the IRS

Performance Overview

Enterprise Risk Management

Analysis of Financial Statements

Analysis of Systems, Controls, and Legal Compliance

FINANCIAL INFORMATION

Message from the Chief Financial Officer

Independent Auditor’s Report

Enclosure: IRS Response to the Independent Auditor’s Report

Financial Statements

Notes to the Financial Statements

Required Supplementary Information

OTHER INFORMATION

Section A: Summary of Financial Statement Audit and

Management Assurances

Section B: Tax Burden, Tax Gap, and Tax Expenditures

Section C: Management and Performance Challenges

104 Section D: Grants Programs

105 Section E: Refundable Tax Credits and Other Outlays

112 Section F: Social Security and Medicare Taxes

113

APPENDICES

114 Appendix A: Glossary of Acronyms

115 Appendix B: Awards and Acknowledgements

INTRODUCTION | IRS FY 2025 AGENCY FINANCIAL REPORT

ABOUT THIS REPORT

This Agency Financial Report presents the IRS financial information in relation to its mission and

entrusted resources for the Fiscal Year (FY) 2025 reporting period (October 1, 2024 to September

30, 2025). It highlights select accomplishments and opportunities in implementing programs that

promote the IRS’s mission. This financial report is available on www.irs.gov/about-irs/irs-financial-reports.

cial-reports

The IRS, as a bureau within the Department of the Treasury (Treasury), presents this report in accordance with Office of Management and Budget’s (OMB) Circular A-136, Financial Reporting Requirements. This report includes OMB Circular A-136 core principles and requirements applicable to a

component entity. This report is titled Agency Financial Report to be consistent with similar reports

in the U.S. government.

How This Report is Organized

The Agency Financial Report consists of the following major sections:

Section 1: Management’s Discussion and Analysis (Unaudited)

Provides a high-level overview of the IRS’s history, mission, and organizational structure; strategic

framework and programmatic performance; enterprise risks; analysis of financial statements;

analysis of systems, controls, and legal compliance; and management assurances related to

the IRS’s internal controls. U.S. generally accepted accounting principles issued by the Federal

Accounting Standards Advisory Board require the Management’s Discussion and Analysis be

presented as required supplementary information to the financial statements.

Section 2: Financial Information

Includes a message from the Chief Financial Officer (CFO); Independent Auditor’s Report and IRS

response; audited financial statements and accompanying notes; and unaudited required supplementary information.

Section 3: Other Information (Unaudited)

Contains the following sections: Summary of the Financial Statement Audit and Management

Assurances; Tax Burden, Tax Gap, and Tax Expenditures; Management and Performance

Challenges; Grants Programs; Refundable Tax Credits and Other Outlays; and Social Security and

Medicare Taxes. Treasury reports on Payment Integrity in its Agency Financial Report (home.

treasury.gov/about/budget-financial-reporting-planning-and-performance/agency-financial-report).

For information on Payment Integrity, see PaymentAccuracy.gov (www.paymentaccuracy.gov).

About this Report

INTRODUCTION | IRS FY 2025 AGENCY FINANCIAL REPORT

MESSAGE FROM THE CHIEF EXECUTIVE OFFICER

On behalf of my dedicated colleagues at the IRS, I am honored to

present the Agency Financial Report for FY 2025. This report provides

an assessment of the IRS’s financial position and condition and

demonstrates how we are using the resources entrusted to us to serve

the American people.

The tax relief provided by the One Big Beautiful Bill Act forms the

cornerstone of the administration’s economic agenda. Our employees

are working to ensure that the historic benefits of this landmark legislation, including No Tax on Tips, No Tax on Overtime, and new deductions for seniors and families, are delivered to the American people timely and as intended.

To continue our strategic investment in America’s financial future, our focus in FY 2025 centered on

three priorities:

Data-Driven Enforcement

The IRS is using artificial intelligence and advanced analytics to identify high-risk areas of

non-compliance and fraud with greater accuracy. By modernizing information systems and sharing

data across platforms, we are better equipped to prevent identity theft, detect fraudulent filings,

and enforce the law. Thanks to this data-driven approach, our skilled enforcement and revenue

personnel can focus their efforts on higher-value work.

Simplified, Digital-First Taxpayer Experience

Our goal is to create a seamless customer experience where taxpayers can interact with the IRS

with the same ease they expect from the private sector. This includes a significant expansion of the

IRS Online Account for taxpayers to manage their affairs securely, as well as the improvement of

taxpayer guidance and resources. While digital tools are the priority, our exceptional service levels in

the 2025 filing season prove our enduring commitment to providing personal support by phone and

in person to any taxpayer who needs or prefers it.

Unyielding Commitment to Taxpayer Privacy

Protecting sensitive taxpayer data is paramount. We are continuously strengthening our cybersecurity

defenses and enforcing the strictest protocols to ensure that taxpayer information is secure from all

threats and that the IRS operates with the integrity the American people demand and deserve.

The IRS supports the U.S. economy by collecting individual, corporate, payroll, and other taxes

that fund critical government programs, including national defense, infrastructure, healthcare, social

security, and other fundamental services. This past year, the IRS has operated under an additional

mandate: to serve as a key partner in the administration’s vision for a modern, efficient, and

responsive government. Our mission has been to bolster the administration’s pro-growth economic

agenda by administering the nation’s tax laws with unparalleled efficiency, integrity, and a steadfast

commitment to taxpayer service.

Message from the Chief Executive Officer

iii

INTRODUCTION | IRS FY 2025 AGENCY FINANCIAL REPORT

The results of this new approach are clear and compelling: In FY 2025, the IRS collected more

than $5.3 trillion in revenue, processed over 271 million tax returns and forms, and issued approximately 113 million refunds totaling nearly $358 billion. These figures reflect not only the strength of

the American economy but also the skill and dedication of our workforce in fulfilling our important

statutory responsibilities. This culminated in what has been widely recognized as the most

successful filing season in years. We achieved an 87% level of service on our main telephone lines

with the average taxpayer waiting just three minutes to speak with an IRS representative. These are

more than just statistics – they represent millions of Americans who received fast, effective assistance without the frustration of long delays.

This new standard of service was achieved not by spending more, but by spending smarter.

In FY 2025, we conducted a comprehensive review of our technology portfolio and eliminated

approximately $2 billion in wasteful information technology spending by renegotiating contracts

and addressing long-standing inefficiencies like unused, auto-renewed software licenses.

Crucially, these savings were realized with minimal disruption to our core mission. Outdated paper

processes impose significant costs on the IRS, and we are taking steps to reduce that burden.

Through targeted policy changes, automation, and process redesign, we are focused on reducing

these costs over time and delivering a more efficient, modern IRS. We are demonstrating that a

government agency can deliver world-class service while being a responsible steward of taxpayer

dollars. However, current progress represents a foundational step. Our efforts will now focus on

implementing advanced technological solutions, enhancing operational efficiency, and delivering

superior service to the taxpayer.

I am proud to report that for the 26th consecutive year, the IRS has received an unmodified audit

opinion on its financial statements. The IRS also received an unmodified opinion on internal control

over financial reporting. We continue to strengthen management controls and make progress

toward remediating the unpaid assessments significant deficiency in internal control over financial

reporting to meet all U.S. financial systems compliance and conformance objectives as outlined in

the Management’s Discussion and Analysis – Analysis of Systems, Controls, and Legal

Compliance. Based on the results of our internal control evaluations, I can provide reasonable

Compliance

assurance that the performance and financial information in this report is complete and accurate.

The IRS is at a pivotal moment. We are transforming our operations, embracing new technology,

and fostering a culture of efficiency and accountability. We continue to invest in our workforce

to better equip them to serve the American people in an ever-changing digital environment. Our

success depends on disciplined, data-driven decision-making, and a strong commitment to results.

I am honored to lead this vital work, and I am confident that we are building an IRS every American

can trust to fulfill its mission.

Sincerely,

Frank J. Bisignano

Chief Executive Officer of Internal Revenue

January 12, 2026

Message from the Chief Executive Officer

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

MANAGEMENT’S

DISCUSSION AND ANALYSIS

About the IRS �� 2

Performance Overview �� 6

Enterprise Risk Management ��16

Analysis of Financial Statements ��18

Analysis of Systems, Controls, and Legal Compliance ��23

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

ABOUT THE IRS

The IRS is one of the oldest bureaus in the U.S. government and is entrusted with a vital responsibility—to serve the nation by administering tax laws with integrity, fairness, and efficiency. As the

steward of the tax system, the IRS plays a critical role in upholding public trust, ensuring compliance,

and modernizing operations to meet the evolving needs of taxpayers. Visit the IRS History Timeline

at www.irs.gov/irs-history-timeline

www.irs.gov/irs-history-timeline. In FY 2025, the IRS collected over $5.3 trillion in taxes, which

represents a vast majority of the revenue that supports the U.S. government’s operations.

Some Key Tax Statistics in FY 2025 Include:

271M

113M

$3,173

$5.3T

FEDERAL

TAX RETURNS

AND FORMS

PROCESSED

TOTAL

INDIVIDUAL

REFUNDS

COLLECTED IN

GROSS TAXES

$93.8B

ENFORCEMENT

REVENUE

COLLECTED

AVERAGE

INDIVIDUAL

REFUND

Note: These statistics are from October 1, 2024, through September 30, 2025. The average

individual refund amount includes refunds issued in FY 2025 for all tax years and excludes

refundable tax credits and other outlays.

About the IRS

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

Mission and Organization

The IRS’s mission is to provide America’s taxpayers top-quality service by helping them understand

and meet their tax responsibilities while enforcing the law with integrity and fairness to all.

The IRS’s core operations include collecting taxes, processing tax returns, assisting taxpayers,

enforcing tax laws, and investigating tax crimes. The extensive IRS portfolio also includes tax-exempt

organizations, tax-exempt bonds, refundable tax credits, and other specialized programs.

The IRS’s organizational structure features a Commissioner, Chief Executive Officer, Deputy

Commissioner, and four IRS chief positions. This closely resembles the private sector model of

organizing around customers with similar needs. View the most current IRS organization and

leadership structure at (www.irs.gov/about-irs/irs-organization).

Constitution Lobby, Internal Revenue Service Building, 1111 Constitution Ave. N.W., Washington D. C.

About the IRS

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

TAXPAYER

Taxpayers have the right to...

Be Informed: Taxpayers have the right to know what they need to do

to comply with the tax laws. They are entitled to clear explanations of

the laws and IRS procedures in all tax forms, instructions, publications,

notices, and correspondence. They have the right to be informed of IRS

decisions about their tax accounts and to receive clear explanations of

the outcomes.

Quality Service: Taxpayers have the right to receive prompt,

courteous, and professional assistance in their dealings with the IRS, to

be spoken to in a way they can easily understand, to receive clear and

easily understandable communications from the IRS, and to speak to a

supervisor about inadequate service.

Pay No More than the Correct Amount of Tax: Taxpayers have

the right to pay only the amount of tax legally due, including interest and

penalties, and to have the IRS apply all tax payments properly.

Challenge the IRS’s Position and Be Heard: Taxpayers have the right

to raise objections and provide additional documentation in response to

formal IRS actions or proposed actions, to expect that the IRS will consider

their timely objections and documentation promptly and fairly, and to

receive a response if the IRS does not agree with their position.

Appeal an IRS Decision in an Independent Forum: Taxpayers

are entitled to a fair and impartial administrative appeal of most IRS

decisions, including many penalties, and have the right to receive a

written response regarding the Office of Appeals’ decision. Taxpayers

generally have the right to take their cases to court.

About the IRS

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

BILL OF RIGHTS

Finality: Taxpayers have the right to know the maximum amount of time

they have to challenge the IRS’s position as well as the maximum amount

of time the IRS has to audit a particular tax year or collect a tax debt.

Taxpayers have the right to know when the IRS has finished an audit.

Privacy: Taxpayers have the right to expect that any IRS inquiry,

examination, or enforcement action will comply with the law and be

no more intrusive than necessary, and will respect all due process

rights, including search and seizure protections and will provide, where

applicable, a collection due process hearing.

Confidentiality: Taxpayers have the right to expect that any information

they provide to the IRS will not be disclosed unless authorized by the

taxpayer or by law. Taxpayers have the right to expect appropriate

action will be taken against employees, return preparers, and others who

wrongfully use or disclose taxpayer return information.

Retain Representation: Taxpayers have the right to retain an

authorized representative of their choice to represent them in their

dealings with the IRS. Taxpayers have the right to seek assistance from

a Low Income Taxpayer Clinic if they cannot afford representation.

A Fair and Just Tax System: Taxpayers have the right to expect the

tax system to consider facts and circumstances that might affect their

underlying liabilities, ability to pay, or ability to provide information timely.

Taxpayers have the right to receive assistance from the Taxpayer Advocate

Service if they are experiencing financial difficulty or if the IRS has not

resolved their tax issues properly and timely through its normal channels.

About the IRS

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

PERFORMANCE OVERVIEW

IRS Performance Framework

The Government Performance and Results Act of 1993 and the Government Performance and

Results Act Modernization Act of 2010 require the IRS to have a performance framework that

focuses on the IRS’s priorities with measurable outcomes supported by evidence and data-driven

decision making. This framework enables internal and external stakeholders the ability to review

an organization’s health while understanding decision-making and resource allocation. In keeping

with this legislation, Treasury and the IRS are developing new strategic plans for FY 2026-2030,

which will be published in FY 2026. The IRS’s plan will focus on improving stewardship of taxpayer

dollars through modernization of service, privacy, and collections, in alignment with the efforts and

priorities of the administration and Treasury. For FY 2025, the IRS’s performance is captured within

three major programs aligned to the Statement of Net Cost. The non-production costs associated

with the voluntary separation programs, including deferred resignation programs and voluntary

separation incentives, are presented in the Statement of Net Cost.

Major Programs

• Service to the Taxpayer

• Enforcement of Tax Legislation

• Transformation of Business Systems

Service to the Taxpayer

Gross Cost: $7,243 million

Service to the Taxpayer includes activities and programs such as pre-filing assistance; account

management and assistance; processing tax returns and related documents; offering filing and

account services; producing media and publications; and providing education and resources

to taxpayers. This area also encompasses oversight and delivery of customer service including

telephone and face-to-face assistance; tax return processing for all taxpayers; and compliance

activities. It also provides an independent channel, through taxpayer advocacy, to assist taxpayers

with resolving issues that cannot be addressed through normal IRS channels, while working to

protect taxpayer rights, identify systemic challenges, and recommend improvements that enhance

fairness and efficiency in tax administration.

The IRS delivered a successful 2025 filing season, which began on January 27, 2025, and ended

April 19, 2025. Highlights included the following:

Phone Services

• Responded to 8.9 million Accounts Management phone calls.

• Accomplished an average wait time of three minutes.

• Achieved a Customer Service Representative Level of Service of 87%.

• Offered the customer callback feature to about 2.6 million taxpayers, saving taxpayers over

742,000 hours of phone hold time.

Performance Overview

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

Online Services/Self-Assistance

• Achieved a 6% increase in customer satisfaction among visitors to IRS.gov.

In-Person Services

• Extended in-person hours at Taxpayer Assistance Center locations across the nation

(including evening and Saturday hours), providing more than 15,000 extra service hours,

ensuring more flexibility and convenience to hard-working taxpayers.

