Have you ever heard someone say: “Why would I pay someone to do my taxes, I can do it” Or “TurboTax tells me all the rules so I can file my return correctly for a lot cheaper than a professional.” In fact I even said it myself once. That statement cost me over $25,000 for not understanding an IRS rule. That sure took a big bite out of my saving money with online or boxed software for a long, long time.
So after this one little mistake, costly but little, I spent the next 5 years studying Tax Law and then the last 14 years trying to help clients understanding the Tax Law and file tax returns as correctly as possible.
Dasent v. Commissioner
Filed December 13, 2018, the UNITED STATES TAX COURT filed T.C. Memo. 2018-202 discussed a ruling on a case very similar to many cases I see in my office each year—taxpayers being audited by the IRS. The taxpayers in the Dasent case used online or boxed software to “help” them file their return originally. The Tax Court found for the IRS and commented specifically about TurboTax as a tax preparation tool. The relevant comment is towards the end of the decision and I’m including here for your reference: https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=11842
…used TurboTax to prepare the return. This Court has found that “[t]ax preparation software is only as good as the information one inputs into it.” See Bunney v. Commissioner, 114 T.C. 259, 267 (2000). The software does not constitute professional advice for which this Court can rely in a reasonable cause/good faith analysis. Accordingly, we cannot find in the record either evidence of a cognizable effort to assess their proper tax liability or reasonable cause for the error.
You gotta love the court’s word choice: ‘cognizable effort.’ The interesting point here is that the use of tax prep software such as TurboTax does not, in the Court’s opinion, represent a reasonable cause/good faith effort to get professional advice—the conclusion being that using TurboTax or any online or box software is no substitute for professional advice and if you use it you are taking on the entire burden of being right contrary to any advertising that the manufacturer may put out there about how good their software is.
Tax Cuts and Jobs Act
With the new Tax Cuts and Jobs Act (TCJA) and it’s major changes in the Tax Law coupled with the new 1040 form will make this years Tax returns harder. And it will even more important for Taxpayers to get reliable professional advice before and during the filing of their Tax Return. If you have any questions or need a knowledgeable professional to help you do your taxes at a reasonable price, give us a call at (509) 543-7600.