Turbotax Is Miscalculating Tax Returns

TurboTax–the leading do-it-yourself tax software estimated to be used by 40 million taxpayers in 2010–is miscalculating tax returns:

A flaw in the most recent version of TurboTax, the nation’s most popular tax-preparation software, may have caused thousands of retired federal employees to overstate their medical deductions and unwittingly underpay the Internal Revenue Service, according to federal officials.

Overstating your deductions–knowingly or unknowingly–can lead to large penalties and interest since it could take years before the IRS contacts the taxpayer alerting them of an adjustment.

Officials for Intuit, the Mountain View, Calif., company that produces the program, were alerted to the problem last week, after a retired federal worker from Virginia noticed that TurboTax had automatically double-counted his medical insurance premiums as deductions.

When questioned about the problem by a reporter last week, Intuit said it had begun working with the I.R.S. to revise its computer-prompted instructions on TurboTax and prevent such errors in the future.

The program has nonetheless been troubled by occasional glitches and security breeches, notably in 2007, when so many last-minute filers overwhelmed the TurboTax servers that many returns failed to make it to the I.R.S. by the filing deadline.

Both I.R.S. and Intuit officials were scrambling to gauge the scope of the problem involving the federal retirees, but said only a limited number of returns appeared to be involved.

As stated in a previous post here, there are many risks associated with preparing ones own taxes; particularly the prospect of miscalculations due to a failure to apply updates which are released frequently throughout the tax season.  This is not the first time TurboTax has had a calculation error in it’s software, and it won’t be the last. What is disturbing is the amount of persistence the discovering taxpayer had to exert for Intuit & the IRS to acknowledge and correct the problem:

The man who reported the problem, Charlie Freret of Chantilly, Va., stumbled across the error while using a free version of TurboTax to e-file a tax return he had already prepared on paper. Mr. Freret, who retired as a lawyer in the Department of Veterans’ Affairs in 2004, said he had hoped that e-filing would allow him to get his refund more quickly. But the tax return calculated by TurboTax promised him a refund $600 larger than he was entitled to because it automatically added his medical insurance premiums to his deductions — after the computer-generated prompt had instructed him to enter his health care expenses manually.

Mr. Freret reported the problem to Intuit officials and, when the company acknowledged the error but did not issue a broad warning about how to avoid it, decided to report it to the I.R.S. and the Treasury Department. But auditors at the Treasury Inspector General for Tax Administration were unable to duplicate the error when they tested versions of the software, so Mr. Freret contacted members of the news media, including The New York Times.

So it was not until Mr. Freret contacted the media that corrective action was taken by either Intuit or the IRS! Something is not right here.  The IRS & Intuit contends that this calculation error is limited to a small subsection of federal employees, however, judging from the “scrambling” going on, and launched investigations, I wouldn’t be so sure:

J. Russell George, the Treasury’s inspector general for tax administration, said his office was planning to begin a thorough review of TurboTax and similar software, which has become far more widely used than when last audited in 2005.

“This is especially troubling given the fiscal constraints that the nation finds itself in because this problem could allow people to pay less money than they owe,” Mr. George said. “It is truly incumbent upon us to let taxpayers have confidence that the software they use to prepare their returns will be accurate.”

How is it that the last time that the nations largest tax program was audited was 5 years ago?!  That doesn’t seem right.  Bill Singer of Stark & Stark law firm was recently interviewed by Forbes and had this to say:

…what I would say is that if there’s a winner in this mess and, you know, keep in mind that I think the tax code is something like 70,000 pages at this point, I think the winner is clearly TurboTax. I don’t know whether long term that’s a wonderful development because I suspect a lot of folks are going to make mistakes in doing their own taxes. But clearly there’s a trend in everything in life today toward going online and using a computer. And I don’t think that that necessarily bodes well for H&R Block or Jackson Hewitt. So that’s another issue.

If you would like a free review of your self-prepared tax return (TurboTax or other brands), contact us today. R&G Brenner will ascertain if your calculations are correct and check for deductions that the software missed and you deserve.  If your tax return was calculated incorrectly, contact the company and inquire how they intend to compensate you.  Most reputable companies will reimburse any potential penalties assessed due to a calculation error on their part.

Sources: NY Times & Forbes

  • Stuart Weiss

    This is not the first time I’ve heard of calculation errors by Turbo Tax. A few years ago I was preparing an amendment for a tax payer and realized Turbo Tax had miscalculated the amount of tax due by $1500.

  • Tom

    A simple question: Will Turbo Tax (TT) pay any deficiencies to IRS if the mistake was honestly made using their product?

    I have used their product, and there is no mention or check about the potential double deduction use. Fortunately, I’m not caught up in this issue. Were I was I’m disabled, my wife is retired Fed.; using an annual figure of $400 for the error, that’s $1,200 I don’t have.