Tax-Return Processing

• For select returns, delivered automated 1040X amended return processing, which reduced

processing time from 16 weeks to 3 days, with faster refunds and improved service reliability

for taxpayers.

Taxpayer Publications/Education

• Successfully delivered 97.3% of Critical Individual Filing Season Tax Products on time, along with

97.1% of tax products for Tax Exempt and Government Entities and Business Tax Products.

Fraud Prevention

• Used new filters as screening criteria to detect potential identity theft and prevent the issuance of

fraudulent refunds. Tax returns identified by these filters are held during processing until the IRS

can verify the taxpayer’s identity. As of May 2025, the IRS confirmed more than 91,000 identity

theft tax returns and prevented the issuance of approximately $1 billion in fraudulent refunds.

In FY 2025, the IRS continued to expand secure, self-service options for taxpayers, tax professionals, and businesses. Online Accounts, Tax Pro Online Accounts, and Business Tax Accounts

gave users more ways to access tax records, make payments, and manage authorizations. The

IRS also introduced new online tools, such as electronic form signing and multilingual support, to

reduce phone wait times and streamline service.

The Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs continued to

provide vital free tax preparation services nationwide. The IRS awarded grants to 312 organizations through the Volunteer Income Tax Assistance program and 40 through the Tax Counseling

for the Elderly program. The Volunteer Income Tax Assistance program and the Tax Counseling for

the Elderly program supported more than 2,000 local tax preparation sites, serving underserved

communities across the country. With the contribution of over 76,000 certified volunteers, local tax

preparation sites prepared more than 2.8 million returns, delivered an estimated 2 million refunds,

and achieved a national accuracy rate of 95.8%.

The IRS also made progress in modernizing Taxpayer Assistance Centers. A new scheduling

tool enabled customer service representatives to book appointments around the clock, including

evenings and weekends. Real-time tracking improved visibility into taxpayer interactions, while a

new ‘Walk Up Experience’ feature helped manage in-office traffic. The IRS also began using text

messaging to send appointment reminders, along with self-service options to cancel or reschedule

visits. In June 2025, every Taxpayer Assistance Center was upgraded with mobile hotspots to

reduce disruptions from network outages.

Performance Overview

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

Beyond these improvements, the IRS continued to make services faster and more reliable.

Automation reduced the time needed to process amended returns from 16 weeks to just 3 days,

giving customer service representatives better access to return status and resulting in taxpayers to

receive refunds more quickly. The IRS also launched new initiatives to present internal data more

effectively, improving the speed and accuracy of phone and live chat assistance. Together, these

changes are bringing IRS services closer to the level of convenience and efficiency that taxpayers

expect from private industry.

Building on these efforts, the IRS is positioning itself for future success by redirecting resources

from lower-priority programs, restructuring operations, and aligning investments with the FY 2026

President’s Budget. The IRS is currently implementing key tax provisions from the One Big Beautiful

Bill Act in time for the 2026 filing season, modernizing tax systems and processes to deliver a

modern taxpayer experience, enhancing both self-service and live assistance, and continuing to

assist taxpayers by preventing and addressing fraud, scams, and identity theft.

Service to the Taxpayer Performance Measures

The IRS exceeded 5 out of 7 of its key performance measures for Service to the Taxpayer.

Table 1: Summary of key performance measure results for FY 2025.

2025

Target

2025

Actual

Customer Service Representative Level of Service1

60.0%

60.5%

Level of Service(A)2

65.0%

69.1%

89.0%

86.3%

87.0%

85.2%

Timeliness of Critical Individual Filing Season Tax Products to the Public

91.0%

97.3%

Timeliness of Critical TE/GE & Business Tax Products to the Public6

89.0%

97.1%

Enterprise Self-Assistance Participation Rate7

94.0%

96.6%

Key Performance Measures

Customer Accuracy – Tax Law (Phones)

Customer Accuracy – Accounts (Phones)4

Target met, or trending in the desired direction.

Target not met, or not trending in the desired direction.

The relative success rate of taxpayers that call for Customer Account Services seeking assistance from a Customer Service Representative. Customer

Service Representative Level of Service includes telephone lines answered by Accounts Management Customer Service Representatives only. Customer

service representatives answered around 18.6 million calls in FY 2025. Customer service representative phone demand, which includes services offered

and disconnects, was around 33.7 million. In FY 2025, around 13.8 million taxpayers were offered a callback and 62.1% accepted. This resulted in

around 4.1 million hours saved for the taxpayer, providing a better experience. The level of service for the 2025 filing season was 87.0%.

The relative success rate of taxpayers that call for Accounts Management Customer Account Services seeking assistance from a Customer Service

Representative or through an Automated application during open hours. Customer Service Representative Level of Service (Automation) includes

telephone lines answered by Accounts Management Customer Service Representatives only. Automated Accounts Management calls answered in the

Integrated Customer Communication Environment, and Accounts Management informational messages completed in Interactive Applications that permit

taxpayers using a touch-tone telephone to select an application to resolve tax account issues, obtain tax information, or otherwise direct themselves to

the appropriate source of assistance.

The number of correct answers given by a live assistor on Toll-free tax law inquiries divided by the total number of inquiries, shown as a percentage. In

FY 2025, the new hires received accounts and tax law training. Customer Accuracy – Tax Law (Phones) finished below the target because FY 2025 new

hires were charged in accuracies on account-related call received on tax law applications, affecting the overall accuracy rate.

Performance Overview

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

The number of correct answers given by a live assistor on Toll-free account inquiries divided by the total number of inquiries, shown as a percentage.

Customer Accuracy – Accounts (Phones) finished below the target given the complexity of incoming calls increased, while less complex phone inquiries

declined in part due to increased taxpayer self-help services and online efficiencies.

The number of Critical Individual Filing Season tax products available to the public seven calendar days before the official IRS start of the individual filing

season divided by the total number of products, shown a percentage. No major tax legislation was passed that affected filing season preparation.

The number of Critical Tax Exempt/Government Entities and Business tax products available to the public seven calendar days before the official IRS start

of the individual filing season divided by the total number of products, shown as a percentage. No major tax legislation was passed that affected filing

season preparation.

The number of taxpayer self-assisted services completed divided by the total number of services, shown as a percentage.

DID YOU KNOW?

One Big Beautiful Bill Act

The One Big Beautiful Bill Act has a significant effect on

federal taxes, credits and deductions. It was signed into

law on July 4, 2025, as Public Law 119-21.

Some provisions that went into effect in 2025 cover:

• Income tax, credits, and deductions

• Family and dependent credits

• Business credits and deductions

• Investment and community development

• Clean energy

• Tax exempt entities and charitable giving

Find more details at: www.irs.gov/newsroom/one-bigbeautiful-bill-provisions

Enforcement of Tax Legislation

Gross Cost: $12,214 million

Enforcement of Tax Legislation includes the examination of domestic and international tax returns;

administrative and judicial settlement of taxpayer appeals of examination findings; technical rulings;

monitoring of employee pension plans; determination of qualifications for organizations seeking

tax-exempt status; enforcement of statutes relating to the detection and investigation of criminal

violations of tax laws; identification of under-reporting of tax obligations; securing unfiled tax returns;

and collection of unpaid accounts.

The IRS continues to advance its enforcement priorities through a balanced approach that

strengthens compliance, enhances taxpayer service, and protects the integrity of the tax system.

These priorities are operationalized through enterprise-level planning and workforce readiness.

The IRS is focused on carrying out key parts of recent tax legislation and modernizing operations

through integrating advanced data analytics and digital tools to improve service delivery and streamline

compliance processes.

Performance Overview

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

Promoting voluntary compliance remains a core part of the IRS mission. The IRS supports

taxpayers and tax professionals through education, early detection, prevention efforts, and options

to resolve issues. At the same time, the IRS enforces tax laws fairly and consistently to help ensure

a level playing field and maintain public trust in the tax system.

To guide future enforcement efforts, the IRS is developing the FY 2026 Enterprise Compliance

Plan. This plan will outline key strategies that support the IRS’s broader information technology

modernization efforts, including the use of advanced analytics to detect anomalies and select

cases, streamlined case management across program areas to boost efficiency and collaboration,

and targeted investments in workforce training and technology to help employees meet evolving

demands and challenges.

The IRS is aligning its organizational structure to support strategic goals, optimize staffing levels,

and use team-based models to improve flexibility and responsiveness. At the same time, the IRS is

investing in programs to help employees adapt to new tools, processes, and expectations. These

efforts are part of a broader strategy to improve compliance outcomes while building a modern,

data-driven, and taxpayer-focused environment.

Enforcement of Tax Legislation Performance Measures

The IRS exceeded 3 out of 7 of its key performance measures for Enforcement of Tax Legislation.

Table 2: Summary of key performance measures results for FY 2025.

2025

Target

2025

Actual

37.2%

38.8%

6,786

3,692

3,174

1,589

Exam Starts – Large Corporations (Assets >= $250M)

1,375

1,483

Criminal Investigations Completed6

2,500

2,850

Conviction Rate7

92.0%

89.0%

Key Performance Measures

Collection Coverage1

Examination Efficiency – Individual2

Exam Starts – High-Income Individuals

Exam Starts – Partnerships4

Target met, or trending in the desired direction.

Target not met, or not trending in the desired direction.

The volume of collection work disposed divided by the total volume of collection work available, shown as a percentage. Restart of Delinquent Return

Notices resulted in a substantial increase of notices being issued throughout FY 2025. New Balance Due and Delinquent Return Notices were issued on

a consistent schedule throughout FY 2025, resulting in a constant flow of inventory and dispositions from notices.

The sum of all individual 1040 returns closed by Small Business/Self-Employed, Taxpayer Services, and Large Business and International (Field Exam

and Correspondence Exam programs) divided by the total full-time equivalent expended in relation to those individual returns. Examination Efficiency

– Individual finished below the target due to the significant staffing changes caused by the deferred resignation programs and the separation of

probationary employees requiring the reassignment of inventory and canceled training.

The number of examinations of individual returns started during the fiscal year with a total positive income of $10 million and above. Exam Starts –

High-Income Individuals finished below the target was primarily due to significant staffing changes as a result of the deferred resignation programs and

the separation of probationary employees.

Performance Overview

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

The number of partnership examinations started during the fiscal year. Exam Starts – Partnerships finished below the target largely due to significant

staffing changes as a result of the deferred resignation programs and the separation of probationary employees.

The number of examinations of large corporate returns started during the fiscal year reporting assets of $250 million and above. Exam Starts – Large

Corporation finished above the target due to On-the-job instructors returning to their regular large corporate cases after a significant number of

probationary employees did not return after June 2025. This upward trend is expected to continue during FY 2026 as the remaining probationary

employees complete training and continue to be assigned large corporate work.

The total number of subject criminal investigations completed during the fiscal year, including those that resulted in prosecution recommendations to

the Department of Justice as well as those discontinued due to a lack of prosecution potential. Criminal Investigations completed finished above the

target due to a shift towards more illegal non-tax investigations, which tend to have a lower cycle time, as well as an influx of new agents initiating case

inventory. Hiring authority in recent years has allowed IRS Criminal Investigations to remain consistent in its recruiting, hiring, and training efforts, and as

a result has contributed to better-than-expected performance results in FY 2025.

The total number of convictions divided by the total number of adjudicated criminal cases, shown as a percentage. Conviction Rate finished below the

target because IRS Criminal Investigations does not prosecute its own cases and depends on the ability of the Department of Justice and U.S. Attorney’s

office to accept its cases for prosecution and move such cases through the courts.

DID YOU KNOW?

Tax Relief in Disaster Situations

Find information on the most recent tax relief provisions

for taxpayers affected by disaster situations.

The current list of eligible localities and other details for each

disaster are available on our Around the nation page at

www.irs.gov/newsroom/tax-relief-in-disaster-situations.

www.irs.gov/newsroom/tax-relief-in-disaster-situations

Transformation of Business Systems

Gross Cost: $1,038 million

The IRS is modernizing its business systems while maintaining the core operations that keep the

organization running smoothly. This includes delivery of technology services that support tax administration for both employees and the public, and planning for and investing in new systems. At the

same time, essential support functions such as workplace safety, facilities, human capital, policy,

communications, finance, strategic planning, research, and procurement form the backbone of the

IRS. Together, these efforts ensure that resources are used effectively, employees are aligned with

organizational goals, and technology upgrades are integrated into daily operations. This combination of modern information technology systems and strong support functions positions the IRS

for long-term success. Primary activities include:

• Expanding secure, self-service online account capabilities to give taxpayers, businesses, and

tax professionals 24/7 access to their tax information.

• Improving individual tax processing technologies to ensure faster, more accurate returns, and

resolutions.

• Modernizing case and workload management tools to increase efficiency and reduce administrative burden.

• Advancing protections to safeguard sensitive financial data for both taxpayers and IRS systems.

Performance Overview

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

The IRS also made great progress by expanding digital scanning and e-filing capabilities to

reduce backlog and speed up processing. The IRS achieved online and mobile accessibility for 21

additional non-tax forms, bringing the total to 71 available for online submission.

In FY 2025, the IRS transformation efforts continued with the planning and phased development of

several strategic initiatives that will modernize the IRS’s technology infrastructure and core operations. The IRS is working to substantially complete most key modernization initiatives within the

next two years. Efforts are focused on expanding automation, strengthening data integration, and

improving system interoperability to better support both taxpayer services and internal compliance

operations. Modernized platforms will enable authorized employees to access secure real-time

taxpayer data, which improves service quality while safeguarding privacy. They include:

• The Unified Application Program Interface initiative is being developed to create a

standardized foundation for enterprise data integration. This framework will allow for

consistent, secure access to datasets across IRS applications. The Unified Application

Program Interface is intended to enhance data discoverability, accelerate system

development, and improve information sharing across IRS programs.

• Through the Zero Paper initiative, the IRS is preparing to reduce the physical handling of

incoming tax documents. The IRS plans to shift paper submissions to third-party processing

sites, where documents will be scanned and converted to metadata using artificial intelligence

and robotic automation. These structured data packages will be securely transmitted into IRS

systems, reducing paper inventory, cutting processing times, and enabling more accurate

data ingestion.

• The IRS is also building the Developer Experience Platform, which will standardize and

automate software development, testing, and deployment across the enterprise. The

Developer Experience Platform is intended to support faster delivery of applications, reduce

troubleshooting time, and ensure consistent architecture patterns across information

technology projects. This approach is expected to boost development agility while reinforcing

system security and scalability.

These initiatives, combined with ongoing efforts to enhance cybersecurity, modernize infrastructure,

and expand digital intake, underscore the IRS’s commitment to becoming more agile, resilient, and

data-driven. Looking ahead, the IRS will continue to transform its business systems to deliver a

more modern, secure, and responsive tax system. Over the next several years, the IRS will advance

digitalization, expand the use of automation, and integrate data platforms to improve both taxpayer

service and internal operations. Priority efforts include building better interoperability across core

systems, investing in scalable cloud solutions, and reinforcing cybersecurity to protect sensitive

information. The IRS will also expand real-time data access and continue replacing legacy systems

with modern platforms that support innovation and resilience. These efforts will ensure the IRS can

adapt quickly to new challenges, reduce costs through technology, and provide taxpayers with a

seamless, reliable, and secure experience.

Performance Overview

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

Transformation of Business Systems Performance Measures

The IRS exceeded 1 out of 4 of its key performance measures for Transformation of Business

Systems.

