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A taxpayer who blamed TurboTax for failing to pick up an error in calculation has defeated the Internal Revenue Service in tax court. Kurt Olsen, a patent attorney in the Department of Energy, won against the IRS in its attempt to assess an accuracy-related penalty for understating the amount of taxes owed by $9,297. The tax court cited unique facts in the case in ruling that Olsen and his wife were not liable for the $1,859 penalty for tax year 2007. The ruling was a summary opinion, which cannot be treated as a precedent in other cases.

Both sides agreed the Olsens were liable for the unpaid tax. However, the court agreed that Olsen, who lives in California, had done all he could reasonably be expected to do in preparing the 2007 tax return.

The problem arose after Olsen's wife received interest income from a trust created by her mother's estate. As a beneficiary, she received a K-1 for reporting that income. Because Olsen, who had previously used TurboTax, had not dealt with a K-1 before, he purchased a more advanced version. Responding to the software's interview process, he correctly entered the name and tax ID of the trust. However, he mistranscribed the rest of the information which prevented the amount of interest income from being correctly reported on Schedule E. The verification feature of the software did not catch the error.

The court ruling did not identify the tax software. However, articles in the Wall Street Journal and Forbes.com said it was Intuit's TurboTax. The Journal also said that the court had approved the so-called "Geithner Defense." The name stems from Secretary of the Treasury Timothy Geithner who, during his 2009 confirmation hearings, blamed tax software for his underpayment of payroll taxes. Geithner was not involved in a lawsuit. Intuit had no comment on the ruling. The Journal article quoted a CPA who predicted an increase in this type of defense.

The court found that Olsen's error was isolated and that he had acted reasonably in upgrading his software. It also noted that Olsen holds a government security clearance and that that provided motivation for him to correctly report his taxes.

In an article appearing on Forbes.com, contributor Peter J. O'Reilly said he believes that this was the first time the "Geithner Defense" had worked. In reacting to a comment on the Forbes blog, O'Reilly noted, "The funny thing is, which you will appreciate, is that I bet he would have done a better job if he had read the instructions and done the return by hand."

Bob Scott
Bob Scott has provided information to the tax and accounting community since 1991, first as technology editor of Accounting Today, and from 1997 through 2009 as editor of its sister publication, Accounting Technology. He is known throughout the industry for his depth of knowledge and for his high journalistic standards.  Scott has made frequent appearances as a speaker, moderator and panelist and events serving tax and accounting professionals. He  has a strong background in computer journalism as an editor with two former trade publications, Computer+Software News and MIS Week and spent several years with weekly and daily newspapers in Morris County New Jersey prior to that.  A graduate of Indiana University with a degree in journalism, Bob is a native of Madison, Ind
Last modified on Sunday, 02 June 2013
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