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".. the budget environment of the last five years has brought about a devastating erosion of taxpayer service, harming taxpayers individually and collectively", said the The National Taxpayer Advocate Nina Olson referring to the IRS in the 2014 annual report released this week. Here are some hi-lights:

• The IRS is unlikely to answer even half the telephone calls it receives, and levels of service may average as low as 43%.  
  
• Taxpayers who manage to get through are expected to wait on hold for 30 minutes on average and considerably longer at peak times. I myself have been on hold for over 4 hours in recent weeks.
  
• The IRS will answer far fewer tax-law questions than in past years. During the upcoming filing season, it will not answer any tax-law questions except "basic" ones. After the filing season, it will not answer any tax-law questions at all, leaving the roughly 15 million taxpayers who file later in the year unable to get answers to their questions by calling or visiting IRS offices.
  
• Tax return preparation assistance has been eliminated.
  

In addition to these service declines, the budget cuts will have a negative financial impact as well. IRS Commissioner John Koskinen outlined how the already strapped agency will absorb the latest cut of  $346 Million to their fiscal year 2015 budget.  The consequences include fewer audits and case closures.  Fewer automated collections system and field collection case closures. A continued hiring freeze which should result in the loss of 1800 employees through attrition during 2015. The resulting reduced enforcement staffing means that the agency will lose at least 2 billion in revenue that otherwise would have been collected.

In Mid December the Senate passed, and President Obama signed, a one-year tax extender bill extending more than 50 tax provisions through Dec. 31, 2014. The long-term fate of these on-again off-again tax breaks will have to be decided in the next Congress.  For many years (most of my career) annual tax legislation was passed in a timely manner and without much controversy.  Recent battles in congress over taxes and spending have resulted in last minute and retroactive legislation.  The result is generally a late start to tax season while the IRS responds to the changes with updated forms, instructions, and publications.  These retroactive changes also make tax planning a challenge.


With over 50 provisions impacted a complete discussion of the new law isn't practical. The majority of the provisions pertain to businesses. Some of the individual highlights include:

Deduction for teachers' expenses- This measure allows educator to deduct up to $250 for the costs of classroom supplies that they buy with their own money. 

State and local sales tax deduction- If you itemize your taxes, this measure lets you deduct the state and local sales taxes you've paid in lieu of state income taxes.

Tuition deduction- Taxpayers meeting certain income limits may deduct up to $4,000 in qualified tuition, fees and related expenses for post-secondary education, such as college and graduate school. The deduction may be taken for yourself, your spouse or your dependents.

Deduction for mortgage insurance premiums-  This tax break allows for individuals to claim the cost of mortgage insurance premiums as an itemized deduction (subject to income limitations).

Income exclusion for mortgage debt that's been forgiven-  Losing your home in foreclosure or selling your home in a short sale can frequently result in forgiveness of debt income.  The IRS treats this forgiven debt income as taxable.  This bill extends a provision to exclude this income under certain circumstances.

You can read more about this bill at congress.gov.