Can I Be Held Liable for Tax Errors Caused by Tax Software Like TurboTax?

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By: Bill Henry
PublishedAug 24, 2016
2 minute read

Tax preparation software can be a highly useful tool when it comes to preparing your tax returns for the state and federal government. These programs can perform required calculations for you, and can call your attention to any missing items or problems with your data entries. These programs help to eliminate common tax preparation mistakes that many people make, such as:

  • Mathematical errors and calculation mistakes;
  • Failing to address all required areas of the form;
  • Submitting an incomplete tax form; and
  • Entering totals into inappropriate boxes.

Anyone of these mistakes could cause problems with your tax return, such as delayed processing or an audit by the IRS. But what if you were to make a larger mistake on your tax preparation – a mistake that the tax software is unable to detect? For instance, what happens if you mistakenly enter the wrong information to begin with, or add a deduction you are not eligible for? Who is held liable for tax errors caused by tax software programs? The answer to these questions depends on the circumstances surrounding the alleged error in your tax return.

Errors Attributable To The Tax Preparation Software Itself

Certain tax preparation software products, such as TurboTax, offer protections such as payment of penalties and interest for mistakes that are found to be due to a problem with the software product itself as part of their terms of use. These protections are only available in limited circumstances. Additionally, some tax preparation softwares also offer users audit support in the event that their tax returns are found by the IRS to be deficient.

In tax law, there is a defense referred to as the “TurboTax Defense.” The TurboTax Defense, which is only applicable in limited circumstances and has limited success in the Tax Court, works as follows: if an equation used in the software program is incorrect, or there is some other flaw in the tax preparation software, and thus using the tax preparation software produces an error in your tax return, the cause of the mistake is based on the tax preparation software, and not on something you did while using the software. In this situation, it may be possible to hold the software provider responsible for the liabilities you might face from the IRS.

Errors Attributable to You

On the other hand, if you as the user of the tax preparation software were to make an entry mistake, such as not reporting a source of income or taking deductions that you are not eligible for, this type of mistake would be your fault. In such a case, the tax preparation software provider is unlikely to cover any liability resulting from this kind of mistake.

While tax preparation software is very convenient and easy to use, as a user of tax preparation software, you have a duty to make sure that your tax return is correct. You need to check your entries for correctness, and then before you submit your return, you should check it once again for accuracy. You should double check the math yourself, even though the software is supposed to do it for you.

When you are facing a facing a tax deficiency, penalties or interest on your tax filings, and you believe that the problem lies with the tax preparation software that you used to prepare your taxes, you should consult with a Denver tax lawyer at the office of Robinson & Henry, P.C. We have worked with a number of clients to deal with their tax law issues, and we can help you as well. Please reach out to our office by calling 303-688-0944 today.

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