On a more serious note, this is a good article on how the law has not kept pace with technology in tax preparation.
Mock and Shurtz: The TurboTax Crime Wave
Taxpayers deserve the same defense from IRS penalties as Tim Geithner.
By RODNEY P. MOCK And NANCY E. SHURTZ
This year more than three-fourths of all individual tax returns will be filed electronically, and a growing number will come from people who used tax-preparation software. As modern and efficient as this is, the law has not caught up. Taxpayers who employ an accountant or other preparer have some protection from daunting penalties if the IRS finds mistakes. Software users who prepare their returns without help have little or no protection.
The most famous software fiasco had a very atypical ending. During the confirmation hearings of Treasury Secretary Timothy Geithner three years ago, we learned that he failed to pay self-employment tax on income from the International Monetary Fund. Mr. Geithner partially blamed the oversight on the TurboTax software he had used, claiming it wasn't formatted "in a way that caught" his embarrassing mistake.
This excuse is now memorialized in tax lore as the "TurboTax defense." The IRS waived all penalties against Mr. Geithner—a waiver not customarily offered to ordinary taxpayers, who routinely face a 20% accuracy penalty (plus interest) on back taxes.
Mr. Geithner's episode notwithstanding, there's a growing issue here. Taxpayers who utilize a professional tax adviser such as a CPA or attorney can often avoid IRS penalties by alleging reliance on the tax adviser. (You're always responsible for the underlying tax itself and any interest on the amount.) But for someone who uses commercial software to prepare returns, no such defenses are generally available: The software isn't considered to be a "professional tax adviser." That's unfortunate, because growing numbers of Americans may end up with Mr. Geithner's the-software-did-it problem.
So far the U.S. Tax Court has nearly always rejected the TurboTax defense. Only two cases have offered taxpayers penalty relief for software reliance.
In Olsen v. Commissioner, a taxpayer failed to report income from his wife's beneficial interest in a trust. He blamed the fact that he was "unfamiliar with the [tax] form" produced by the tax software. The court ruled for him, calling the data transcription mistake an "isolated error."
In Thompson v. Commissioner, an aeronautical engineer claimed a deduction for flight lessons that advanced his skill level. The IRS originally disallowed the deduction because this new skill also qualified him for a new trade as a commercial pilot. But the tax court waived the penalties on appeal because the tax software was not designed to appropriately process the taxpayer's specific circumstances.
In response to such issues, many suppliers of tax software are now offering free assistance to customers. TurboTax offers advice via Internet chat or by telephone for its "Deluxe" and "Premier" customers. E-Smart Tax (produced by Liberty Tax) offers similar aid for its top-tier customers, and Jackson Hewitt offers face-to-face consultations for top-level subscribers in many outlets, including hundreds of Wal-Mart stores.
Software makers typically offer "accuracy guarantees" to customers, including reimbursement for interest and penalties due to errors that are "computational." But these policies don't cover "user error" in misapplying the software's analytical tools, or noncomputational software error, and in general the company's tax experts are released from liability. In other words, the primary responsibility for accurately preparing a return with such software resides squarely on the customer.
Given the dramatic changes in tax-preparation, common sense suggests that taxpayers deserve some relief from IRS penalties levied as a result of software error. It's time for the TurboTax defense to become a legitimate legal defense.
Oh, Geithner doesn't get away on this blog even though the Democrats let him get by in 09 during confirmation. In discussions with friends on Timmy Taxcheat they bring up his excuse it was a TurboTax problem. My answer is generally Bulls@#$! A multimillionaire with complicated tax issues doesn’t use TurboTax, he uses accountants. He says it was a self generated report, fine. Release the 1040 for that year. On the last page right next to his signature is the box for the Tax Preparer, i.e. accountant. If he used TurboTax it would say "Self Prepared". I know, I’ve used TurboTax for over fifteen years.
Ok Timmy, let's see if you are paying your "fair share'?
No comments:
Post a Comment