Table 3: Summary of key performance measure results for FY 2025.

2025

Target

2025

Actual

Rentable Square Feet per Person1

229

230

Percent of Aged Hardware2

20.0%

13.1%

Percent of Reportable Information Technology Investments Within +/- 10% Cost

Variance at the Investment Level3

90.0%

60.0%

Percent of Reportable Information Technology Investments Within +/- 10% Schedule

Variance at the Investment Level4

90.0%

30.0%

Key Performance Measures

Target met, or trending in the desired direction.

Target not met, or not trending in the desired direction.

The amount of rentable square feet the IRS maintains per person requiring space. Rentable Square Feet per Person is driven in the positive direction by

either a decrease in square footage, increase in staffing or a combination of both. Rentable Square Feet per person missed the target due to changing

priorities of the last fiscal year, which led the IRS to reevaluate its current space usage and needs. The IRS is committed to reviewing its space reduction

efforts for the upcoming fiscal year.

The quantity of information technology hardware in operation past its useful life divided by the total hardware in use, shown as a percentage. Percent of

Aged Hardware finished ahead of the target of 20%. The IRS made steady progress every quarter to reduce the amount of old hardware. The IRS started

the year with a higher percentage of outdated equipment and replaced or retired older technology efficiently.

The number of reportable IT investments within +/-10% variance between planned total cost and projected/actual cost within a fiscal year divided by the

total number of reportable information technology investments in that fiscal year, shown as a percentage. Percent of Reportable Information Technology

Investments Within +/- 10% Cost Variance at the Investment Level fell below the target because less than six of ten reportable investments were within

the cost variance threshold at the close of the FY 2025.

The number of reportable IT investments within +/- 10% variance between planned days and projected/actual days within a fiscal year divided by the

total number of reportable information technology investments in that fiscal year, shown as a percentage. Three of ten reportable investments were

within the schedule variance threshold at the close of FY 2025. Percent of Reportable Information Technology Investments Within +/- 10% Schedule

Variance at the Investment Level fell below the target because several IRS IT investments fell outside the normal ±10% schedule variance largely due

to shifting procurement and funding timelines, and the early or adjusted completion of work across programs. The IRS is using these insights to further

enhance monitoring and strengthen performance going forward.

DID YOU KNOW?

70th Anniversary of the April 15 Filing Deadline

The annual deadline for filing federal income tax returns

was moved from March 15 to April 15 in 1955 to give both

taxpayers and the IRS more time to prepare and process

returns. This date has remained a consistent fixture in the

U.S. financial calendar since then.

Performance Overview

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

Verification and Validation of Performance Data

The IRS requires complete, accurate, and reliable performance data to assess progress toward its

strategic objectives and program outcomes to make good management decisions. All performance

results in the FY 2025 Agency Financial Report are considered preliminary. The IRS will publish the

actual results in the FY 2027 IRS Congressional Budget Justification & Annual Performance Report

and Plan, which is generally published after the State of the Union Address to IRS.gov at www.irs.

gov/about-irs/budget-documents.

gov/about-irs/budget-documents

The IRS’s approach to verification and validation of performance data to improve accuracy and

reliability is based upon the following:

1. The IRS reviews performance measures through its annual performance assessment process with

Treasury. This assessment includes reviewing the extent to which currently reported performance

measures support the strategic plan and priorities and identifying or developing new performance

measures to fill any gaps.

2. IRS business units use a standard template to document detailed information for each perfor-

mance measure. The IRS includes these measure templates in its comprehensive data dictionary,

which it maintains corporately and updates annually. For each measure, the data dictionary

includes information like:

• Definition

• Business unit

• Formula/methodology for

computation

• Responsible Official

• Source of the data

• Data limitations

• Management controls

3. The responsible official for the measure assesses the completeness, consistency, timeliness, and

quality of the data, whether the documented procedures for gathering the data were followed, and

ensures management controls are in place. The heads of office are accountable for their performance results. These positions vary by business unit.

4. The CFO’s Strategic Planning office reviews quarterly and year-end performance measure results

before sharing the results with the senior executive team and/or publishing them in Treasury and

IRS documents. The Strategic Planning office also independently reviews the performance

measure targets and accompanying documentation. If anomalies occur, the Strategic Planning

office informs the business unit, which makes any necessary adjustments. Leadership reviews all

target adjustments as part of the budget development and review process.

5. As part of managing the portfolio of enterprise performance measures, the Strategic Planning

office conducts ad-hoc meetings with business units to discuss topics such as oversight, responsibilities of ownership, guidance on measurement and reporting, and organizational change.

6. At the end of each fiscal year, the business units who are involved in the collection and reporting of

these measures receive a notification from the Strategic Planning office, reminding them of their

responsibility for:

• Ensuring quality and accuracy of the performance data.

• Reviewing and following Internal Revenue Manual guidelines when proposing new or

modifying existing measures.

Performance Overview

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

• Ensuring sufficient controls are in place for proper and accurate reporting of performance results.

These procedures help to provide assurances that the performance data and internal controls

reported by the IRS are sufficiently complete, accurate, and reliable.

Detailed guidance on the appropriate use and application of performance information appears in

Internal Revenue Manual 1.5.1: The IRS Balanced Performance Measurement System

(www.irs.gov/irm/part1/irm_01-005-001).

DID YOU KNOW?

Online Account Expansion

An IRS Online Account makes it easy for people to quickly

get the tax planning information they need.

In 2025, the IRS added the ability for taxpayers to use their

IRS Online Account to view and download the following

key tax documents:

• Form W-2, Wage and Tax Statement

• Form 1095-A, Health Insurance Marketplace Statement

• Form 1099-NEC, Nonemployee Compensation

The IRS added more information return documents to the

IRS Online Account. Taxpayers can now also view and

keep track of the following critical tax records:

• Form 1099-DIV, Dividends and Distributions

• Form 1099-SA, Distributions From an HSA, Archer

MSA or Medicare Advantage MSA

• Form W-2G, Certain Gambling Winnings

• Form 1099-INT, Interest Income

• Form 1099-MISC, Miscellaneous Income

• Form 1099-R, Distributions from Pensions, Annuities,

Retirement or Profit-Sharing Plans, IRAs, Insurance

Contracts, etc.

For more information, visit: www.irs.gov/newsroom/

irs-reminds-taxpayers-to-access-or-create-an-irsonline-account-today

Performance Overview

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

ENTERPRISE RISK MANAGEMENT

In compliance with the OMB Circular A-123, Management’s Responsibility for Enterprise Risk

Management and Internal Control, the IRS conducts an annual Enterprise Risk Assessment and

develops an Enterprise Risk Profile. The Enterprise Risk Profile articulates the IRS’s top risks and

opportunities to achieve its goals and objectives. The assessment considered internal and external

factors that may affect the achievement of IRS’s goals.

Over the next 12 months the IRS will operate in an environment shaped by both risks and opportunities. The Enterprise Risk Profile highlights risk areas such as implementation of legislation, modernization, taxpayer service, and enforcement. These risks are affected by critical risk drivers including

the budget, aging technology infrastructure, ongoing restructuring, workload, and workforce.

The IRS continues to monitor and manage these risks as part of its ongoing efforts to ensure a

successful 2026 filing season. The IRS is using innovation and technology to improve taxpayer

service, maintain taxpayer privacy, enhance operations and enforcement, modernize its workforce,

protect data, and safeguard revenue. The IRS is committed to mitigating the associated risks while

achieving its core mission of tax administration.

The top IRS Enterprise Risks over the next 12 months are:

Enforcement Capabilities: The risk that ineffective enforcement activities (technology, processes,

and people) may impact compliance, erode trust and confidence in the tax administration system,

and hinder the IRS’s ability to meet its mission.

Taxpayer Service: The risk that the inability to provide taxpayer services efficiently and effectively

may result in taxpayers’ inability to meet their tax obligations, a greater need for enforcement activities post-filing, loss of revenue, and erosion of trust and confidence in the IRS.

Workforce Readiness: The risk that IRS may not have a workforce equipped with the expertise,

experience, and resources to meet evolving needs, which may negatively impact service to

taxpayers, business operations, revenue collection, and efficient delivery of the IRS mission.

Implementation of Legislation and Other Requirements: The risk that failure to timely and

effectively implement complex legislation and non-statutory requirements may adversely impact the

IRS’s ability to fulfill core mission, enhance service delivery, and more effectively enforce the tax law.

Fraudulent Scams and Schemes: The risk that bad actors perpetrate fraudulent scams and

schemes to exploit tax laws, IRS procedures, technology, and other critical items, which may result

in loss of revenue, erosion of confidence and trust in the IRS, and undue burden on taxpayers.

Information Technology Modernization: The risk that failure to timely modernize information

technology systems, including adopting artificial intelligence, could inhibit efficiency and effectiveness of IRS operations, delay modernization of taxpayer service, and affect the IRS’s efforts to

strengthen cybersecurity protections.

Data Security: The risk that the inability to protect sensitive data may result in unauthorized

access, disclosure, misuse, improper modification, or destruction creating additional burden on the

taxpayer and eroding public trust.

Enterprise Risk Management

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

Cybersecurity: The risk that increased complexity and sophistication of cyber threats may result in

unauthorized access, data loss, fraud, or denial of service.

FY 2026 IRS Enterprise Risk Profile

• Enforcement Capabilities: The ineffective enforcement

activities (technology, processes, people).

• Taxpayer Service: The inability to provide taxpayer

services efficiently and effectively.

• Workforce Readiness: The failure of not having

workforce equipped with the expertise, experience,

and resources to meet evolving needs.

• Implementation of Legislation and Other

Requirements: The failure to timely and

effectively implement complex legislation

and non-statutory requirements.

• Fraudulent Scams and Schemes: The

inability to address bad actors perpetrating

fraudulent scams and schemes to exploit tax

laws, IRS procedures, technology, etc.

• Information Technology Modernization: The

failure to timely modernize information technology

systems, including adopting Artificial Intelligence.

• Data Security: The inability to protect sensitive data.

• Cyber Security: The inability to address increased

complexity and sophistication of cyber threats.

Enterprise Risk Management

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

ANALYSIS OF FINANCIAL STATEMENTS

Financial Management Highlights

The IRS’s financial statements are prepared to report the financial position, financial condition,

and results of operations, consistent with the requirements of 31 U.S. Code Section 3515(b). The

financial statements are prepared from records of the IRS in accordance with federal generally

accepted accounting principles and the formats prescribed by OMB. Reports used to monitor and

control budgetary resources are prepared from the same records. The IRS is a component entity of

the Treasury.

The IRS is responsible for the administration of tax laws and the custodial collections of taxes for

the U.S. government. The IRS responsibilities are divided into two distinct financial management

categories: administrative and custodial. Administrative accounts are included as appropriations and offsetting collections in the Statement of Budgetary Resources. These resources are

also reflected as assets, liabilities, revenues, expenses, and the net position of the IRS. Custodial

accounts include activity in support of tax collections. The IRS collects the majority of receipts

supporting the U.S. government’s operations. Tax receipts are accounted for in designated

custodial accounts as presented on the Statement of Custodial Activity. Custodial assets are

included on the Balance Sheet for Fund Balance with Treasury; Due from the General Fund of the

U.S. Government; Federal Taxes Receivable, Net; and Other Receivables, Net. Custodial Liabilities

are included on the Balance Sheet as Due to the General Fund of the U.S. Government; Federal

Tax Refunds Payable; Other Liabilities; and Other Payables.

The financial highlights provide an overview of the IRS’s financial position, net cost of operations,

budgetary resources, and custodial activities. Audited financial statements with accompanying

notes, including the independent auditor’s report, are presented in the Financial Information

section of this report. The chart below highlights IRS’s FY 2025 financial data.

(In Millions)

2025

Total Assets

$140,264

Total Liabilities

$111,800

Net Cost of Operations

$21,191

Total Budgetary Resources

$43,378

Total Custodial Revenues

$5,313,762

Analysis of Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

Analysis of the Balance Sheet

The Balance Sheet displays amounts of future economic benefits owned or available for use (assets),

amounts owed (liabilities), and the residual amount (net position) at the end of the fiscal year.

As of September 30, 2025, assets totaled $140,264 million, a reduction of $71,927. Assets are

comprised of Federal Taxes Receivable, Net of $91,415 million; Fund Balance with Treasury of

$41,484 million; Due from the General Fund of the U.S. Government of $4,238 million; and Other of

$3,127 million. Other assets consist primarily of Property and Equipment, Net. Fund Balance with

Treasury was primarily reduced this fiscal year by a $20,200 million rescission of previously received

surplus enforcement funds. Federal Taxes Receivable, Net decreased by $47,805 million in FY

2025. Additional information on Federal Taxes Receivable, Net can be found in Note 4. Federal

Taxes Receivable, Net in the Financial Information section of this report.

2.2%

3.0%

65.2%

29.6%

FY 2025

Federal Taxes Receivable, Net

Fund Balance with Treasury

Due from the General Fund of the U.S. Government

Other

$140,264

Assets

($ in Millions)

As of September 30, 2025, liabilities totaled $111,800 million, a reduction of $45,873 million. Liabilities include Intragovernmental (Due to the General Fund of the U.S. Government, and Other Liabilities), and Other than Intragovernmental (Federal Tax Refunds Payable, Federal Employee Benefits

Payable, Other Liabilities, and Other Payables). Intragovernmental liability representing funds to be

distributed to the General Fund decreased by $49,159 million in FY 2025, primarily as a result of

the Federal Taxes Receivable, Net that will be transferred to the General Fund when collected. The

increase of $3,154 million in Other than Intragovernmental – Other Liabilities is attributed to an

increase in unidentified cash collections for federal tax deposits due to the executive order requiring

federal tax payments be made electronically. Additional information for Federal Employee Benefits

Payable and Other Liabilities can be found in Note 8. Federal Employee Benefits Payable and

Note 9. Other Liabilities.

Liabilities

3.8%

1.2%

6.2%

88.8%

FY 2025

$111,800

Liabilities

($ in Millions)

Analysis of Financial Statements

Intragovernmental

Other

Federal Tax Refunds Payable

Federal Employee Benefits Payable

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

Analysis of the Statement of Net Cost

The Statement of Net Cost presents the annual cost of operating the IRS’s three major programs:

Service to the Taxpayer, Enforcement of Tax Legislation, and Transformation of Business Systems.

As a result of the deferred resignation programs and voluntary separation incentives, costs that

cannot be traced, assigned, or allocated to segments and their outputs are presented as Cost Not

Assigned to Programs on the statement. Net Cost of Operations includes gross cost less earned

revenue from user fees and reimbursable agreements. In FY 2025 the net cost of operations totaled

$21,191 million. The cost not assigned to programs caused a reduction of gross cost by major

programs as follows: Enforcement of Tax Legislation of $894 million, Service to the Taxpayer of

$314 million, and Transformation of Business Systems of $37 million.

$1,245

$7,179

$1,033

$11,734

FY 2025

Enforcement of Tax Legislation

Service to the Taxpayer

Cost Not Assigned to Programs

Transformation of Business Systems

$21,191

Net Cost

($ in Millions)

Analysis of Total Budgetary Resources

IRS operations are financed through appropriations, spending authority from offsetting collections,

and unobligated balances carried forward. Custodial appropriations for taxpayer refunds,

refundable tax credits, and other outlays are not available to the IRS for operational expenditures

and are not included in the Combined Statement of Budgetary Resources. Total Budgetary

Resources of $43,378 million are reported for FY 2025, a reduction of $25,590 million. The

rescission of $20,200 million of enforcement funding in FY 2025 is the primary contributor of the

decrease in budgetary resources. This also created a negative appropriation balance on the

Combining Statement of Budgetary Resources by Major Budget Account in the Required

Supplementary Information section.

