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'TurboTax defense' not golden for Au

November 11, 2010

Gold is "Au" in the periodic tale of elements. Unfortunately for a couple named Au, a golden name doesn't buy success in the Tax Court.

According to a Tax Court opinion yesterday, Phu M. and Yvonne D. Au claimed a net loss from gambling on their 2006 tax return. Unfortunately for them, the tax law doesn't allow you to deduct net gambling losses; gambling losses are deductible only to the extent there are gambling winnings to offset.

The couple fell back on the Geithner defense of blaming the software (in this case, H&R Block's "TaxCut," rather than the Secretary of the Treasury's favored Turbotax). From the Tax Court opinion:

Petitioners contend that they followed the instructions on the tax preparation software that they used in preparing their 2006 tax return, asserting that the software was "approved by the IRS". They indicate that they were unaware of the provisions of the Code and that they did not consult any Internal Revenue Service (IRS) publications or professional tax advisers before claiming deductions equaling almost half of their reported income in 2006.

That failed to satisfy the court:

The software instructions are not in the record, so we cannot determine how the error occurred. We doubt that the instructions, if correctly followed, permitted a result contrary to the express language of the Code. Petitioners may have acted in good faith but made a mistake. In the absence of evidence of a mistake in the instructions or a more thorough effort by petitioners to determine their correct tax liability, we cannot conclude that they have shown reasonable cause for the underpayment of tax on their 2006 return.

With no showing of reasonable cause, the court upheld the IRS assessment of a 20% "accuracy-related" penalty.

The Moral? Unless you are bucking for a cabinet position, don't bother to blame the software.

Cite: Au, T.C. Memo. 2010-247

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Comments

Don't blame the software!

Taxpayer is ultimately responsible for the filed return.

Hmm, whom should I trust, the software or a professional tax preparer?

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