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WHY COMPUTERS CAN'T REPLACE PROFESSIONALS

February 16, 2006

Marylanders Douglas and Nancy Maxfield apparently took the "life is but a tax deduction" approach to their 2000 and 2001 tax returns. They reported two schedule C businesses on their returns, "Galaxy 6" and "Common Sense Consultants." They proceeded to go hog wild running personal expenses through the "businesses," including his clothes, meals, household utility costs, travel, and, it appears, a boat.

The taxpayer had two problems with the case. First, it wasn't entirely clear that there was any business at all. Second, most of these expenses were non-deductible personal expenses even if a business was assumed to exist in the first place.

The Tax Court disallowed the deductions and considered whether the taxpayers should be hit with the 20% negligence penalty. The taxpayers, who prepared their own return, said it was the fault of Turbotax, their return prep software. Invoking the ancient legal principle of stare detritus (Garbage In, Garbage Out), the judge added the penalties to their tax bill.

They should have taken a lesson from yesterday's Melnik case, where the use of a lawyer got the taxpayers out from a fact pattern that wasn't much better.

The moral? Until tax professionals become robots (no, we aren't already, thank you), they are better blame absorbers than computers.

Link: Douglas and Nancy Maxfield, T.C. Summary Opinion 2006-27

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