$1,363

$3,390

$1,278

$13,387

FY 2025

$19,418

Obligations

($ in Millions)

Personnel Salaries & Benefits

Contractual Services

Rent, Communications, Utilities, and Miscellaneous

Property and Equipment

Analysis of Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

The IRS incurred obligations of $19,418 million in FY 2025, a net increase of $838 million compared

to the previous year. Personnel Salaries and Benefits increased by $1,330 million, Property and

Equipment increased by $221 million, and Contractual Services decreased by $672 million.

Analysis of Custodial Revenues

The Statement of Custodial Activity presents custodial revenues (federal tax collections), and dispositions of custodial revenues. Total Custodial Revenues for FY 2025 are $5,313,762 million, and

consist of six major tax categories.

2025

($ in Millions)

CUSTODIAL REVENUES

PERCENTAGE

AMOUNT

Individual

88.3%

$4,689,620

Corporate

9.1%

$486,384

Excise

1.7%

$90,612

Estate and Gift

0.6%

$31,111

Railroad Retirement

0.1%

$7,258

Federal Unemployment

0.2%

$8,777

The Statement of Custodial Activity also presents refunds and outlays disbursed by the IRS on

behalf of the U.S. government. Total Refunds of Federal Taxes and Outlays include refunds of tax

overpayments, interest payments, and disbursements for refundable tax credits. For additional

information on refundable tax credits and outlays, refer to Other Information – Section E:

Refundable Tax Credits and Other Outlays.

Outlays

Unpaid Assessments

Under federal accounting standards, federal taxes receivable are unpaid tax assessments where

the taxpayer or court has agreed to the amount. Unpaid assessments not agreed to by taxpayers

or the courts are categorized as compliance assessments; those that have no future collection

potential are categorized as write-offs. Compliance assessments and write-offs are not included on

the Balance Sheet as Federal Taxes Receivable, Net.

(In Millions)

As of September 30, 2025

UNPAID ASSESSMENTS

Federal Taxes Receivable

$361,340

Compliance Assessments

86,142

Write-Offs

92,836

Total Unpaid Assessments

Analysis of Financial Statements

$540,318

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

During FY 2025, total unpaid assessments decreased 4.54% or $25,701 million primarily due

to a decrease in Gross Federal Taxes Receivable. The 7.31% decrease in Gross Federal Taxes

Receivable was associated with Internal Revenue Code Section 965(h) payments received from

taxpayers, which decreased unpaid transition taxes on foreign earnings pursuant to Internal

Revenue Code Section 965(h) by $48,751 million. For additional information, refer to the Required

Supplementary Information section, Federal Taxes Receivable, Net.

Net

The total unpaid assessment balance consists of delinquent and nondelinquent balances. These

balances are owed by taxpayers who file returns without sufficient payment and/or assessed

amounts through the IRS’s enforcement programs (refer to Note 1.G. Federal Taxes Receivable,

Net and Note 4. Federal Taxes Receivable, Net).

Net Delinquent balances are past due while

nondelinquent balances are Internal Revenue Code Section 965(h) amounts, for repatriated foreign

earnings, due at a future point in time. Unpaid Assessments Other consists of uncollected branded

prescription drugs fees and delinquent miscellaneous accounts.

As of September 30, 2025

(In Millions)

FEDERAL TAXES RECEIVABLE, GROSS

Nondelinquent Internal Revenue Code Section 965(h) Unpaid Assessments

$28,117

Delinquent Unpaid Assessments

329,865

Delinquent Restitution Based Unpaid Assessments

3,132

Unpaid Assessments Other

226

Federal Taxes Receivable, Gross

$361,340

Collectability Modeling and Economic Conditions

Delinquent unpaid assessments collectability reflects existing economic conditions of the taxpayers’

ability to pay. Indicators of financial health were reviewed by CFO analysts for publicly traded

businesses with large dollar Internal Revenue Code Section 965(h) amounts due. The analysis

determined that large dollar Internal Revenue Code Section 965(h) taxpayers are primarily in a

favorable long-term economic position to make their future payments.

Federal Taxes Receivable, Net, excludes the estimated uncollectible amounts of $269,925 million

as of September 30, 2025. Examples of uncollectible taxes include taxpayers who agree to owing

taxes but are unlikely to pay and businesses with extreme financial hardships. Overall collectability

combines separate collectability calculations for Internal Revenue Code Section 965(h) amounts

and components of delinquent taxes receivable.

Estimated Collectability: Federal Taxes Receivable Gross and Net

As of September 30, 2025

(In Millions)

Collectability

Gross

Net

Nondelinquent Unpaid Assessments

94.1%

$28,117

$26,470

Delinquent Unpaid Assessments

19.5%

333,223

64,945

$361,340

$91,415

Federal Taxes Receivable, Gross and Net

Analysis of Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

ANALYSIS OF SYSTEMS, CONTROLS, AND LEGAL COMPLIANCE

Federal Managers’ Financial Integrity Act of 1982

Background

The Federal Managers’ Financial Integrity Act of 1982 requires executive branch agencies to

establish and maintain internal control and financial systems to provide reasonable assurance that:

• Obligations and costs comply with applicable laws.

• Funds, property, and other assets are safeguarded against waste, loss, unauthorized use, or

misappropriation.

• Revenues and expenditures applicable to agency operations are properly recorded and

accounted for to permit the preparation of accounts and reliable financial and statistical

reports, and to maintain accountability over the assets.

OMB Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal

Control, provides implementing guidance for the Federal Managers’ Financial Integrity Act of 1982 and

defines management’s responsibility for establishing and assessing internal controls. OMB Circular

A-123 also requires federal agencies to adhere to the Government Accountability Office’s (GAO)

Standards for Internal Control in the Federal Government, and to evaluate and report on the effectiveness of the organization’s internal controls based on 17 principles. The purpose of this guidance

is to improve accountability and effectiveness of programs and operations through implementation of

enterprise risk management practices and by establishing, maintaining, and assessing internal control

effectiveness. In May 2025, GAO updated the Standards for Internal Control in the Federal Government

to focus on risks related to fraud, improper payments, information security, and the implementation of

new or substantially changed programs. The IRS will implement these changes in FY 2026.

The Management Controls Executive Steering Committee is the IRS’s internal control oversight body

and exercises its governance authority over significant annual internal control processes. The committee

briefs senior leaders regarding any significant deficiencies. Executives from different divisions provide

periodic updates on the status of any deficiencies and any related current or pending audits.

Analysis of Controls

The Chief Executive Officer’s Assurance Statement is supported by a comprehensive risk-based

internal control evaluation plan that adheres to Treasury guidance. This plan includes a methodology that identifies and documents key controls and provides for the assessment and testing

of those controls to provide reasonable assurance that they are designed, implemented, and

operating effectively. As part of the evaluation process, the IRS conducts the following activities:

• Internal Control Managerial Assessments certified by the business unit’s head of office.

• The GAO Evaluation Tool consisting of an evaluation of the Standards for Internal Control in

the Federal Government 17 Principles.

• OMB Circular A-123, Appendix A, Internal Control Testing of Key Financial and Non-financial

Transactions.

• Quality Assurance Reviews (managerial, operational, quality, security, and program evaluation).

• Internal Control Reviews consisting of program assessments of IRS programs.

Analysis of Systems, Controls, and Legal Compliance

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

Internal Control Over Financial and Non-Financial Reporting

In accordance with OMB Circular A-123, Appendix A, Management of Reporting, and Data Integrity

Risk, the IRS assessed internal controls over financial reporting. The IRS applied the annual

Treasury guide for assessing internal controls in accordance with OMB Circular A-123, Appendix

A, to evaluate the design, implementation, and operating effectiveness of key internal controls for

material transactions to support reliable financial reporting. Based on the results of this assessment,

the IRS can provide reasonable assurance regarding the effectiveness of its internal control over

financial reporting as of September 30, 2025. Furthermore, the IRS tested internal controls over

non-financial reporting to ensure the overall data quality and reliability of the information used to

make decisions. Non-financial reporting subject to internal control testing includes reports that meet

the following criteria:

• Supports critical decision-making and evaluation of performance by IRS executives.

• Considered high-level in that it might garner significant attention from media and/or oversight

groups.

• Driven by statutory requirements or the need for integrity, accountability, or transparent

government data.

• Responsive to IRS plans at strategic, operational, or other various levels.

• Used and relied upon by other government agencies that might reduce the public’s trust and

confidence in the IRS if they were to include inaccuracies.

Federal Financial Management Improvement Act of 1996

The Federal Financial Management Improvement Act of 1996 requires federal agencies to

implement and maintain financial management systems that comply substantially with federal

financial management systems requirements, applicable federal accounting standards, and the U.S.

Standard General Ledger at the transaction level.

Section 803(c)(1) of the act requires an annual determination of substantial compliance with

Section 803(a) based on review of relevant factors. To support this determination, the IRS uses

the implementation guidance established by OMB Circular A-123, Appendix D, Management of

Financial Management Systems – Risk and Compliance, to determine whether the IRS’s financial

management systems comply substantially with federal financial management system requirements, applicable federal accounting standards, and the U.S. Standard General Ledger at the

transaction level. The assessment process includes the use of the Federal Financial Management

Improvement Act Compliance Determination Framework in OMB Circular A-123, Appendix D,

which is a risk- and evidence-based assessment model that leverages existing audits, evaluations,

and reviews that auditors and IRS management already perform.

In applying the Federal Financial Management Improvement Act Compliance Determination

Framework, the IRS assesses available information from audit reports and other relevant and

appropriate sources, such as the IRS Federal Information Security Modernization Act of 2014

compliance activities, to determine whether the financial management systems comply substantially with the Federal Financial Management Improvement Act of 1996. The IRS also assesses

improvements and ongoing efforts to strengthen financial management systems and the impact of

instances of noncompliance on overall financial management system performance. Based on the

Analysis of Systems, Controls, and Legal Compliance

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

results of the overall assessment, the IRS concluded that its financial management systems did not

substantially comply with federal financial management system requirements as of September 30,

2025, due to the significant deficiency in internal control over financial reporting related to unpaid

assessments. This deficiency relates to limitations in the ability of IRS’s financial management

systems to classify unpaid assessments and report taxes receivable in accordance with federal

accounting standards. The IRS continues to implement a strategy to downgrade the unpaid

assessments significant deficiency.

Financial Management Systems

The IRS developed its financial management systems to provide timely and accurate data and

to comply with applicable laws and regulations, while protecting the data and systems through

the design, implementation, and monitoring of strong internal controls. The IRS’s objectives are

to continuously improve its financial management systems by implementing enhancements that

expand and streamline financial transaction processing, analysis, and reporting, while operating in a

robust security environment.

The IRS’s financial management systems generate the IRS’s financial statements and provide IRS

business units data to execute their missions. The IRS’s financial management systems comprise

two major components, the Redesigned Revenue Accounting Control System and the Integrated

Financial System.

The Redesigned Revenue Accounting Control System is a custom-built software database used

to account for and summarize all IRS revenue tax transactions and activities. The IRS uses it to

record, control, account for, reconcile, and balance all revenue accounting activity, including tax

payment collections, refund disbursements, tax receivables, appropriation warrants, refundable tax

credits, and other transactional revenue activities on behalf of the U.S. government. The system

supports the IRS revenue responsibilities over the accuracy and completeness of tax collections,

disbursements, and related activities in its financial reports and records.

The Integrated Financial System comprises three SAP® software components: the Enterprise

Resource Planning Central Component, Procurement for Public Sector, and Business Warehouse.

Integrated Financial System interfaces with multiple internal and external systems, such as the

Invoice Processing Platform, ConcurGov (travel), MoveLINQ® (relocation), and National Finance

Center (payroll) systems.

An integrated financial system provides the IRS with comprehensive automated functionality that

supports both financial and administrative program management processes, including core financials, procurement, intragovernmental transactions, purchase card activities, and budget formulation and execution. The IRS’s Integrated Financial System also provides cumulative reporting

capabilities by merging data from all sub-systems in Business Warehouse.

During FY 2025, IRS continued implementing system improvements including:

• Expanded Government Invoicing functionalities in the Integrated Financial System.

• SAP® and Business Warehouse software upgrades.

• System-wide legislative, technical, and cybersecurity upgrades.

Analysis of Systems, Controls, and Legal Compliance

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

The IRS will build on the progress made in FY 2025, guided by a clear vision that includes

examination of service provider products in the Financial Management Quality Service Management

Office marketplace that improves networks to enhance information sharing, deliver better service,

and utilize data-driven planning for workforce needs.

Within the next several years, the IRS plans to continue the enhancement of its financial

management systems including:

• The Integrated Financial System’s functional capability for its core financials, tax receivables,

procurement, and budgetary systems by continuing to plan and implement a multi-year initiative.

• Building core systemic functionality to support financial accounting program changes related

to the Employee Retention Credit and Excise Tax Transfers Act of 2025 within the One Big

Beautiful Bill Act.

• Implementing the remaining segments of Government Invoicing functionality.

• Implementing the Government Services Administration’s Go.Gov travel system.

• Implementing OneStream Budget formulation, plan development, and forecasting tool.

Other Laws

The Management Controls Executive Steering Committee provides oversight and governance for

the design, implementation, and monitoring of controls to comply with legal and regulatory requirements. The IRS is required to comply with several legal and regulatory requirements, including the

Antideficiency Act. The IRS is not aware of any violations of the Antideficiency Act.

The Digital Accountability and Transparency Act of 2014 expands upon the Federal Financial

Accountability and Transparency Act of 2006 by adding account-level reporting and requiring the

U.S. government to collectively standardize the reportable financial data elements. In FY 2025,

the IRS provided consistent reviews of the Digital Accountability and Transparency Act of 2014

compliance for the following processes:

• Completeness of financial and award data (daily)

• Management accountability on reliability and validity of financial and award data (quarterly)

• Quality Assurance Review (monthly)

• Verification and Validation (monthly)

• System Interface and Certification (monthly)

The Federal Information Security Modernization Act of 2014 requires federal agencies to develop,

document, and implement an entity-wide program to protect government information and

information systems that support the operations and assets of the IRS. The IRS continues to

work diligently to adopt the best cybersecurity practices and strategies to improve information

technology security.

Analysis of Systems, Controls, and Legal Compliance

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

Management Assurances

Chief Executive Officer’s Statement of Assurance

The IRS’s management is responsible for managing risks and maintaining effective internal control

and financial management systems to meet the objectives of the Federal Managers’ Financial

Integrity Act of 1982. We conducted our assessment of risk and internal controls in accordance

with Office of Management and Budget Circular A-123, Management’s Responsibility for Enterprise

Risk Management and Internal Control.

Based on our assessment, we can provide reasonable assurance that, in accordance with Section

2 of the Federal Managers’ Financial Integrity Act of 1982, the IRS’s internal control over operations,

reporting, and compliance with laws and regulations were operating effectively as of September

30, 2025. This includes the effective operation of internal control over financial reporting, which

was considered as part of our assessment. We can also provide reasonable assurance that, as of

September 30, 2025, the IRS’s financial management systems conform with the requirements of

Section 4 of the Federal Managers’ Financial Integrity Act of 1982, with the exception of the federal

financial management systems requirement discussed below.

