Consider this situation. You purchase one or more of the tax software programs to complete your personal form 1040. You file your return and a few months later get a letter from the IRS. It turns out you incorrectly used the tax software and made fundamental errors. The Tax Courts have ruled that ignorance of the law or the proper use of tax preparation software is not a defense against penalties. The following is an example of a real case study from exactly that situation.

Taxpayers’ prepared and filed joint returns, Form 1040, Using Tax preparation software for a period of years. The wife reported expenses for her real estate business as well as unrelated losses on a Schedule C. IRS Adjustments to this schedule resulted in most of taxpayers’ income tax deficiencies and the resulting Section 6662 accuracy-related penalties. The wife argued to the court that they consistently filled out their tax returns using Tax software and she consistently confused capital gains and losses with ordinary income and expenses. The Court rejected the taxpayers’ misuse of Tax software, even if unintentional or accidental, as a defense to the penalties. The Tax Court noted that “tax preparation software is only as good as the information one inputs into it.” The Taxpayers’ may have avoided the penalty by using a tax professional. They could then have established reasonable cause by showing that they acted in good faith by following a tax professionals advice. Aileen Vat Muk Lain, TC Memo 2010-82
(Tax Ct.).

Often the few dollars saved by filing your own personal income tax returns can hurt you in the long run. We offer personal tax return preparation and filing services. Contact us today for further information at (716)633-0367.

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