She prepared her own return on Turbo Tax, reporting a total tax of $44,619. IRS determined the correct liability was $88,287 and the Tax Court agreed with IRS.
No facts were in dispute. She received $223,870 from the employer retirement plan when she retired. She only reported $119,400 as taxable, but it was all taxable. She underreported her pension income by over $100,000.
Because the understatement of her income tax for 2008 was more than $ 5,000 and more than 10 percent of the tax that should have been shown on her return, IRS and the Tax Court found she had to pay the 20 percent “accuracy-related” penalty.
Barlett admitted her income was not reported correctly and her taxable income was underreported.
She claimed the mistakes she made were “honest mistakes” because she was not familiar with the Turbo Tax Program. She relied on the Program to “catch” any mistakes she made.
The Tax Court did not agree. A portion of the information she entered into the Turbo Tax Program was incorrect, so mistakes were made by her, not by the Program. The Court said the Program is only as good as the information entered into the software program. “Simply put: garbage in, garbage out.”
The Court found she did not have reasonable cause for any portion of the underpayment. She has to pay the tax, penalties and interest.
We believe the Program works pretty well for simple returns where the information is understood and entered into the Program correctly. However, on more complex returns, it is wise to consult an experienced professional like a CPA firm.
Barlett represented herself in dealing with IRS and in arguing her case before the Tax Court. That is not usually a good idea. Once again, using an experienced professional CPA can save a lot of time, trouble and expense.
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