The Federal Financial Management Improvement Act of 1996 Section 803(a) requires agencies

to implement and maintain financial management systems that comply substantially with federal

financial management systems requirements, applicable federal accounting standards, and the

U.S. Standard General Ledger at the transaction level. We conducted our evaluation of financial

management systems for compliance with the Federal Financial Management Improvement Act of

1996 in accordance with Office of Management and Budget Circular A-123, Appendix D.

Based on our assessment, we can provide reasonable assurance that, as of September 30,

2025, the IRS complied substantially with applicable federal accounting standards and the U.S.

Standard General Ledger at the transaction level. However, the IRS did not comply substantially

with federal financial management systems requirements because of a significant deficiency related

to unpaid assessments. As a result of this significant deficiency, we determined that the IRS’s

financial management systems did not comply substantially with the Federal Financial Management

Improvement Act of 1996.

We continue to make progress in remediating this deficiency and remain committed to focusing

management’s attention and resources on appropriate corrective actions. Overall, we continue our

efforts to ensure high standards, minimize internal control weaknesses and meet federal financial

management systems requirements. Additional information on the deficiency can be found in

Other Information – Section A: Summary of Financial Statement Audit and Management

Assurances, of this report.

Assurances

Frank J. Bisignano

Chief Executive Officer of Internal Revenue

January 12, 2026

Analysis of Systems, Controls, and Legal Compliance

MANAGEMENT’S DISCUSSION AND ANALYSIS | IRS FY 2025 AGENCY FINANCIAL REPORT

IRS Management’s Report on Internal Control Over Financial Reporting

The IRS’s internal control over financial reporting is a process effected by those charged with

governance, management, and other personnel. The objectives of this process are to provide

reasonable assurance that: (1) transactions are properly recorded, processed, and summarized

to permit the preparation of financial statements in accordance with U.S. generally accepted

accounting principles, and assets are safeguarded against loss from unauthorized acquisition,

use or disposition, and (2) transactions are executed in accordance with provisions of applicable

laws, including those governing the use of budget authority, regulations, contracts, and grant

agreements, noncompliance with which could have a material effect on the financial statements.

IRS management is responsible for designing, implementing, and maintaining effective internal

control over financial reporting relevant to the preparation and fair presentation of financial

statements that are free from material misstatement, whether due to fraud or error. IRS

management evaluated the effectiveness of the IRS’s internal control over financial reporting as of

September 30, 2025, based on the criteria established under Title 31 U.S. Code Section 3512(c)

and (d) (commonly known as the Federal Managers’ Financial Integrity Act of 1982).

Based on that evaluation, we conclude that as of September 30, 2025, the IRS’s internal control

over financial reporting was effective. The IRS has a significant deficiency in its internal control over

financial reporting for unpaid assessments, which we are actively addressing.

Frank J. Bisignano

Chief Executive Officer

of Internal Revenue

January 12, 2026

Dottie A. Romo

Chief Operating Officer

January 12, 2026

Anthony S. Chavez

Chief Financial Officer

January 12, 2026

Analysis of Systems, Controls, and Legal Compliance

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

FINANCIAL

INFORMATION

Message from the Chief Financial Officer ��30

Independent Auditor’s Report ��32

Enclosure: IRS Response to the Independent Auditor’s Report ��40

Financial Statements ��41

Notes to the Financial Statements ��47

Required Supplementary Information ��70

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

MESSAGE FROM THE CHIEF FINANCIAL OFFICER

On behalf of the dedicated financial management professionals at the

IRS, I am honored to present the FY 2025 Agency Financial Report. This

report serves as a comprehensive overview of the IRS’s commitment

to financial stewardship and the responsible management of taxpayer

resources to support the IRS mission of providing America’s taxpayers

top-quality service by helping them understand and meet their tax

responsibilities and enforce the law with integrity and fairness to all.

As the principal financial management advisor to the IRS Commissioner

and Chief Executive Officer, the CFO’s mission is leading IRS financial management and compliance

oversight operations with integrity and accountability through expert planning and execution.

The CFO organization is guided by Treasury’s strategic priorities to create affordable abundance,

improve stewardship of taxpayer dollars, and improve the efficiency and effectiveness of Treasury

operations. Below are accomplishments for FY 2025 that exemplify these priorities.

Financial Reporting Excellence

As the primary revenue collector for the U.S. government, the IRS’s financial management operations reported approximately $5.3 trillion in tax collections, $639 billion in tax refunds and outlays,

and $91 billion in Federal Taxes Receivable, Net. For the third consecutive year, the IRS’s Agency

Financial Report was awarded AGA’s Certificate of Excellence in Accountability Reporting. IRS also

received the best-in-class award for “outstanding messages” from the IRS Commissioner and Chief

Financial Officer that “exemplify a commitment to customer service.” These achievements demonstrate the CFO organization’s ethos for continuous improvement and underscore the dedication to

upholding the highest standards of accountability.

Effective Compliance Oversight

In addition to responsible financial management, strong internal controls are essential to preserving

the public trust. The IRS has received an unmodified opinion on its financial statements for the 26th

consecutive year. Our external auditors also issued an unmodified opinion on the overall effectiveness of our internal controls over financial reporting. The IRS continues making progress to

remediate the remaining significant deficiency in internal control over financial reporting related to

unpaid assessments. This demonstrates the IRS’s overall commitment to continuous improvement

and fiduciary responsibility.

Key Modernization Efforts

The CFO organization’s modernization efforts have expanded to embrace a wider range of

technologies, enhancing efficiency, accuracy, and data analytics capabilities. We are leveraging

artificial intelligence to automate complex document analysis, ensuring compliance with new

financial standards while significantly reducing manual review times. Robotic process automation

continues to be a key tool for streamlining high-volume data entry, which standardizes workflows

and minimizes errors. Additionally, we implemented automated invoice reports and notifications to

vendors, eliminating the need for manual notices on paper invoices. We also automated manual

Message from the Chief Financial Officer

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

assessments, deposits, and refunds, streamlining operations accounting for billions of dollars

in transactions and effectively eliminating a significant number of manual journal entries. These

advancements provide our teams with reliable data, enhance our operational resilience, and enable

us to make smarter data-driven decisions that maximize the impact of every dollar spent.

Empowered Workforce

Our people are the key to our success. Their efforts in delivering comprehensive, reliable, and

timely financial, budgetary, and accounting services are critical to supporting the IRS mission. CFO

continues to invest in workforce development to ensure the organization is well-equipped to deliver

exceptional results. We implemented new and improved training programs and offered career development forums – such as the CFO Learning Lab – which provided our employees opportunities to

hone their skills and remain adaptable in the ever-evolving landscape of financial management.

The IRS remains steadfast in its core mission and values and will continue to serve the American

people with integrity, precision, and purpose. The CFO’s core values of character, fidelity, and

optimism drive our unwavering commitment, professionalism, and hard work to meet the IRS

mission. We look forward to progressing in our strategic goals, building on a strong foundation to

meet the evolving needs of the nation, taxpayers, and the IRS.

Sincerely,

CORE

VALUES

• Character: The unwavering conviction to do what is right.

• Fidelity: Steadfast loyalty to our mission, our colleagues,

and the public trust.

CHI

FIN

ANC

IA L

OFF

I CE

Anthony S. Chavez

Chief Financial Officer

January 12, 2026

• Optimism: The forward-looking, positive outlook that

challenges are opportunities to innovate.

•

STRATEGIC

OBJECTIVES

Modernization: Innovate and improve our operations.

•

Message from the Chief Financial Officer

Partnership: Be a trusted advisor to internal and external

stakeholders.

•

Empowered Workforce: Provide our employees the tools,

resources, and opportunities they need for success.

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

INDEPENDENT AUDITOR’S REPORT

441 G St. N.W.

Washington, DC 20548

Independent Auditor’s Report

To the Chief Executive Officer of the Internal Revenue Service

In our audits of the fiscal year 2025 financial statements of the Internal Revenue Service (IRS),

we found

•

IRS’s financial statements as of and for the fiscal year ended September 30, 2025, are

presented fairly, in all material respects, in accordance with U.S. generally accepted

accounting principles;

•

although internal controls could be improved, IRS maintained, in all material respects,

effective internal control over financial reporting as of September 30, 2025; and

•

no reportable noncompliance for fiscal year 2025 with provisions of applicable laws,

regulations, contracts, and grant agreements we tested.

The following sections discuss in more detail (1) our report on the financial statements and on

internal control over financial reporting, which includes an emphasis-of-matter paragraph related

to federal taxes receivable, a section on required supplementary information (RSI), 1 and a

section on other information included with the financial statements; 2 (2) our report on

compliance with laws, regulations, contracts, and grant agreements; and (3) agency comments.

Report on the Financial Statements and on Internal Control over Financial Reporting

Opinion on the Financial Statements

In connection with fulfilling our requirement to audit the consolidated financial statements of the

U.S. government, and consistent with our authority to audit statements and schedules prepared

by executive agency components, we have audited IRS’s financial statements because of the

significance of IRS’s tax collections to the consolidated financial statements of the U.S.

government. 3 IRS’s financial statements comprise the balance sheet as of September 30, 2025;

the related statements of net cost, changes in net position, budgetary resources, and custodial

activity for the fiscal year then ended; and the related notes to the financial statements. In our

opinion, IRS’s financial statements present fairly, in all material respects, IRS’s financial position

as of September 30, 2025, and its net cost of operations, changes in net position, budgetary

1The RSI consists of Management’s Discussion and Analysis and the Required Supplementary Information section,

which are included with the financial statements.

2Other information consists of information included with the financial statements, other than the RSI and the auditor’s

report.

3See 31 U.S.C. §§ 331(e)(2), 3515, 3521(g), (i). Pursuant to the authority of 31 U.S.C. § 3515, the Office of

Management and Budget (OMB) requires IRS to issue annual audited financial statements that are separate from

those of the Department of the Treasury or that are presented separately in the department’s audited, consolidated

financial statements. See Office of Management and Budget, Audit Requirements for Federal Financial Statements,

OMB Bulletin 24-02, app. B (July 29, 2024).

Independent Auditor’s Report

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

GAO’s Independent Audit Report

resources, and custodial activity for the fiscal year then ended in accordance with U.S. generally

accepted accounting principles.

Opinion on Internal Control over Financial Reporting

We also have audited IRS’s internal control over financial reporting as of September 30, 2025,

based on criteria established under 31 U.S.C. § 3512(c), (d), commonly known as the Federal

Managers’ Financial Integrity Act of 1982 (FMFIA). In our opinion, although certain internal

controls could be improved, IRS maintained, in all material respects, effective internal control

over financial reporting as of September 30, 2025, based on criteria established under FMFIA.

Our fiscal year 2025 audit continued to identify a significant deficiency 4 in internal control over

financial reporting concerning IRS’s unpaid assessments. 5 We considered this significant

deficiency in determining the nature, timing, and extent of our audit procedures on IRS’s fiscal

year 2025 financial statements.

Although the significant deficiency in internal controls over unpaid assessments did not affect

our opinion on IRS’s fiscal year 2025 financial statements, misstatements may occur in

unaudited financial information reported internally and externally by IRS because of this

significant deficiency.

In addition, because of the significant deficiency in internal controls over unpaid assessments

that existed during fiscal year 2025, IRS’s financial management systems did not comply

substantially with federal financial management systems requirements as required by the

Federal Financial Management Improvement Act of 1996. 6

In addition to the significant deficiency in internal controls over unpaid assessments, we also

identified other deficiencies in IRS’s internal control over financial reporting that we do not

consider to be material weaknesses or significant deficiencies. Nonetheless, these deficiencies

warrant IRS management’s attention. We have communicated these matters to IRS

management and, where appropriate, will report on them separately.

4A deficiency in internal control exists when the design or operation of a control does not allow management or

employees, in the normal course of performing their assigned functions, to prevent, or detect and correct,

misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal

control over financial reporting, such that there is a reasonable possibility that a material misstatement of the entity’s

financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a

deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a

material weakness, yet important enough to merit attention by those charged with governance.

5An unpaid assessment is an enforceable claim against a taxpayer for which specific amounts are due, have been

determined, and the person(s) or entities from which a tax is due have been identified. See implementing guidance in

Internal Revenue Manual § 1.34.4.1.6 (1) p, Terms/Definitions (May 15, 2025).

6Section 803(a) of the Federal Financial Management Improvement Act of 1996 (FFMIA), which is reprinted in 31

U.S.C. § 3512 note, requires that certain federal agencies, including Treasury, implement and maintain financial

management systems that comply substantially with federal financial management systems requirements, applicable

federal accounting standards, and the U.S. Government Standard General Ledger at the transaction level. While

IRS’s financial management systems did not comply substantially with federal financial management systems

requirements, IRS’s financial management systems did comply substantially with federal accounting standards and

the U.S. Government Standard General Ledger at the transaction level. As a Treasury component, IRS is not

required to be assessed separately; however, it is included in Treasury’s agencywide FFMIA assessment. Since IRS

is a significant component of Treasury, we conducted this assessment to support the audit of the Treasury

agencywide financial statements. See Office of Management and Budget, Management of Financial Management

Systems – Risk and Compliance, OMB Circular No. A-123, app. D, § VII.A (Dec. 23, 2022).

Independent Auditor’s Report

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

GAO’s Independent Audit Report

Significant Deficiency in Internal Controls over Unpaid Assessments

During fiscal year 2025, the systems IRS uses to account for federal taxes receivable and other

unpaid assessment balances continued to have limitations. Because of these limitations, IRS’s

systems were unable to provide the timely, reliable, and complete transaction-level financial

information necessary to enable IRS to appropriately classify and report unpaid assessment

balances. 7

As in prior years, 8 IRS used a manually driven statistical estimation process to compensate for

the effects of its system limitations and other deficiencies on a material portion of its federal

taxes receivable balance to help ensure that this balance was free from material misstatement. 9

During fiscal year 2025, IRS recorded summary-level adjustments totaling about $17.8 billion to

correct the effects of continued classification errors in its underlying data that it identified during

its estimation process. While using this process to determine a material portion of taxes

receivable has enabled IRS to produce reliable related balances for year-end reporting, it does

not provide IRS management with readily available, reliable unpaid assessment information

daily throughout the year for effectively managing unpaid assessment balances.

While not collectively considered a material weakness, IRS’s ongoing control deficiencies

related to unpaid assessments are important enough to merit attention by those charged with

governance of IRS. Therefore, these issues collectively represent a significant deficiency in

IRS’s internal control over financial reporting as of September 30, 2025. Continued

management commitment and sustained efforts are necessary to build on the progress made to

date and to fully address IRS’s remaining unresolved issues concerning the management and

reporting of unpaid assessments.

