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'Google' is not the tax law.

September 29, 2009

While Google seems to be taking over everything from personal calendars to cell-phone operating systems, it still has its limits, as a Minnesota man learned in Tax Court yesterday. The taxpayer, a Mr. Woodard, took $150,000 in IRA distributions. He loaned the proceeds out without rolling them back into another IRA within 60 days. The IRS noticed that he didn't report the income on his 1040 after the IRA custodian issued him 1099-R forms, and tax assessments soon followed.

Mr. Woodard used the "I found it on the Internet" argument. It went badly:

Mr. Woodard explained that he thought he had a self-directed IRA and that he intended to reinvest the $100,000 in private mortgages. He searched the Internet for information about self-directed IRAs, and he followed advice he found on line.

...

Mr. Woodard makes no argument relative to his having reasonable cause and acting in good faith in not reporting income from his $50,000 conversion from a traditional IRA to a Roth IRA. Accordingly, we sustain the accuracy-related penalty as to the portion of the underpayment attributable to this unreported income.

Mr. Woodard asks the Court to accept that his research on the Internet using the Google search engine provided him with reasonable cause for the position he took when filing his 2004 Federal income tax return; to wit, not reporting IRA distributions he commingled with other funds by depositing the distributions into his checking account because he later invested those funds in private mortgages. Mr. Woodard has not provided the Court with any information about the sources of the information he found on the Internet.

It's the modern equivalent of a taxpayer in the old days saying he relied on something in the library card catalog.

Mr. Woodard claims that he relied on information found on unspecified Web sites written by unidentified individuals or organizations. From the record, it is not clear that he questioned the provenance or accuracy of the information he found through the Google search engine. Without knowing the sources of the information, it is impossible for the Court to determine that those sources were competent to provide tax advice. Accordingly, we cannot conclude that Mr. Woodard exercised ordinary business care and prudence in selecting and relying upon the information he found on line. As a result, we find that he has not shown reasonable cause for failing to report the distributions from his IRA on the 2004 Federal income tax return. Not having found reasonable cause, we need not consider whether Mr. Woodard acted in good faith.

Result: taxes and penalties.

The Moral: Google is wonderful, but it's no tax pro.

Cite: Woodard, T.C. Summ. Op. 2009-150

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