The IRS is coming to grips with a $346 million budget reduction including enforcement cuts of $160 million. I wonder if it is due to its targeting certain political organizations. If so, it wouldn’t be the first time.

After creating an unflattering print of President Nixon with the caption “Vote for McGovern,” Andy Warhol was audited every year for the rest of his life.

The enforcement cuts will result in 46,000 fewer individual and business audit closures. Since there is a hiring freeze, the IRS will lose 1,800 enforcement personnel through attrition in 2015. Reduced enforcement staffing will result in a loss of revenue for the government of at least $2 billion.

The IRS service expectations for 2015 are that it will be able to answer only 43 percent of the calls received. Taxpayers who get through can expect to be on hold for at least half an hour and considerably longer at peak times.

The IRS will answer far fewer questions than in the past, confining itself to just basic questions during the filing season. For those taxpayers on extension, the IRS will not answer any tax questions at all, leaving the 15 million taxpayers who file extensions unable to get answers to their questions by calling or visiting IRS offices. Tax-return preparation assistance has ended.

The IRS continues to improve its techniques for selecting returns for audits with the focus on certain priority areas. Taxpayers with foreign bank or investment accounts are receiving heightened scrutiny, as are beneficiaries of foreign trusts. New capitalization and repair regulations will require many taxpayers to file Form 3115, for a Change of Accounting Method. The IRS has indicated there will be audits for those businesses failing to file this form when required.
There has been an epidemic of persons filing fraudulent returns with other taxpayers’ Social Security members and receiving refunds based on false information.

The IRS has instituted procedures for dealing with identity theft. If you suspect identity theft, I suggest you talk with a tax professional to advise you of the procedures to follow. You will need to file Form 14039 and obtain a PIN number in order to file your return.

A very challenging tax year is shaping up with last-minute tax changes on Dec. 19, implementing of the Affordable Care Act provisions and changes in repair and capitalization regulations.