Basis for Opinions

We conducted our audits in accordance with U.S. generally accepted government auditing

standards. Our responsibilities under those standards are further described in the Auditor’s

Responsibilities for the Audits of the Financial Statements and Internal Control over Financial

Reporting section of our report. We are required to be independent of IRS and to meet our other

ethical responsibilities, in accordance with the relevant ethical requirements relating to our

7Federal accounting standards classify unpaid assessments into one of the following three categories for reporting

purposes: federal taxes receivable, compliance assessments, and write-offs. Federal taxes receivable are taxes due

from taxpayers that IRS can support through the existence of a taxpayer agreement, such as filing of a tax return

without sufficient payment, or a court ruling in favor of IRS. Compliance assessments are proposed tax assessments

where neither the taxpayer (when the right to disagree or object exists) nor a court has affirmed that the amounts are

owed. Write-offs represent unpaid assessments for which IRS does not expect further collections because of factors

such as the taxpayer’s death, bankruptcy, or insolvency. Federal accounting standards require that IRS report only

federal taxes receivable, net of an allowance for uncollectible taxes receivable, on the financial statements. See

Statement of Federal Financial Accounting Standards No. 7, Accounting for Revenue and Other Financing Sources

and Concepts for Reconciling Budgetary and Financial Accounting (May 10, 1996). See also implementing guidance

in Internal Revenue Manual, § 1.34.4, Unpaid Assessments (May 15, 2025).

8GAO, Financial Audit: IRS’s FY 2024 and FY 2023 Financial Statements, GAO-25-107202 (Washington D.C.: Nov.

7, 2024).

9In fiscal year 2025, IRS’s reported federal taxes receivable consisted of a combination of two distinct types of taxes

receivable with different internal control and accounting processes in place: amounts derived from (1) IRS’s unpaid

assessments statistical estimation process and (2) the Section 965(h) repatriation of foreign earnings provision of the

Tax Cuts and Jobs Act of 2017, Pub. L. No. 115-97, § 14103, 131 Stat. 2054, 2195-2208 (Dec. 22, 2017), which is

codified at 26 U.S.C § 965.

Independent Auditor’s Report

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

GAO’s Independent Audit Report

audits. We believe that the audit evidence we have obtained is sufficient and appropriate to

provide a basis for our audit opinions.

Emphasis-of-Matter: Federal Taxes Receivable

This matter deserves emphasis to put the information in IRS’s financial statements into context.

As discussed in note 1.G., Federal Taxes Receivable, Net, taxes receivable consist of unpaid

assessments (taxes, associated penalties, and interest) due from taxpayers. The existence of a

receivable is supported by a taxpayer agreement, such as filing of a tax return without sufficient

payment, or a court ruling in favor of IRS. Consistent with federal accounting standards, IRS’s

financial statements do not include an estimate for the annual tax gap—the difference between

the amount of tax that taxpayers owe and the amount they actually pay voluntarily and on

time, 10 nor do they include information on tax expenditures. 11 Further detail on the tax gap and

tax expenditures, as well as the associated dollar amounts, is provided in the unaudited other

information included with the financial statements. Our opinion on IRS’s financial statements is

not modified with respect to this matter.

Responsibilities of Management for the Financial Statements and Internal Control over Financial

Reporting

Management is responsible for

•

the preparation and fair presentation of the financial statements in accordance with U.S.

generally accepted accounting principles;

•

preparing, measuring, and presenting the RSI in accordance with U.S. generally accepted

accounting principles;

•

preparing and presenting other information included in IRS’s financial report, and ensuring

the consistency of that information with the audited financial statements and the RSI;

•

designing, implementing, and maintaining effective internal control over financial reporting

relevant to the preparation and fair presentation of financial statements that are free from

material misstatement, whether due to fraud or error;

•

assessing the effectiveness of internal control over financial reporting based on the criteria

established under FMFIA; and

•

its assessment about the effectiveness of internal control over financial reporting as of

September 30, 2025, included in the accompanying Management’s Report on Internal

Control over Financial Reporting on page 28.

10In October 2022, IRS released its most recent estimate of the tax gap, which covered tax years 2014–2016. IRS

estimated the average annual gross tax gap to be $496 billion for each of those years. IRS also estimated that $68

billion would be collected through enforcement actions or late payments, leaving a net annual tax gap of $428 billion.

In October 2024, IRS estimated a gross tap gap for tax year 2022 of $696 billion. IRS also estimated that $90 billion

would be collected through enforcement actions or late payments, leaving a net tax gap of $606 billion.

11Tax expenditures are provisions of the Internal Revenue Code (Title 26, U.S. Code) that reduce taxpayers’ tax

liability and therefore the amount of tax revenue paid to the government. Examples include tax credits, deductions,

exclusions, exemptions, deferrals, and preferential tax rates.

Independent Auditor’s Report

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

GAO’s Independent Audit Report

Auditor’s Responsibilities for the Audits of the Financial Statements and Internal Control over

Financial Reporting

Our objectives are to (1) obtain reasonable assurance about whether the financial statements

as a whole are free from material misstatement, whether due to fraud or error, and whether

effective internal control over financial reporting was maintained in all material respects and (2)

issue an auditor’s report that includes our opinions.

Reasonable assurance is a high level of assurance but is not absolute assurance and therefore

is not a guarantee that an audit of the financial statements or an audit of internal control over

financial reporting conducted in accordance with U.S. generally accepted government auditing

standards will always detect a material misstatement or a material weakness when it exists. The

risk of not detecting a material misstatement resulting from fraud is higher than for one resulting

from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or

the override of internal control. Misstatements, including omissions, are considered to be

material if there is a substantial likelihood that, individually or in the aggregate, they would

influence the judgment made by a reasonable user based on the financial statements.

In performing an audit of financial statements and an audit of internal control over financial

reporting in accordance with U.S. generally accepted government auditing standards, we:

•

Exercise professional judgment and maintain professional skepticism throughout the audits.

•

Identify and assess the risks of material misstatement of the financial statements, whether

due to fraud or error, and design and perform audit procedures responsive to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and

disclosures in the financial statements.

•

Obtain an understanding of internal control relevant to our audit of the financial statements

in order to design audit procedures that are appropriate in the circumstances.

•

Obtain an understanding of internal control relevant to our audit of internal control over

financial reporting, assess the risks that a material weakness exists, and test and evaluate

the design and operating effectiveness of internal control over financial reporting based on

the assessed risk. Our audit of internal control also considered IRS’s process for evaluating

and reporting on internal control over financial reporting based on criteria established under

FMFIA. We did not evaluate all internal controls relevant to operating objectives as broadly

established under FMFIA, such as those controls relevant to preparing performance

information and ensuring efficient operations. We limited our internal control testing to

testing controls over financial reporting. Our internal control testing was for the purpose of

expressing an opinion on whether effective internal control over financial reporting was

maintained, in all material respects. Consequently, our audit may not identify all deficiencies

in internal control over financial reporting that are less severe than a material weakness.

•

Evaluate the appropriateness of accounting policies used and the reasonableness of

significant accounting estimates made by management, as well as evaluate the overall

presentation of the financial statements.

•

Perform other procedures we consider necessary in the circumstances.

Independent Auditor’s Report

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

GAO’s Independent Audit Report

We are required to communicate with those charged with governance regarding, among other

matters, the planned scope and timing of the audit, significant audit findings, and certain internal

control-related matters that we identified during the financial statement audit.

Definition and Inherent Limitations of Internal Control over Financial Reporting

An entity’s internal control over financial reporting is a process effected by those charged with

governance, management, and other personnel. The objectives of internal control over financial

reporting are to provide reasonable assurance that

•

transactions are properly recorded, processed, and summarized to permit the preparation of

financial statements in accordance with U.S. generally accepted accounting principles, and

assets are safeguarded against loss from unauthorized acquisition, use, or disposition, and

•

transactions are executed in accordance with provisions of applicable laws, including those

governing the use of budget authority, regulations, contracts, and grant agreements,

noncompliance with which could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent, or

detect and correct, misstatements due to fraud or error. We also caution that projecting any

evaluation of effectiveness to future periods is subject to the risk that controls may become

inadequate because of changes in conditions, or that the degree of compliance with the policies

or procedures may deteriorate.

Required Supplementary Information

U.S. generally accepted accounting principles issued by the Federal Accounting Standards

Advisory Board (FASAB) require that the RSI be presented to supplement the financial

statements. Such information is the responsibility of management and, although not a part of the

financial statements, is required by FASAB, which considers it to be an essential part of

financial reporting for placing the financial statements in appropriate operational, economic, or

historical context.

We have applied certain limited procedures to the RSI in accordance with U.S. generally

accepted government auditing standards. These procedures consisted of (1) inquiring of

management about the methods used to prepare the RSI and (2) comparing the RSI for

consistency with management’s responses to our inquiries, the financial statements, and other

knowledge we obtained during the audit of the financial statements, in order to report omissions

or material departures from FASAB guidelines, if any, identified by these limited procedures. We

did not audit and we do not express an opinion or provide any assurance on the RSI because

the limited procedures we applied do not provide sufficient evidence to express an opinion or

provide any assurance.

Other Information

IRS’s other information contains a wide range of information, some of which is not directly

related to the financial statements. This information is presented for purposes of additional

analysis and is not a required part of the financial statements or the RSI. Management is

responsible for the other information included in IRS’s financial report. The other information

comprises the following sections of the IRS Fiscal Year 2025 Agency Financial Report:

Introduction, Message from the Chief Financial Officer, Other Information, and Appendices.

Other information does not include the financial statements and our auditor’s report thereon.

Independent Auditor’s Report

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

GAO’s Independent Audit Report

Our opinion on the financial statements does not cover the other information, and we do not

express an opinion or any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the other

information and consider whether a material inconsistency exists between the other information

and the financial statements, or the other information otherwise appears to be materially

misstated. If, based on the work performed, we conclude that an uncorrected material

misstatement of the other information exists, we are required to describe it in our report.

Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements

In connection with our audit of IRS’s financial statements, we tested compliance with selected

provisions of applicable laws, regulations, contracts, and grant agreements consistent with our

auditor’s responsibilities discussed below.

Results of Our Tests for Compliance with Laws, Regulations, Contracts, and Grant Agreements

Our tests for compliance with selected provisions of applicable laws, regulations, contracts, and

grant agreements disclosed no instances of noncompliance for fiscal year 2025 that would be

reportable under U.S. generally accepted government auditing standards. However, the

objective of our tests was not to provide an opinion on compliance with laws, regulations,

contracts, and grant agreements applicable to IRS. Accordingly, we do not express such an

opinion.

Basis for Results of Our Tests for Compliance with Laws, Regulations, Contracts, and Grant

Agreements

We performed our tests of compliance in accordance with U.S. generally accepted government

auditing standards.

Responsibilities of Management for Compliance with Laws, Regulations, Contracts, and Grant

Agreements

IRS management is responsible for complying with laws, regulations, contracts, and grant

agreements applicable to IRS.

Auditor’s Responsibilities for Tests of Compliance with Laws, Regulations, Contracts, and Grant

Agreements

Our responsibility is to test compliance with selected provisions of laws, regulations, contracts,

and grant agreements applicable to IRS that have a direct effect on the determination of

material amounts and disclosures in IRS’s financial statements, and perform certain other

limited procedures. Accordingly, we did not test compliance with all provisions of laws,

regulations, contracts, and grant agreements applicable to IRS. We caution that noncompliance

may occur and not be detected by these tests.

Intended Purpose of Report on Compliance with Laws, Regulations, Contracts, and Grant

Agreements

The purpose of this report is solely to describe the scope of our testing of compliance with

selected provisions of applicable laws, regulations, contracts, and grant agreements, and the

results of that testing, and not to provide an opinion on compliance. This report is an integral

Independent Auditor’s Report

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

GAO’s Independent Audit Report

part of an audit performed in accordance with U.S. generally accepted government auditing

standards in considering compliance. Accordingly, this report on compliance with laws,

regulations, contracts, and grant agreements is not suitable for any other purpose.

Agency Comments

In commenting on a draft of this report, IRS stated that it was pleased to receive an unmodified

opinion on its financial statements. IRS also commented that it is dedicated to promoting the

highest standards of financial management and accountability and will continue to work to

provide accurate reporting and improve internal controls. The complete text of IRS’s response is

reproduced in the enclosure.

Dawn B. Simpson

Director

Financial Management and Assurance

January 12, 2026

Independent Auditor’s Report

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

ENCLOSURE: IRS RESPONSE TO THE INDEPENDENT

AUDITOR’S REPORT

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE

WASHINGTON, DC 20224

FRANK J. BISIGNANO

CHIEF ExECUTIVE OFFICER

January 13, 2026

Ms. Dawn B. Simpson

Director

Financial Management and Assurance

U.S. Government Accountability Office

441 G Street, NW

Washington, DC 20548

Dear Ms. Simpson:

Thank you for the opportunity to comment on the draft report titled Financial Audit: IRS's

FY 2025 Financial Statements. We are pleased the IRS received an unmodified opinion

on its combined financial statements. The unmodified opinion demonstrates that the

IRS accurately accounts for tax revenue receipts, tax refunds, and IRS appropriated

funds. In addition, we continued to make noteworthy progress in resolving open

recommendations.

The IRS's ability to produce reliable financial statements each year is due to the efforts

of our outstanding personnel. We are dedicated to promoting the highest standards of

financial management and accountability, and we look forward to working with the GAO

to continue providing accurate reporting and improving our internal controls.

Sincerely,

Chief Executive Officer

Enclosure: IRS Response to the Independent Auditor’s Report

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

FINANCIAL STATEMENTS

Audited, See Accompanying Auditor’s Report

The financial statements have been prepared to report the financial position and results of operations

of the IRS, pursuant to the requirements of the Chief Financial Officers Act of 1990, the Government

Management Reform Act of 1994, and OMB Circular A-136, Financial Reporting Requirements.

The responsibility for the integrity of the financial information included in these statements is with the

management of the IRS. The audit of the IRS financial statements was performed by GAO.

The IRS financial statements for FY 2025 are described below:

• The Balance Sheet presents the assets, liabilities, and net position.

• The Statement of Net Cost presents the gross costs incurred less exchange revenue earned

from activities, cost not assigned, and the net cost of operations.

• The Statement of Changes in Net Position presents the change in net position resulting from

the net cost of operations, budgetary financing sources other than exchange revenues, and

other financing sources.

• The Combined Statement of Budgetary Resources presents the Budgetary Resources, the

Status of Budgetary Resources, and the Outlays, Net. Additional detail by major budget

accounts is available in Required Supplementary Information.

• The Statement of Custodial Activity presents the sources of non-exchange federal tax

revenues collected and disposition of refunds and outlays disbursed.

Financial Statements

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

Balance Sheet

As of September 30, 2025

(In Millions)

ASSETS

Intragovernmental

Fund Balance with Treasury (Notes 2, 3)

$41,484

Accounts Receivable, Net

Advances and Prepayments

Other Assets

Due from the General Fund of the U.S. Government (Note 2)

Total Intragovernmental

4,238

45,772

Other than Intragovernmental

Cash and Other Monetary Assets

Accounts Receivable, Net

Federal Taxes Receivable, Net (Notes 2, 4, 7)

Other Receivables, Net

Property and Equipment, Net (Note 5)

Advances and Prepayments

Total Other than Intragovernmental

Total Assets

91,415

3,044

94,492

$140,264

LIABILITIES

Intragovernmental

Other Liabilities

Due to the General Fund of the U.S. Government (Note 7)

$99,005

Other Liabilities (Note 9)

219

Total Intragovernmental

99,224

Other than Intragovernmental

Accounts Payable

Federal Tax Refunds Payable

4,238

Other Payables

323

Federal Employee Salary, Leave, and Benefits Payable (Note 8)

796

Post-Employment Benefits Payable (Note 8)

520

Other Liabilities (Note 9)

6,699

Total Other than Intragovernmental

12,576

Total Liabilities

111,800

Commitments and Contingencies (Note 11

11)

NET POSITION

Unexpended Appropriations

Funds from Other than Dedicated Collections

25,325

Cumulative Results of Operations

Funds from Dedicated Collections (Note 12

12)

Funds from Other than Dedicated Collections

261

2,878

Total Cumulative Results of Operations (Consolidated)

3,139

Total Net Position

28,464

Total Liabilities and Net Position

$140,264

The accompanying notes are an integral part of this statement.

