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‘Geithner defense’ rejected by Tax Court

April 24, 2010


Gavel3 Sorry, people. It doesn't matter that other people used tax software and ended up filing incorrect returns, even if one of them is the Secretary of the United States Treasury.

It's still your, other taxpayers' and Treasury Secretary Timothy Geithner's ultimate responsibility to properly calculate and file your taxes.

When you don't, regardless of who you are and which tax filing method you used, the IRS is well within its rights to demand that you pay your accurate tax bill and any associated penalties that errors might have caused.

The TurboTax excuse: You remember the Geithner case.

During his Senate confirmation hearings last year, it was discovered that the man who wanted to be in charge of the United States' money had filed some incorrect returns.

Geithner initially appeared to blame the TurboTax software he used for the errors. Eventually, though, he apologized for the filing mistakes and acknowledged that he as a taxpayer bears full responsibility for getting his taxes right.

And that is exactly what U.S. Tax Court Memo 2010-82, issued April 19, told Aileen Yat Muk Lam and Shaoping Chang.

The pair had asked the Tax Court for a redetermination of taxes the IRS said they owed. In 2004 and 2005, Lam operated a real estate business and filed tax returns in connection with that income.

The IRS, however, found that the couple was liable for $5,069 for 2004 and $4,339 for 2005. Plus, the IRS assessed accuracy-related penalties that amounted to $1,882 for the two tax years.

Eventually, many of the facts of the returns in question were stipulated by both parties. So what was left for the Tax Court to decide was whether Lam and Chang had to pay the penalties.

The 'Geithner defense': In arguing that the penalties should be waived, the Tax Court memo noted that "Ms. Lam did not attempt to show a reasonable cause for petitioners' underpayment of taxes. Instead, she analogized her situation to that of the Secretary of the Treasury, Timothy Geithner."

That's right, she went before the Tax Court and cited a Wikipedia article on Geithner's tax-filing tax errors that came out during his confirmation hearing.

Lam, according to the Tax Court memo, essentially argued that, like Geithner, she used TurboTax and also ended up with mistakes on her taxes.

But, said the Court, it was not a flaw in the TurboTax software which caused Lam's and Chang's underpaid taxes.

The Court pointed to a prior case, Bunney v. Commissioner, in which it had noted that  "Tax preparation software is only as good as the information one inputs into it." Since Lam and Chang did not show "that any of the conceded issues were anything but the result of [their] own negligence or disregard of regulations," said the memo, they are liable for the penalties.

And although the Court acknowledged that in some situations the advice of a tax preparer could be taken into account when deciding whether to assess penalties, that was not the case with the Lam-Chang filing.

"Ms. Lam did not rely on a professional preparer, but used TurboTax and stipulated to preparing her own returns without a tax professional," said T.C. Memo 2010-82. "Accordingly, the Court sustains respondent's (the IRS) determination that petitioners are liable for the section 6662(a) accuracy related penalties for their 2004 and 2005 tax years."

To make sure the couple got it, the memo closes with:

The Court has considered all of petitioners' contentions, arguments, requests, and statements. To the extent not discussed herein, we conclude that they are meritless, moot, or irrelevant.

Such irrelevance in this case cost Lam and Chang $1,882.

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It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

Comments
  • When I first read this article, I thought you were going to argue that the taxpayers should have gotten off.
    But, like you eventually showed, the facts of the case showed that the petitioners PROBABLY made their error intentionally and even if not, it was CLEARLY wrong what they were trying to do.
    I understand people make errors with their taxes but this was not some small error

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