The Turbo Tax Defense is back in the news. Sort of. The Tax Court has reversed the accuracy penalty in the case of Kurt C Olson v, Commissioner (TC Summary 2011-131).
Mr. Olson used Turbo Tax to prepare his 2007 tax return. When the IRS matched the numbers reported on the Olson’s return and the K-1 they received, there was a discrepancy which increased the tax by $9297. The IRS also added an accuracy related penalty of $1859. Mr. Olson fought that penalty on the grounds that it was a data entry mistake and not an attempt to play less tax.
There have been several other Tax Court cases blaming tax software for preparation errors and they weren’t won by the taxpayer. What makes this one different is that Mr. Olson didn’t blame Turbo Tax. In fact, he took every step to prepare an accurate return but made a mistake. A long time Turbo Tax user, he knew he was faced with a special situation. He upgraded the software package, followed the interview, and listed all the K-1 info (EIN and Name). His only errors were incorrectly entering the interest received from the K-1 into the software and not catching it when he reviewed the return. In this case, it’s really not a Turbo Tax Defense as much as an “I entered the wrong number” defense. That kind of human error doesn’t deserve a huge penalty.
It doesn’t matter if you use a tax professional or tax software you are responsible for what is on your return. You need to review the forms before you sign. If you have any questions, ask the preparer or the software help line. You can’t hope all is okay and then blame the tax preparer or software when there is an error. Mr. Olson did his best to prepare an accurate return and didn’t deserve a 20% penalty for a data entry mistake he admitted was his and the Tax Court agreed.