Financial Statements

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

Statement of Net Cost

For the Year Ended September 30, 2025

(In Millions)

MAJOR PROGRAMS

Service to the Taxpayer

Gross Cost

$7,243

Earned Revenue

(64)

Net Cost of Program

7,179

Enforcement of Tax Legislation

Gross Cost

12,214

Earned Revenue

(480)

Net Cost of Program

11,734

Transformation of Business Systems

Gross Cost

1,038

Earned Revenue

(5)

Net Cost of Program

1,033

Cost Not Assigned to Programs

1,245

Net Cost of Operations

$21,191

The accompanying notes are an integral part of this statement.

Financial Statements

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

Statement of Changes in Net Position

For the Year Ended September 30, 2025

(In Millions)

Consolidated

Funds from

Dedicated

Collections

(Note 12

12)

Consolidated

Funds from

Other than

Dedicated

Collections

Consolidated

Total

UNEXPENDED APPROPRIATIONS

Beginning Balances

$–

$52,433

Appropriations Received

–

12,334

Appropriations Transferred In/(Out)

–

(120)

Other Adjustments

–

(20,291)

Appropriations Used

–

(19,031)

Net Change in Unexpended Appropriations

–

(27,108)

Total Unexpended Appropriations, Ending Balances

–

25,325

CUMULATIVE RESULTS OF OPERATIONS

Beginning Balances

292

1,793

2,085

Appropriations Used

–

19,031

157

–

157

Non-exchange Revenue

Transfers In/(Out) Without Reimbursement

–

Imputed Financing (Note 13

13)

3,048

3,062

Transfers to the General Fund of the U.S. Government

–

(26)

Net Cost of Operations

(202)

(20,989)

(21,191)

Net Change in Cumulative Results of Operations

(31)

1,085

1,054

Total Cumulative Results of Operations, Ending Balances

261

2,878

3,139

$261

$28,203

$28,464

Net Position

The accompanying notes are an integral part of this statement.

Financial Statements

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

Combined Statement of Budgetary Resources

For the Year Ended September 30, 2025

(In Millions)

BUDGETARY RESOURCES

Unobligated Balance from Prior Year Budget Authority, Net

(Discretionary and Mandatory) (Note 15

15)

Appropriations (Discretionary and Mandatory)

Spending Authority from Offsetting Collections (Discretionary and Mandatory)

Total Budgetary Resources

50,632

(7,392)

138

$43,378

STATUS OF BUDGETARY RESOURCES

New Obligations and Upward Adjustments (Total)

$19,418

Unobligated Balance, End of Year

Apportioned, Unexpired Accounts

23,356

Exempt from Apportionment, Unexpired Accounts

Unapportioned, Unexpired Accounts

Unexpired Unobligated Balance, End of Year

222

23,585

Expired Unobligated Balance, End of Year

375

Unobligated Balance, End of Year (Total)

23,960

Total Budgetary Resources

$43,378

OUTLAYS, NET

Outlays, Net (Total) (Discretionary and Mandatory)

Distributed Offsetting Receipts

Outlays, Net (Discretionary and Mandatory)

$19,164

(362)

$18,802

The accompanying notes are an integral part of this statement.

Financial Statements

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

Statement of Custodial Activity

For the Year Ended September 30, 2025

(In Millions)

REVENUE ACTIVITY

Collections of Federal Tax Revenue (Note 16

16)

Individual Income, Federal Insurance Contributions Act, Self-Employment Contributions Act

and Other

$4,689,620

Corporate Income

486,384

Excise

90,612

Estate and Gift

31,111

Railroad Retirement

7,258

Federal Unemployment

8,777

Total Collections of Federal Tax Revenue

(Decrease)/Increase in Federal Taxes Receivable, Net

Total Federal Tax Revenue

5,313,762

(47,805)

$5,265,957

DISPOSITION OF FEDERAL TAX REVENUE

Transferred to:

General Fund of the U.S. Government

Department of the Interior

Retained by IRS – Private Debt Collection

(Decrease)/Increase in Amounts Yet to be Transferred

Total Disposition of Federal Tax Revenue

Net Federal Revenue Activity

$5,313,472

234

(47,805)

5,265,957

$–

FEDERAL TAX REFUND AND OUTLAY ACTIVITIES

Total Refunds of Federal Taxes and Outlays (Note 17

17)

Appropriations Used for Refund of Federal Taxes and Outlays

Net Federal Tax Refund and Outlay Activities

$638,785

(638,785)

$–

The accompanying notes are an integral part of this statement.

Financial Statements

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

Audited, See Accompanying Auditor’s Report

For the Year Ended September 30, 2025

Note 1. Summary of Significant Accounting Policies

A. Reporting Entity

The IRS administers the nation’s tax laws and annually collects nearly all the revenues that fund

the U.S. government’s operations. The accompanying financial statements present the financial

position and results of operations for the IRS, a component entity of the Treasury. All funds established and maintained to track resources and activity under IRS control are included in the financial

statements and accompanying notes.

B. Basis of Accounting and Presentation

The financial statements are prepared from the accounting records of the IRS in conformity with

U.S. generally accepted accounting principles and in accordance with OMB Circular A-136,

Financial Reporting Requirements. Accounting principles generally accepted for federal entities are

the standards prescribed by the Federal Accounting Standards Advisory Board, which is recognized by the American Institute of Certified Public Accountants as the official body for setting

accounting standards of the U.S. government. Accounting standards allow certain presentations

and disclosures to be modified, if needed, to prevent the disclosure of classified information.

Financial statements consist of the Balance Sheet, Statement of Net Cost, Statement of Changes

in Net Position, Combined Statement of Budgetary Resources, and Statement of Custodial Activity.

The Statement of Changes in Net Position separately reports amounts for Funds from Dedicated

Collections. The Statement of Budgetary Resources is presented on a combined basis, therefore

intra-bureau transactions and balances are not eliminated from the statement. Certain assets, liabilities, earned revenues, and costs have been classified as intragovernmental in the financial statements and accompanying notes. Intragovernmental is defined as transactions made between two

reporting entities within the U.S. government.

Accounting transactions are recorded on both an accrual and a budgetary basis. Under the

accrual method of accounting, revenues are recognized when earned and expenses are recognized when incurred, without regard to receipt or payment of cash. Accrual methods of accounting

may differ from budgetary accounting principles as the purpose of federal budgetary accounting

is to control, monitor, and report on the use of funds made available to federal agencies, and to

ensure compliance with laws and regulations. The Statement of Custodial Activity is presented on

the modified cash basis of accounting. Under this method, cash collections and transfers to the

General Fund of the U.S. Government are reported on a cash basis rather than an accrual basis.

Collections and transfers are adjusted on the face of the Statement of Custodial Activity for the net

change in taxes receivable, producing modified cash basis balances.

Notes to the Financial Statements

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

The preparation of financial statements requires management to make certain estimates and

assumptions affecting the reported amounts for assets, liabilities, revenues, expenses, and the

disclosure of contingent liabilities. Actual results may differ from these estimates. Estimates are

used in computing taxes receivables, accruals for accounts payable and actuarial liabilities, and for

allocating costs to major programs on the Statement of Net Cost.

C. Fund Balance with Treasury

Fund Balance with Treasury is an asset of a reporting entity and a liability of the General Fund of

the U.S. Government. These amounts represent commitments by the U.S. government to provide

resources for certain programs, but do not represent net assets to the U.S. government. When

the IRS seeks to use Fund Balance with Treasury to liquidate budgetary obligations, Treasury

will finance the disbursements in the same way it finances all other disbursements, using some

combination of receipts, other inflows, and borrowing from the public (if a budget deficit exists).

On the financial statements and accompanying notes, Fund Balance with Treasury represents the

aggregate amount of undisbursed IRS funds which include appropriated funds, deposit funds,

suspense funds, and special funds (refer to Note 3. Fund Balance with Treasury.

Treasury

D. Accounts Receivable, Net

Accounts Receivable, Net, represents the net realizable value of amounts owed to the IRS from

other federal agencies and the public. Gross receivable balances are reduced to net realizable value

through use of an allowance by using the collection criterion of more likely than not. The allowance

for uncollectible accounts is based on an annual review of groups of accounts by age for accounts

receivable balances older than one year.

Intragovernmental accounts receivable includes an expenditure transfer receivable from the

Treasury Forfeiture Fund for the repayment of costs incurred in criminal investigations related to

seizures and forfeitures. Reimbursable agreements with federal agencies are recorded as receivables and revenues, which are recognized when services are performed, and costs are incurred.

Other than Intragovernmental accounts receivable includes reimbursable agreements, and payroll

receivables, such as salary and benefit overpayments, overdrawn leave, leave buybacks under

workers’ compensation, and federal employees’ health benefit payments.

E. Advances and Prepayments

Intragovernmental advances and prepayments include employee transit subsidies paid to the

Department of Transportation and postage purchased from the U.S. Postal Service for postage

meters, business reply mail, bulk mailing permits, stamps, and postage paid envelopes. The U.S.

Postal Service requires payment for the postage in advance. Advances and prepayments to the

public represent cash outlays for criminal investigations and employee travel.

F. Cash and Other Monetary Assets

Imprest funds include non-restricted cash maintained by headquarters and field offices in commercial

bank accounts and are used by investigative services to provide special agents with funding for

ongoing covert operations. Other monetary assets consist of seized monies pending the results of

criminal investigations. Seized monies are non-entity assets recorded in a deposit fund account.

Notes to the Financial Statements

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

G. Federal Taxes Receivable, Net

Federal Taxes Receivable, Net, consists of unpaid assessments and accruals for penalties, and

interest due from taxpayers. The existence of a receivable is supported by a taxpayer agreement,

such as filing of a tax return without sufficient payment, or a court ruling in favor of the IRS. The taxes

receivable amount also includes restitution-based assessments, which are federal court-ordered

assessments for compensation from defendants to the U.S. government for revenue losses caused

by tax-related crimes, including conspiracy to defraud the IRS and tax evasion. The net amount of

federal taxes receivable is calculated by reducing the gross receivable amount by an allowance for

uncollectible taxes receivable which estimates the portion of total taxes receivable deemed to be

uncollectible. Internal Revenue Code Section 965(h) requires U.S. shareholders to pay a transition

tax on the untaxed foreign earnings of certain specified foreign corporations as if those earnings had

been repatriated to the U.S. Under this provision, taxpayers may elect to pay their transition tax on

an eight-year installment schedule (refer to Note 4. Federal Taxes Receivable, Net).

Net

Tax Assessments and Abatements

Internal Revenue Code Section 6201 authorizes and requires the Secretary of the Treasury to make

inquiries, determinations, and assessments regarding all taxes not paid, including related interest,

additions to tax, and assessable penalties that are imposed under internal revenue laws. The

Secretary of the Treasury and IRS Commissioner delegated this authority to the Chief Executive

Officer. Unpaid assessments result from taxpayers filing returns without sufficient payments and

from the enforcement programs of the IRS, including examination, under-reporter, substitute for

return, and combined annual wage reporting.

The Chief Executive Officer has also been delegated the legal authority, under Internal Revenue

Code Section 6404, to abate certain assessed taxes, interest, and penalties, whether they have

been paid or not. This process, called abatement, is a normal part of tax administration to reduce

or cancel amounts owed and happens for several reasons. For example, a corporation might

qualify for an abatement if it is claiming a net operating loss that creates a credit when carried back

and applied against a prior year’s tax liability. Abatements can also fix errors in assessments from

enforcement programs, remove taxes cleared in bankruptcy, reduce or eliminate taxes in approved

offers-in-compromise situations, or eliminate penalty assessments for reasonable cause. Abatements lead to a refund or reduce what the taxpayer still owes.

Other Unpaid Assessments

Compliance assessments are unpaid assessments which neither the taxpayer nor a court has

affirmed is owed to the U.S. government. This includes assessments resulting from an IRS

audit or examination in which the taxpayer does not agree with the results. Write-offs consist of

unpaid assessments for which the IRS does not expect further collections due to factors such

as taxpayers’ bankruptcy, insolvency, or death. Compliance assessments and write-offs are not

included in Federal Taxes Receivable, Net on the Balance Sheet. According to Statement of Federal

Financial Accounting Standard (SFFAS) 7: Accounting for Revenue and Other Financing Sources

and Concepts for Reconciling Budgetary and Financial Accounting, compliance assessments do

Notes to the Financial Statements

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

not meet the requirements for asset recognition. Statutory provisions authorize the IRS to collect

on unpaid assessments for a specific statutory timeframe. To pursue collection efforts, the IRS

maintains unpaid assessment accounts in its financial records until the statute for collection expires,

which is generally 10 years from when the IRS assesses the tax.

H. Property and Equipment, Net

Property and equipment are recorded at cost and consist of tangible and intangible assets with

a useful life of two or more years. IRS property and equipment includes equipment, leasehold

improvements, right-to-use lease assets, and internal use software. Depreciation and amortization

expenses are calculated using a straight-line method over the useful life of the asset starting on

the in-service date. Assets under development, such as internal use software, are capitalized if the

estimated aggregate cost meets the threshold for capitalization. Normal repairs and maintenance

costs are recognized as an expense in the period incurred. Impairment costs are recognized in the

event of a significant and permanent decline in the service utility of the property and equipment

(refer to Note 5. Property and Equipment, Net).

Net

IRS Capitalization Policy

Asset Class

Capitalization Threshold

Information Technology Equipment

(mainframe, server & telecommunication)

Asset value of $50 thousand or greater.

Non-Information Technology Equipment

Assets with bulk cost of $50 thousand or greater or the

individual cost is $10 thousand or greater.

Investigative Equipment

Asset value of $50 thousand or greater.

Vehicles

No threshold.

Internal Use Software

Projects with an estimated cost greater than or equal to $10

million per year.

Leasehold Improvements

Improvements with cost of $50 thousand or greater.

Right-to-Use Lease Asset

Asset value of $930 thousand or greater.

I. Leases

The IRS leases office space and motor vehicles from the General Services Administration under

agreements with lease terms ranging from 1 to 30 years. Intragovernmental lease expenses are

recognized as costs are incurred. The IRS is not a lessor to other government entities. In accordance with SFFAS 54, Leases, right-to-use lease assets and lessee lease liabilities are recognized

for non-intragovernmental leases that are long term in nature (greater than two years) and when

certain conditions are met. For example, the IRS must obtain the right to control access to the

economic benefits or services from the underlying assets in exchange for consideration under the

lease agreement.

In accordance with SFFAS 62, Transitional Amendment to SFFAS 54, through September 30, 2026,

contracts or agreements having both lease and non-lease components are treated as non-lease

contracts in their entirety where the IRS has concluded the primary purpose is reasonably attributable to the non-lease components (refer to Note 10. Leases).

