Tax-filing season is shaping up to be a bigger headache than usual — a lot bigger.

One key problem is that Congress decided to change tax law retroactively, after tax forms had been sent to the printer.

True, the changes mean good news in one respect: Millions of taxpayers will be able to claim tax breaks that, until Congress’ recent action, were going to expire. The breaks include a deduction for college tuition and fees, and another to help schoolteachers pay for out-of-pocket classroom expenses for which they haven’t been reimbursed.

But because Congress took so long to act, the Internal Revenue Service will now have to scramble, according to U.S. Sen. Max Baucus, D-Mont., a member of the Senate Finance Committee.

“Congress’s delay in extending these tax provisions caused uncertainty. And the delay . . . will have real consequences for taxpayers,” Baucus said in a statement on the Senate floor last week.

As a result, the IRS expects taxpayer confusion, more phone calls to its toll-free customer service line from taxpayers who have questions, delays in filing, more incorrect returns, and more amended returns, Baucus said.

That’s not all. It turns out that the IRS will need more time to reprogram its systems to accommodate the changes.

In a letter to Baucus, IRS Commissioner Mark W. Everson said, “We need at least six weeks, from the time we have identified all changes, to reprogram and retest our systems,” he said. “Software developers also have to re-submit their programs to us for retesting, which generally takes a number of weeks, depending on the complexity of the changes.”

That could result in delays among computer software providers in updating the programs that are used by preparers and taxpayers, said Patricia A. Thompson, former president of the Rhode Island Society of Certified Public Accountants. For this and other reasons, she said, “I think it is going to be a slow start” to the season.

She’s not the only one. Baucus said, “It is simply too late for the IRS to implement the 2007 filing season on time. This means delays in starting to process and issue refunds. And it means money. It may cost the IRS millions in additional costs because of our delay. And the cost to taxpayers could be even greater.”

It also means trouble for people who prepare their returns on paper. The forms aren’t going to be reprinted; they’re already done, Baucus said.

So if you’re eligible for one or more of the restored tax breaks, but you can’t find a line on your tax form to claim them, what will you do?

The IRS plans to issue guidance on the matter soon, including posting information on its Web site, IRS spokeswoman Peggy Riley said yesterday.

“The IRS will be issuing as much guidance as possible to assist taxpayers with these provisions, and the electronic filing programs will be updated to reflect any changes,” she said.

That’s fine for people who file electronically, after accounting for any delays. But what about people who use paper returns? What if they don’t get the message?

There are other potential problems. For example:

•Most taxpayers will be eligible to claim, on their federal income-tax returns, a refund for long-distance telephone excise taxes. That change alone — new for the coming filing season — could itself cause problems.

“There’s always confusion whenever the tax law changes,” said Thompson, tax partner at Piccerelli Gilstein & Co. LLP, a CPA firm in Providence.

And don’t forget that some people who aren’t required to file a return (because their income isn’t high enough) will nevertheless still be eligible for a refund. Will they realize they’re eligible? And if they use a professional to prepare the required form, will the fee be greater than the refund they’re due?

•The IRS is gearing up for another change for taxpayers who elect to receive their refunds by direct deposit. New for this season, taxpayers will be able to “split” their refunds, having some money deposited directly to a checking account, for example, and another portion deposited directly to an IRA. This could cause confusion, too.

The combination of the new phone tax refund, the new “split refund” feature, and the newly restored tax breaks “adds additional significant risk to an already high-risk filing season,” Everson said.

•Rhode Island taxpayers will have to get used to a change, too: They’ll be able to calculate their state tax using the regular system or the new flat-tax system. This also could cause some confusion.

For these and other reasons, the coming filing season is “going to be challenging for everybody,” including taxpayers, tax preparers and tax officials, Thompson predicted.

So set aside more time than usual, and expect confusion and delays. This time around, tax-filing season could be a mess.

Neil Downing is a Journal staff writer and author of The New IRAs and How to Make Them Work for You. Questions about your money matters? Call us at 1-401-277-7484 and leave a message, or e-mail:

moneyline@projo.com

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