John Bullis: Misuse a tax-preparation program and it’s your liability, not software’s
Brenda Frances Barlett lost a lawsuit in United States Tax Court regarding her 2008 individual income tax return. T.C. Memo. 2012-254.
She prepared her own return on TurboTax, reporting a total tax of $44,619. The IRS determined the correct liability was $88,287, and the tax court agreed.
No facts were in dispute. She received $223,870 from her employer retirement plan when she retired. She only reported $119,400 as taxable, but it was all taxable.
Because the understatement of her income tax was more than $5,000 and more than 10 percent of the tax that should have been shown on her return, the IRS and tax court found she had to pay a 20 percent “accuracy-related” penalty.
Barlett admitted to what she called “honest mistakes,” saying she was not familiar with the TurboTax program. She relied on it to catch any mistakes she made.
The court did not agree. A portion of the information she’d entered into the program was incorrect, so the mistakes were hers. The court said the program is only as good as the information entered into it.
The court found she did not have reasonable cause for any portion of the underpayment. She has to pay the tax, penalties and interest.
We believe the program works pretty well for simple returns when information is understood and entered correctly. However, on more complex returns, it is wise to consult an experienced professional such as a CPA firm.
Barlett represented herself in dealing with the IRS and arguing her case in court. That is not usually a good idea. Once again, using an experienced professional can save time, trouble and expense.
Our firm has met with some folks who prepared their own income tax returns on a software program, but had questions. I think most CPA firms do that.
The real problem is Congress. Our tax laws must be simplified, and soon. It seems now we cannot expect Congress to work on that until after the elections. That’s a shame.
Did you hear? “Dollars do better if they are accompanied by sense.” By Earl Riney.
• John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.