Using Tax Prep Software Can’t Shield You from Penalties, Tax Court Rules

The United States Tax Court recently ruled that incorrect use of tax prep software does not alleviate the user from filing a correct return.

In a summary opinion dated November 9, 2006, the sole stockholder of an S-Corp was found negligent when he filed an incorrect return. The stockholder claimed that his incorrect return was the fault of the tax prep software he used; the court did not agree:

[The taxpayer] blames defects in his income tax return on software that he claims to have used in preparing the form 1040 return. Such a program is only an aid for preparation of a return and depends on careful entry of accurate information, which petitioner manifestly failed to do.

This taxpayer claimed to fully capable of preparing a correct return:

Petitioner admits that he has the education to prepare and review his income tax return, and that he had an opportunity to review his return prior to filing it. Accordingly, petitioner’s use of software in preparing his return does not constitute reasonable cause for the errors in his return or for the deficiency in this case.

Maybe he would have been better off not claiming to be so well educated! However, most people who use tax prep software assume they have the skills to use it correctly. It just makes sense, doesn't it? Usually, we don't try to do things that seem too complex to do. Ever try to do brain surgery on yourself? Probably not.

Be careful about preparing your own return. If you are a business owner, I don’t recommend it, unless tax preparation is your business. The rules are too complex and crazy, especially for corporations. Let a trained professional take care of it for you. It’s just not worth the headache, and your time is better spent earning income for the business.