Tax Court backs IRS in home rental case


The Tax Court recently saw things the IRS’s way and gave tax preparation software a pass – bad news for the taxpayers in this case.


The court upheld the IRS’s disallowance of deductions for a home rented to Anita Langley’s mother at less than fair rental value and disallowance of a dependency exemption and education tax credits for the Langleys’ daughter because she had filed a joint return with her husband.

The court also upheld a 20 percent accuracy-related penalty assessed against the Langleys by the IRS. The accuracy-related penalty would not apply if the Langleys could show that they had acted with reasonable cause and in good faith in preparing their return.

The Langleys prepared their own tax return using TurboTax tax preparation software. The Langleys asserted that their use of the tax preparation software demonstrated their reasonableness and good-faith effort to comply with the tax law.

The court observed that tax preparation software is only as good as the information the taxpayer puts into it. The misuse of the software, even if unintentional or accidental, is no defense to the accuracy-related penalty.

“… we find it unlikely that TurboTax was responsible for the items giving rise to the petitioners’ deficiency,” the court stated. (Anita H. and Robert E. Langley, Jr. v. Commissioner, TC Memo 2013-22, Jan. 17, 2013)