Part One of a Two-Part Series

It was just days before the tax deadline in April 2013. John Spottiswood prepared his joint return for himself and his wife and submitted it to TurboTax. Along with his return was an authorization to deduct from his checking account the balance of tax due, totaling $395,619.

Thinking his return had been successfully e-filed, he logged off and resumed his regular life.

That was not the end of the story, however.

What Happens After You E-File with TurboTax?

When you use an online program like TurboTax, you are submitting your return to them – and not directly to the U.S. Federal Treasury.

TurboTax has to, in turn, submit your return to the IRS, which they did in Spottiswood’s case.

However, the IRS rejected it.

Why? Because a dependent’s Social Security Number was input incorrectly.

Input errors are an unfortunate part of preparing returns.

However, qualified tax professionals such as Enrolled Agents (EAs) take responsibility for those errors and work to correct them. TurboTax takes no such responsibility.

Online Software Tax Return Preparation:  You’re On Your Own

TurboTax did send an email to Spottiswood notifying him that his return had been rejected – however, that was the only notice sent from TurboTax to Spottiswood. Spottiswood did not check the status of the return, nor did he notice that the balance due had not been withdrawn from his checking account.

In fact, Spottiswood did not become aware of the problem until he logged back into his TurboTax 2012 software.

With a clogged email inbox, it’s easy to miss a single notice like the one TurboTax sent to Spottiswood.

With a qualified EA, though, you can be sure you will receive multiple phone calls and emails that will continue until the problem is resolved – and not a year or two later.

Who’s to Blame? According to the Courts, not TurboTax

According to a statement Spottiswood made to the IRS, he wasn’t even aware there was a possibility that his return could be rejected.

“If I had realized that there was a chance of rejection I would have mailed my return,” said Spottiswood in the statement, “but e-filing seemed like an easier option and it was free with the software. Intuit may have informed me in the fine print that I needed to log back in to make sure that my return had not been rejected, but if so I did not read this fine print. Had I logged back in a few days later I would have realized that the return had been rejected.  But I did not log back in until 18 months later.”

That’s 18 months of late payment penalties, late filing penalties and interest accumulated on top of the nearly $400,000 tax debt.

This costly mistake could have been prevented by going to an EA or other qualified tax preparers who will ensure that your tax return is accepted by the IRS.

A $200,000 Mistake

Once Spottiswood was made aware of the issue, he refiled the return and paid the tax due… on January 7, 2015, nearly two years after the original due date. He paid the interest assessed by the IRS but fought the penalty.

Not including interest, the failure to file and failure to pay penalties on $395,619 of back taxes?

We are talking $170,117… a nearly $200,000 error.

So What Happened?

The Spottiswoods fought the matter and the case went to court.

In part two, we examine the case and the verdict as well as what it means to TurboTax users everywhere.

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Jeffrey Schneider, EA, CTRS, NTPI Fellow has the knowledge and expertise to help you reach a favorable outcome with the IRS. He is the head honcho at SFS Tax & Accounting Services as well as the Enrolled Agent and Certified Tax Resolution Specialist for SFS Tax Problem Solutions.
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Now What? I Got A Tax Notice From The IRS. Help! Defining and deconstructing the scary and confusing letters that land in your mailbox. Jeff defines and deconstructs the scary and confusing letters in a fashion that mixes attention to detail with humor and an intricate clarification of what is what in the world of the IRS.

The book is available in paperback and ebook on https://Amazon.com
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For more on SFS Tax Problem Solutions, visit http://sfstaxproblemsolutions.com/
For more on SFS Tax & Accounting Services, visit http://sfstaxacct.com/
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