The U.S. Capitol building is seen through a snow covered trellis at the start of the 114th Congress on the Capitol grounds in Washington January 6, 2015. In her latest annual report to Congress, national taxpayer advocate Nina Olson said the government is operating in a state of "collective denial" about funding for the IRS. Reuters/Jim Bourg

Nina Olson, the taxpayer advocate at the IRS, doesn't mince words about how bad the upcoming tax season is likely to be. The terms "devastating erosion of taxpayer service," "sad state of affairs" and "collective denial" all apply, she wrote in her latest annual report to Congress.

The combination of increased work loads and budget cuts, along with the damaging tea party screening scandal, is adding up to a "'perfect storm' of trouble" at a federal agency that interacts with more than three times as many Americans as any other agency.

"Taxpayers who need help are not getting it, and tax compliance is likely to suffer over the longer term if these problems are not quickly and decisively addressed," Olson said in the report, released Wednesday.

Approximately 200 million people deal with the IRS each year, and more than 100 million phone calls pour in on an annual basis. A decade ago, the vast majority of callers -- 87 percent -- could expect that a) someone at the IRS would answer the phone and b) they'd be kept on hold about 2.5 minutes, on average.

Not so in 2015. This year about half of all callers, and perhaps as few as 43 percent, will be lucky to get through, Olson stated. Those who do succeed are likely to stay on hold for 30 minutes on average.

Any questions about the tax code, which Olson describes as "overwhelming in its complexity," had better be simple. During the filing season, the IRS "will not answer any questions except 'basic' ones," she said. And once filing season ends, Olson reported, "it will not answer any tax-law questions at all." That will affect any of the 15 million taxpayers who file their returns later in the year, and who have questions about it.

Other collateral damage includes help for low-income, disabled and elderly filers. In fiscal year 2004, the IRS assisted taxpayers in preparing 500,000 returns; this year the IRS "has eliminated return preparation completely," Olson said.

The IRS has more work to do, and fewer people to do it. For instance, compared to a decade ago, the volume of returns filed by individuals has increased 11 percent, the volume from business entities has gone up 18 percent. This year, the agency also has to help implement the new health care law, the Patient Protection and Affordable Care Act.

But budget cuts from Congress -- a 17 percent, inflation-adjusted reduction since fiscal year 2010 -- have forced the agency to shed nearly 12,000 employees. "It couldn't be worse timing," IRS Commissioner John Koskinen told the Associated Press in an interview about the cuts. He estimated that the U.S. could lose out on $2 billion in tax revenue this year because the IRS has fewer enforcement personnel.

In her report, Olson called on Congress to make a greater investment in the IRS, and to engage in more oversight of the routine services that affect taxpayers. Absent such investment now, she predicted that it will be hard to safeguard taxpayer trust in the "fairness" of the system down the road.

"For a taxpayer whose trust has been shaken," she wrote, "each IRS failure to meet basic expectation, (e.g. answer the phone, listen carefully, consider the specific facts and circumstances, provide alternatives, take the extra step to help) confirms the belief that the IRS is not to be trusted."