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."
