FULL DISCLOSURE: What follows is a cautionary tale, one whose message is intended to scare you into hiring my firm and paying us exorbitant sums of money to serve as your tax advisors.
Brenda Bartlett retired from her gig as a customer communications technician at the age of 50 in 2008. Pinching pennies, Bartlett eschewed professional help in preparing her tax return, opting instead to complete her 2008 tax return using Turbo Tax.
Making up the majority of Bartlett’s income in 2008 was a pension distribution totaling $223,870. Bartlett entered the income into Turbo Tax, but for whatever reason, the program determined the taxable amount of the distribution to be only $119,400.
The IRS disagreed with the reporting, concluding that the entire $223,870 distribution was taxable upon distribution. As a result, the Service assessed a tax deficiency of $44,000 and an understatement penalty of $8,700.
In her defense, Bartlett adhered to the old adage, “a good carpenter always blames his tools.”
Petitioner admits that her income was misreported and that her taxable income was underreported. She maintains that she reported all of her income and that the mistakes made were “honest mistakes” resulting from her lack of familiarity with the TurboTax program. Petitioner claims she used the audit portion of the TurboTax program, believing the audit portion would catch any mistakes she otherwise might make. She claims she relied on TurboTax to properly prepare her 2008 income tax return and thus she was not negligent because there was reasonable cause for the underpayment.
The Tax Court was not sympathetic, holding Bartlett liable for the tax deficiency and the related penalty:
It is apparent that a portion of the information petitioner entered into the TurboTax program was incorrect; hence the mistakes made (which resulted in the underpayment) were made by petitioner, not TurboTax. TurboTax is only as good as the information entered into its software program.Simply put: garbage in, garbage out.
The lesson? Hire a tax professional, preferably me.