Leases

Notes to the Financial Statements

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

J. Inventory and Related Property, Net

Forfeited property held for sale is acquired through forfeiture proceedings or foreclosure sales to

satisfy a tax liability. The Federal Tax Lien Revolving Fund, established in accordance with Title 26

U.S. Code Section 7810, is used to redeem real property foreclosed upon by a holder of a lien. The

IRS may sell the property, reimburse the revolving fund in an amount equal to the redemption, and

apply any net proceeds to the outstanding tax obligation.

Seized monetary instruments are recognized at their fair market value when seized. They are

reported as part of Cash and Other Monetary Assets, and an offsetting liability of equal value is

recognized in Other Liabilities. In the event a forfeiture judgment is obtained, the seized asset is

reclassified to a forfeited asset, revenue is recognized, and the offsetting liability is removed.

Seized property value, other than monetary instruments, is accounted for in criminal investigation

records until the property is forfeited, returned, or otherwise liquidated. Under the Internal Revenue

Code Section 6335 valuation of property seized is based on the taxpayer’s equity at the fair market

value less any third-party liens. Forfeited intangible assets are recognized at fair market value at the

time of forfeiture with an offsetting deferred revenue.

K. Due to the General Fund of the U.S. Government

Due to the General Fund of the U.S. Government is a liability which comprises two sources: Federal

Taxes Receivable, Net and the State Innovation Waiver Program. The portion for federal taxes

receivable will ultimately be distributed to the General Fund of the U.S. Government upon collection.

The portion for the State Innovation Waiver Program represents awards by the Centers for Medicare

and Medicaid Services, under Section 1332 of the Patient Protection and Affordable Care Act,

where the grantees participating in the program have not drawn down the funds per the term of the

grant. This program is also referred to as a State Relief and Empowerment Waiver (refer to Note 7.

Due to the General Fund of the U.S. Government).

Government

L. Federal Tax Refunds Payable and Due from the General Fund of the U.S. Government

Federal Tax Refunds Payable comprises measurable and legally payable amounts owed to

taxpayers under the established refund processes of the IRS. This liability is fully funded and offset

by a corresponding asset, Due from the General Fund of the U.S. Government. The IRS records an

amount Due from the General Fund of the U.S. Government to designate approved funding to pay

year-end tax refund liabilities to taxpayers.

M. Contingent Liabilities

Contingent liabilities are liabilities that may be incurred by the IRS depending on the outcome of an

uncertain future event, such as pending litigation. Contingencies are classified into three categories:

probable, reasonably possible, and remote. A contingency is considered probable when the future

confirming events are likely to occur. Probable contingent liabilities are recognized by the IRS in

the financial statements provided the amount can reasonably be estimated. Contingencies are

reasonably possible when the chance of the future confirming event occurring is more than remote

but less than probable. Reasonably possible contingencies are disclosed by the IRS in the Notes to

the Financial Statements, as well as probable contingencies that cannot reasonably be estimated.

Notes to the Financial Statements

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

Remote contingencies are not recognized in the financial statements or disclosed in the Notes to

the Financial Statements (refer to Note 11. Commitments and Contingencies).

Contingencies

N. Financing Sources and Revenues

Appropriations Received

The IRS receives most of its funding through annual, multi-year, and no-year appropriations that

are available for use within statutory limits for operating and capital expenditures. Appropriations

Received are presented on the Statement of Changes in Net Position. Appropriations presented on

the Statement of Budgetary Resources are net of temporary and permanent reductions and include

special fund receipts.

Exchange Revenues

Exchange revenues are derived from transactions where both the IRS and its trading partners

receive value. IRS exchange revenues include reimbursements, user fees, and collections of

outstanding inactive tax receivables from private collection agents. Revenues for reimbursements

are recognized as costs are incurred for services performed for other federal agencies or the public

under the reimbursable agreements. Revenues from user fees are other than intragovernmental

transactions and are recognized when earned. The Fixing America’s Surface Transportation Act

authorizes the IRS’s Private Collection Agent Program, which provides the IRS with the authority to

enter into qualified tax collection contracts with private collection agents to perform the collection

of outstanding inactive tax receivables from the public. Earned revenues in this program reflect the

portion of the collections retained to cover the costs of services performed under the contracts.

Exchange revenues are assigned to a major program on the Statement of Net Cost.

Non-Exchange Revenues

Non-exchange revenues result from the U.S. government’s power to demand payments from the

public, generally in the form of tax receipts. IRS tax collections are reported on the Statement of

Custodial Activity with an offsetting transfer to the General Fund of the U.S. Government. A portion

of the tax receipts is used to fund the Special Compliance Personnel Program which has oversight

authority over the Private Collection Agent Program. The Special Compliance Personnel Program

has a specifically identifiable and legally enforceable claim to a portion of the delinquent debt collections from outstanding inactive tax receivables to fund the administration of the program.

Imputed Financing

The IRS receives goods and services from other federal entities at no cost or less than the full cost

to the providing entity. Certain costs of the providing federal entity — that are identifiable to the IRS

but not fully reimbursed — are recognized as imputed costs in the Statement of Net Cost and as

imputed financing sources on the Statement of Changes in Net Position. Imputed financing sources

include Bureau of the Fiscal Service costs of processing tax payments and collections, employee

benefits administered by the Office of Personnel Management, and settled claims paid by the

Treasury Judgment Fund.

Notes to the Financial Statements

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

O. Major Programs

The Statement of Net Cost presents major programs to deliver high quality taxpayer service, fair

enforcement of the tax law, and modernize critical technology.

Service to the Taxpayer includes activities and programs such as pre-filing assistance; account

management and assistance; processing tax returns and related documents; offering filing and

account services; producing media and publications; providing taxpayer advocacy services; and

supporting activities. Earned revenues include reimbursable revenues for services provided and user

fees, which include photocopies, U.S. residency certifications, and Income Verification Express Service.

Enforcement of Tax Legislation includes the examination of tax returns, both domestic and

international; administrative and judicial settlement of taxpayer appeals of examination findings;

technical rulings; monitoring of employee pension plans; determination of qualifications of organizations seeking tax-exempt status; enforcement of statutes relating to detection and investigation

of criminal violations of the internal revenue laws; identification of under-reporting of tax obligations;

securing of unfiled tax returns; collection of unpaid accounts; and supporting activities. Earned

revenues consist of user fees for installment agreements; letter rulings and determinations; offers in

compromise; enrolled agent and actuary programs; return preparer registrations; advance pricing

agreements; services provided under reimbursable agreements; and receipts collected through the

Private Debt Collection.

Transformation of Business Systems includes resources for the planning and capital asset

acquisition of information technology to modernize the IRS business systems. Primary activities

include expanding online account capabilities to improve the taxpayer experience; improving

individual tax processing technologies; streamlining case and workload management processes;

and promoting cybersecurity.

P. Custodial Activity

Revenues

The IRS collects custodial non-exchange tax revenues levied for the following tax classifications:

Individual Income, Corporate Income, Excise, Estate and Gift, Railroad Retirement, and Federal

Unemployment taxes. Individual income taxes include Federal Insurance Contributions Act, Self

Employment Contributions Act, and other miscellaneous items. Tax revenues are not available to

the IRS for obligation or expenditure as substantially all the collections are transferred to the General

Fund of the U.S. Government to fund the U.S. government’s operations. The sources of federal tax

revenues and their distributions are presented on the Statement of Custodial Activity.

Appropriations

Legislation grants the IRS permanent and indefinite budgetary authority to disburse tax refunds as the

obligations become due. These permanent and indefinite appropriations are not subject to budgetary

ceilings set by Congress during the annual appropriations process. Disbursements of federal tax

refunds and refundable tax credits are offset by appropriations used for refunds on the Statement of

Custodial Activity. Tax refund disbursements are a cost to the U.S. government, not to the IRS.

Notes to the Financial Statements

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

Refunds owed to taxpayers are reported as Federal Tax Refunds Payable on the Balance Sheet.

The IRS recognizes a corresponding asset, Due from the General Fund of the U.S. Government, to

reflect the budget authority to pay this liability.

Q. Funds from Dedicated Collections

Funds from Dedicated Collections are specifically identified revenues — often supplemented by

other financing sources — which remain available over time. These specifically identified revenues

and other financing sources are required by statute to be used for designated activities, benefits, or

purposes and must be accounted for separately from the U.S. government’s general revenues (refer

to Note 12. Funds from Dedicated Collections).

Collections

R. Allocation Transfers

The IRS is a party to allocation transfers with other federal agencies as both a transferring (parent)

entity and a receiving (child) entity. Allocation transfers are legal delegations by one federal entity

of its authority to obligate budget authority and outlay funds to another federal entity. A separate

Treasury Account Symbol, used as an allocation account, is created as a subset of the parent fund

account for tracking and reporting purposes. All allocation transfers of balances are credited to this

account and subsequent obligations and outlays incurred by the child entity are charged to this

allocation account as they execute the delegated activity on behalf of the parent entity. Financial

activity related to these allocation transfers is reported in the financial statements of the parent

entity, from which the underlying legislative authority, appropriations and budget apportionments

are derived. The IRS allocates funds, as the parent entity, to the Department of Health and Human

Services. The IRS receives allocation transfers, as the child entity, from the Department of Transportation’s Federal Highway Administration and Department of Health and Human Services.

S. Fiduciary Activities

Fiduciary activities are the collection or receipt, and the management, protection, accounting,

investment, and disposition by the U.S. government of cash or other assets in which non-federal

individuals or entities have an ownership interest the U.S. government must uphold. IRS fiduciary

activities include the net collections for a taxable year from U.S. military and U.S. employees working

in the U.S. territories of the Northern Mariana Islands, the U.S. Virgin Islands, Guam, and American

Samoa. These fiduciary assets are not assets of the IRS (refer to Note 18. Fiduciary Activities).

Activities

T. Budgetary Terms

The purpose of federal budgetary accounting is to control, monitor, and report on funds made

available to federal agencies by law and help ensure compliance with the law. Common budgetary

terms applicable to IRS reporting are described below. Further information on the U.S. government’s commonly used budgetary terms can be found in the Office of Management and Budget

Circular A-11, Section 20.3.

Notes to the Financial Statements

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

• Appropriation: A provision of law (not necessarily in an appropriations act) authorizing the

expenditure of funds for a given purpose. Usually, but not always, an appropriation provides

budget authority.

• Budgetary Resources: Amounts available to incur obligations in a given fiscal year.

Budgetary resources consist of new budget authority and unobligated balances of budget

authority provided in previous years.

• Obligation: A binding agreement that will result in outlays, immediately or in the future.

Budgetary resources must be available before obligations can be incurred legally.

• Offsetting Collections: Payments to the U.S. government that, by law, are credited directly to

expenditure accounts and deducted from gross budget authority and outlays of the expenditure account, rather than added to receipts. Usually, offsetting collections are authorized to be

spent for the purposes of the account without further action by Congress. They usually result

from business-like transactions with the public, including payments from the public in exchange

for goods and services, reimbursements for damages, and gifts or donations of money to the

U.S. government and from intragovernmental transactions with other U.S. government

accounts. The authority to spend offsetting collections is a form of budget authority.

• Offsetting Receipts: Payments to the U.S. government that are credited to offsetting receipt

accounts and deducted from gross budget authority and outlays, rather than added to

receipts. Usually they are deducted at the level of the agency and subfunction, but in some

cases they are deducted at the level of the U.S. government as a whole. They are not authorized to be credited to expenditure accounts. The legislation that authorizes the offsetting

receipts may earmark them for a specific purpose and either appropriate them for expenditure

for that purpose or require them to be appropriated in annual appropriations acts before they

can be spent. Like offsetting collections, they usually result from business-like transactions

with the public, including payments from the public in exchange for goods and services,

reimbursements for damages, and gifts or donations of money to the U.S. government, and

from intragovernmental transactions with other U.S. government accounts.

• Outlay: A payment to liquidate an obligation (other than the repayment of debt principal or

other disbursements that are “means of financing” transactions). Outlays generally are equal

to cash disbursements but also are recorded for cash-equivalent transactions, such as the

issuance of debentures to pay insurance claims, and in a few cases are recorded on an

accrual basis such as interest on public issues of the public debt. Outlays are the measure of

U.S. government spending.

U. Employee Compensation and Benefits

Accrued Annual, Sick and Other Leave

Annual and compensatory leave is accrued and expensed as earned and used. Annually, the IRS

adjusts the balance in the accrued annual leave liability account to reflect current pay rates. Under

the current budget execution rules, the accrued annual leave liability is reported as not covered

by budgetary resources because the liability is not funded until leave is taken, or the amount is

paid as a lump sum at the end of employment. Sick leave and other types of non-vested leave are

expensed as used.

Notes to the Financial Statements

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

Federal Employees’ Compensation Act

The Federal Employees’ Compensation Act provides income and medical cost protection and other

death benefits to beneficiaries for federal civilian employees with proper coverage who are injured

on the job, have incurred work-related occupational diseases, or whose deaths were attributed

to job-related injuries or occupational diseases. This program is administered by the Department

of Labor, which pays valid claims and subsequently seeks reimbursement for claims paid. The

accrued Federal Employees’ Compensation Act liability represents amounts due to the Department

of Labor for claims paid on behalf of the IRS. The actuarial Federal Employees’ Compensation

Act liability represents the liability for future workers’ compensation benefits, which includes the

expected liability for death, disability, medical, and miscellaneous costs for approved cases. The

Department of Labor estimates the liability for future payments based on past events.

Employee Health and Life Insurance Benefits

IRS employees are eligible to participate in the Federal Employees’ Health Benefit Program

and Federal Employees’ Group Life Insurance Program administered by the Office of Personnel

Management. The Federal Employees’ Health Benefit Program offers a wide variety of group plans

and coverage that are available to employees, retirees, and their eligible family members. The cost

for each plan varies and is shared between the IRS and the employee.

An employee participating in the Federal Employees’ Group Life Insurance Program can obtain basic

term life insurance by paying two-thirds of the cost and the IRS paying one-third. Additional coverage

is optional, to be paid fully by the employee. The basic life coverage may continue into retirement if

certain requirements are met. The IRS recognizes the full cost of providing these benefits.

Employee Pension Benefits

The IRS recognizes the full costs of providing future pension benefits to covered employees. Cost

factors provided by the Office of Personnel Management estimate the full cost of providing the

pension benefits. The excess of the full cost compared to contributions made by the IRS and its

employees is recognized as imputed costs. The liabilities associated with these costs are reported

by the Office of Personnel and Management, which administers the plans. Eligibility of employees

to participate in the Civil Service Retirement System or the Federal Employees Retirement System

is based on their hire date with the U.S. government and the IRS contributes a percentage of an

employee’s basic pay towards their retirement plan.

All IRS employees are eligible to contribute to the Thrift Savings Plan, a defined contribution plan.

For employees participating in the Federal Employees Retirement System, the IRS contributes

1% per year of the employee’s basic pay to the Thrift Savings Plan. In addition, the IRS matches

voluntary employee contributions up to 3% of the employee’s basic pay and matches one-half of

contributions between 3% and 5% of the employee’s basic pay. There are no agency contributions

to the Thrift Savings Plan for Civil Service Retirement System participants. IRS contributions to the

Thrift Savings Plan are recognized as current operating expenses.

Notes to the Financial Statements

FINANCIAL INFORMATION | IRS FY 2025 AGENCY FINANCIAL REPORT

Employee and Agency Pension Benefit Contribution Rates