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Court: DIY Tax Preparation Users Can't Blame the Software for Mistakes.

Court: DIY Tax Preparation Users Can't Blame the Software for Mistakes.

The Tax Court has made an interesting ruling about going at it alone with do-it-yourself (DIY) tax software. In a recently released memo, Bulakites v. Commissioner, T.C. Memo 2017-79  defendant Barry Bulakites explained that instead of using a professional accountant, he used TurboTax to calculate his 2011 and 2012 returns. He blamed his tax software for the errors in his returns, and he made many of them. 

The trouble started in 2009 when he and his wife became legally separated. Part of the settlement was $2,000 per month in spousal support until the sale of their marital residence. At some point, Bulakites orally increased the spousal amount to $5,000 per month. And this is when the trouble started. 

In 2014, Bulakites received an IRS notice of deficiency for the 2011 and 2012 tax years. The IRS and Tax Court ruled that he had made a few mistakes that the software allowed him to make. The taxpayer was allowed to deduct the $2,000–per-month alimony, but the additional $3,000 per month was disallowed because it was not part of the divorce agreement. The Tax Court stated that “the law does not allow him to deduct those excess amounts as alimony.” This was just one of many errors that were allowed by the tax software but in fact ran contrary to the tax code. 

In its response to Bulakites, the Tax Court stated that “tax preparation software is only as good as the information one inputs into it.” The burden shifted to Bulakites to show that the mistakes made were reasonable and in good faith. The “tax software made me do it” defense does not pass muster.

DIY tax software is fine for those who are new to the workforce or have very simple returns. But just because the software allows you to make the calculation does not mean it should. Professional CPAs and tax accountants are trained to help taxpayers pay the minimum required by law. The Washington Examiner stated that the tax code is now 74,608 pages long—187 times longer than it was a decade ago, according to Wolters Kluwers. It is not hard to understand why taxpayers can make such expensive mistakes. Many of these programs follow flow charts and A/B answers. If you don't understand the question being asked, it is hard to pick the right answer. But according to the Tax Court, blaming the DIY software isn't an argument at all.

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Lee Reams II

Lee Reams II

CEO

I am a tax and business news junkie who has spent the last 20 years developing and executing "best in class" word-of-mouth marketing campaigns for tax and accounting professionals. With TaxBuzz and CountingWorks we have taken that same commitment to quality content directly to the consumer. Keeping you up-to-date with the latest tax law changes, business growth tips and planning strategies to help you reach your best financial outcome.

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