Robert Henderson decided to prepare his tax return himself rather than pay for professional assistance. But he made a mistake while preparing his return — and he wants Intuit, the maker of TurboTax, to pay for it.
As tax season proceeds, Henderson’s case is a timely reminder of the need to go over your financial information and tax returns extremely carefully before submitting them to the Internal Revenue Service (IRS) and state and local tax agencies.
If you make mistakes on your tax return, the IRS and other tax agencies bill you not only for underpayment of tax but also for accuracy-related penalties and interest — which can be stiff. (Disclosure: I’m a CPA and prepare tax returns for a living. I see this frequently.)
And as Henderson found out the hard way, tax software companies are not liable for your input errors — not even when they offer a “100% Accurate Calculation Guarantee,” as does Intuit with regard to TurboTax.
Henderson purchased TurboTax to prepare his and his wife’s 2014 tax returns. Once he input his financial information into TurboTax, he then used TurboTax’s “Complete Check” feature to review his return. Receiving an indication that “all was well,” Henderson then submitted the return electronically to the IRS.
Except all wasn’t well.
Two years later, Henderson received a notice from the IRS indicating that his returns were incorrect. Henderson had not properly reported his wages from his Form W-2 and omitted some 1099 (non-wage) income from his returns. According to the IRS, he owed $7,800 in underpaid taxes, penalties and interest.
Henderson assumed that Intuit’s “100% Accurate Calculation Guarantee” meant that Intuit would reimburse him for the IRS’s assessment:
This should be covered under the “100% Guarantee Plan” because of the following:
1. They are claiming the W-2 from Lana Henderson was reported under Robert Henderson (me). The EIN (Employee Identification Number) and social security number on the W-2 clearly indicates that Lana Henderson is the employee filing the taxes.
2. TurboTax software performed a check prior to filing indicating that “All was well”
3. TurboTax sent a notification that the IRS accepted our return.
4. The TurboTax Guarantee covers incorrect filings which is exactly what TurboTax did. They should have notified me that the EIN associated with Lana did not match mine.
According to the 100% Accurate Calculation Guarantee, “If you pay an IRS or state penalty or interest because of a TurboTax calculation error, [Intuit will] pay you the penalty and interest.”
But this guarantee only applies when the software incorrectly computes a tax liability because of a programming error. If the IRS or a state or local tax agency assesses penalties or interest because of errors made by the taxpayer when inputting data, then those amounts are not covered under the guarantee. And the IRS has up to three years from the date your return was due to assess any additional tax.
Intuit turned down Henderson’s request for reimbursement of his penalties and interest, pointing out that they were caused not by programming errors in TurboTax but by Henderson’s input errors. Henderson escalated his request to a vice president of Intuit, who replied:
The TurboTax accuracy guarantee covers situations where the program incorrectly computes tax liability. In your case, TurboTax correctly computed your tax liability based on information you entered. Additionally, TurboTax flagged your wages as a potential error and asked for verification. It’s a potential error because many people have multiple jobs where the income exceeds the social security withholding tax threshold.
Henderson then contacted our advocates to look into his case. (Executive contact information for Intuit is available on our website.)
Our advocates reached out to Intuit, who notified us that its vice president had sent the above response to Henderson. As the TurboTax “100% Accurate Calculation Guarantee” does not apply to his situation because it resulted from his input errors and not programming errors in TurboTax, he will have to pay the additional tax, penalties and interest or convince the IRS that he does not owe them. But we are filing his story in our “Case Dismissed” collection — together with a warning to our readers to review their tax situations with the utmost caution before filing their returns.