Filing a return closes one step in the IRS process. It does not close the year. For small business owners, the months between the October 15 extended deadline and December 31 are when IRS systems keep matching information, generating notices, and moving unresolved accounts forward, whether or not anyone at the business is paying attention.
Tax compliance is not a once-a-year event. It is a continuous cycle of reporting, matching, correspondence, and response, and the IRS has spent the past two years reshaping how that cycle runs. The agency is doing more of its enforcement work through automated systems and less through traditional audits, which changes what small businesses should expect and when they should act.
Tax problems are easier to manage before the IRS process controls the timeline. If you want a practical review of your exposure, planning options, or IRS correspondence, speak with Steve Perry, EA. Call 678-717-9818, email steve@bookstaxesatl.com, or connect on LinkedIn at www.linkedin.com/in/steveperrybtm.
Fewer Auditors Does Not Mean Less Enforcement
Many business owners have read that the IRS lost a large share of its workforce and assume enforcement has slowed. The staffing decline is documented. In its 2025 Annual Report to Congress, the National Taxpayer Advocate reported that the IRS began 2025 with about 102,000 employees and ended with about 74,000, and that the Small Business/Self-Employed Division fell from 24,122 to 15,012 employees. The Treasury Inspector General for Tax Administration reported in Trends in Compliance Activities Through Fiscal Year 2025 that examination starts in that division were paused from March 2025 through the end of the fiscal year.[oversight]
The same TIGTA report shows where enforcement went. Examination revenue fell from $10 billion in fiscal year 2024 to $6.5 billion in fiscal year 2025, while the Collection function produced $81.8 billion, or 87 percent of all enforcement revenue. TIGTA attributes recent growth in collection revenue primarily to automated collection notices. The agency is shifting from labor intensive examinations toward systems that scale without adding examiners. These automated systems use algorithms and are moving toward the use of AI to review tax returns post processing.
The IRS has said so directly. In its FY 2027 Congressional Budget Justification (Publication 4450), the agency lists enforcement driven by data as a strategic priority, describing expanded use of artificial intelligence, advanced analytics, and improved data integration to identify high risk noncompliance. It also describes a case selection and anomaly detection platform designed to flag risk earlier, including before refunds are issued. Fiscal year 2027 began on October 1, 2026, so that direction now governs the remainder of this calendar year.[irs]
How the Automated Playbook Works
The modern IRS enforcement model is less about an agent selecting your file and more about a sequence of system checks. Each one runs on its own schedule.
Information matching compares what third parties reported about your business against what your return shows. According to the IRS Data Book, 2025, the IRS received more than 4.47 billion information returns in fiscal year 2025, and its Automated Underreporter Program closed 987,460 cases with notices issued to taxpayers, producing about $5.9 billion in additional assessments. When the numbers do not reconcile, the system can propose an adjustment by mail without anyone opening a full examination.
Collection sequencing begins when a balance remains unpaid. Publication 594, The IRS Collection Process, describes how a series of balance due notices moves an account toward lien filing and levy. The CP504 notice serves as a notice of intent to levy, and the IRS Data Book shows that notices of federal tax lien rose from 196,996 in fiscal year 2024 to 214,099 in fiscal year 2025, while levies on third parties rose from 313,792 to 339,137.[irs]
Payroll monitoring runs through quarterly employment tax filings and federal tax deposits. Missed or late deposits are visible to IRS systems quickly, and unpaid withheld taxes can expose responsible individuals to personal liability under the Trust Fund Recovery Penalty.[irs]
Where Small Businesses Feel It Before Year End
The fourth quarter is when several of these system tracks converge. For small businesses, the most common pressure points include:
- Proposed adjustments from information matching on prior year returns, often arriving months after the return was filed.
- Balance due notices moving toward a final notice of intent to levy, which opens a limited window to request a Collection Due Process hearing as explained in Publication 1660, Collection Appeal Rights.[irs]
- Unpaid or late payroll deposits for the third or fourth quarters, which carry penalty exposure and potential personal liability.
- Pending or disallowed Employee Retention Credit claims, where the IRS reports about 14,900 claims still in process as of late August 2026, including 3,600 under audit.[irs]
- Missed fourth quarter estimated payments, which affect both penalties and the cash position heading into the next filing season.
There may be other items depending on the facts and circumstances, including state agency activity that runs on its own matching schedule.
Before assuming your tax position is settled for the year, consider having Steve Perry, EA evaluate your records, IRS risk, and planning opportunities. Call 678-717-9818, email steve@bookstaxesatl.com, or connect on LinkedIn at www.linkedin.com/in/steveperrybtm.
Why Today’s Outcomes Differ From the Past
A decade ago, a small business could go years without hearing from the IRS, and a discrepancy might never surface. That is no longer a reliable assumption. Information reporting covers more payment channels, IRS systems integrate data faster, and automated notices reach taxpayers without waiting for an examiner to become available. TIGTA reports that IRS notices to individual nonfilers rose from about 1.7 million in fiscal year 2024 to 3.2 million in fiscal year 2025 after the agency resumed notice programs that had been paused.
Recent law changes have also created a new misunderstanding. Under the One, Big, Beautiful Bill, the Form 1099-K reporting threshold returned to more than $20,000 and more than 200 transactions, and the threshold for Forms 1099-NEC and 1099-MISC increased to $2,000 for payments made after 2025. Fewer forms will be issued. The income remains taxable either way. A business that treats unreported income as invisible income is relying on a gap that the IRS’s anomaly detection and data integration efforts are designed to close.[irs][irs]
The practical effect is that the IRS often learns about a problem through its own systems before the taxpayer recognizes it. Timing has moved in the government’s favor, and the taxpayer’s best response is to move earlier.
How Options Narrow When Taxpayers Wait
The IRS process is built on deadlines. Each notice carries a response window, and each missed window removes a choice that was available the day before. That is the central mechanic of the playbook, and it explains why waiting carries a cost even when no additional tax is assessed.
A proposed adjustment that goes unanswered can become an assessment. An assessment that goes unpaid enters collection sequencing. A collection account that receives no response moves toward lien filing and levy. Along the way, the taxpayer loses the opportunity to dispute the adjustment, request penalty relief on favorable terms, or choose a resolution path before the IRS chooses one.
Records drive the same outcome. A business that cannot reconcile its books to its information returns has little to offer when a matching notice arrives. Gathering documentation after the response deadline is far less effective than keeping it current throughout the year.
Planning follows the same pattern. Yearend decisions about estimated payments, equipment purchases, retirement contributions, and owner compensation must be made before December 31. Once the calendar turns, many of those decisions become historical facts that can only be reported, not shaped.
If IRS notices, unpaid balances, missing records, or planning gaps are surfacing, speak with Steve Perry, EA before the problem becomes harder to control. Call 678-717-9818, email steve@bookstaxesatl.com, or connect on LinkedIn at www.linkedin.com/in/steveperrybtm.
Practical Decision Points for the Fourth Quarter
The automated model rewards businesses that review their position before the IRS does. Useful steps before year end include:
- Reconciling payments received through card processors, payment apps, and clients against your books, regardless of whether a Form 1099 will be issued.
- Confirming that every payroll deposit for the year has been made on time and in full.
- Reviewing every IRS notice received this year, including any that seemed resolved; to confirm the account shows the correct status.
- Evaluating fourth quarter estimated payments based on actual results rather than last year’s figures.
- Organizing records now so that any matching inquiry in 2027 can be answered quickly and completely.
There may be other steps depending on the facts and circumstances of the business and its owners.
Year End Is a Checkpoint, Not a Finish Line
Tax planning and IRS risk management continue throughout the year. The IRS’s 2026 enforcement direction confirms that its systems do not pause after filing season, and they do not wait for an auditor to become available.
Many IRS issues do not come from filing mistakes alone. They come from what taxpayers fail to do after the return is filed, after a notice arrives, or after a planning opportunity becomes visible. A small business that understands how matching, notices, and collection sequencing operate can respond while choices remain open.
Good tax outcomes come from managing the year before the IRS forces the issue. For help reviewing your next steps, speak with Steve Perry, EA. Call 678-717-9818, email steve@bookstaxesatl.com, or connect on LinkedIn at www.linkedin.com/in/steveperrybtm.
Frequently Asked Questions
If the IRS is conducting fewer audits, should small businesses worry less about enforcement?
No. Fewer audits reflect fewer examiners, not less oversight. Federal data show that collection activity now produces the large majority of IRS enforcement revenue, and automated matching and notices reach far more taxpayers than traditional examinations.
Does the higher 1099 reporting threshold mean small amounts of income no longer need to be reported?
No. The thresholds determine when a payer must file an information return. All business income remains reportable on the return regardless of whether a form is issued.
What happens if I ignore an IRS notice?
The account continues through the IRS sequence on its own timeline. Missed response windows can turn a proposed adjustment into an assessment and move an unpaid balance closer to lien and levy action.
Why does payroll tax compliance matter so much?
Withheld payroll taxes are held in trust for employees and the government. When they are not deposited, the IRS can pursue responsible individuals personally under the Trust Fund Recovery Penalty.
Is there still time to make meaningful tax decisions for 2026?
Yes. Estimated payments, record reconciliation, payroll review, and many planning decisions can still be addressed before December 31. After that date, the options become narrower.
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