    TT has the ‘Audit Protector’, ‘Double Checker’ etc to find such mistakes. Why should anyone using their product in good faith have to back pay IRS any amounts and penalties that were a result of TT’s programming?

    TT has been ‘blessed’ by the IRS, effectively creating a warranty or guarantee that TT is error free. Either forgive these mistakes, hold TT responsible, letting Retirees off the financial hook, and/or remove TT from the pool of IRS accepted software.

  • R&G Brenner

    According to TurboTax’s VP, they will only cover Penalties incurred due to their program error. If you are asking if they will pay your additonal taxes due resulting from a program error, I would have to say no, they will not.

  • Ken Day

    I have found another hole in TT. We receive pensions, SSA and distributions from our IRA’s. Our federal taxes are paid entirely from our IRA distributions, and the investment group reports Federal taxes paid on the 1099’s. Because our distributions vary in value from month to month, and hence our federal with holdings vary the same, TT makes no provision whatsoever to introduce a tax payment schedule for the 4 quarters of the year to show with holding amounts. I cannot report the with holdings as estimated tax payments as TT adds the estimates to the with holdings shown on the 1099’s and doubles our taxes paid during the year. I have yet to find a solution to this problem and last year my return was held up in IRS review, I believe for this very same problem. Someone should find a way to get this situation fixed as I have exhausted every means I can find to discuss this problem with TT personnel, all attempts to no avail. My only recourse at this time is to request a refund from TT and file my taxes manually. Regards, to all, Ken Day

  • manager

    It sounds like you should visit a tax professional. R&G Brenner will do a Free Review of your last 3 years taxes and verify the accuracy of the returns. We can help you rectify the situation by filing an amended return, or if you have an amended return to make changes already prepared we can review that as well. Let us know if we could be of any assistance.

  • Gary Ballard

    On my last 3 years TT has not shown my retirement income as taxable income. I had this checked by a preparer and they figure I owe about 13,000 in over refund payments. This is an error that TT should have caught during the filling out of the form. We were not aware of this until we had this audit done by our new preparer. What are the chance TT will pay any penalties.

  • manager

    Thanks for the comment Gary. They say that they will if you can prove it was their error; however we have no direct experience with this so I cannot say for sure. Please let us know the outcome once you have tried to get them to reimburse you for that. I am really curious to know.

  • Lou

    I just got a letter from the state of West Virginia saying that my $1500 refund is now $750 owed back to the state. The error? TurboTax somehow took all of our W-2 info (how much we already paid the state), added it up correctly, and then randomly threw in a $6000 figure (which was lots more) into the main form for total state taxes prepaid.

    I don’t think I’ll be penalized thankfully, but it’s a huge bummer thinking that I have a big pay day coming, and instead have a huge tax bill to pony up. Their satisfaction guarantee won’t compensate me for the element of surprise for the error unfortunately. I know the tax code can get complicated, but I’m wondering if anyone else who used TT for WVa is getting the same error since it was such an easy one to find.

  • Charles

    We just received a nastygram from the IRS regarding our tax year 2009 return. It appear that TT double-counted our mortgage interest, which resulted in a larger refund. Apparently, we owe additional taxes, interest and penalties. A quick Google search indicates that we may not be the only ones affected. There also appear to be additional discrepancies between what we entered and the numbers submitted electronically through TT. We have requested a complete copy of our return from the IRS, and won’t know for sure until we receive the information from the IRS. Any suggestions?

  • manager

    Well, that is no surprise considering the other issues that have arisen from using self service tax programs. The first thing you should do is contact TT customer service to let them know what happened and request a copy of the return submitted. The next step may be an amended return because though the IRS are the only ones who have contacted you thus far the issue may have also carried over to your State tax return if one was required.

    If you need assistance in amending the return we have Tax Consultants that can help if you call 1-888-APRIL-15.

  • Lesley

    this is very intersting. Charles, whatever happened to you? We got the same letter from the IRS for a 2009 return and Turbo Tax doubled the interest. I filed a formal complaint and Turbo Tax sent me a letter stating that after their research the doubling was no fault of their own (incorrect!) so they are not helping me with the $2300 I had to pay the IRS due to their error. After 1 1/2 hours on the phone with them today I was told the gentleman “Roger B” who made the decision made it and it is final, there is no one at TurboTax I can go to to further my complaint or get a resolution. I am so frustrated and upset at this point, wondering if legal action would help, especially after seeing everyone elses stories here. Any advice appreciated!

  • Dear Lesley,

    Is the $2300 you had to pay your tax liability you would have paid had your return been prepared correctly? Or does that include Penalties and or interest? If you want, R&G Brenner can review your last 3 years tax returns for free of charge to see if there are any other miscalculations that may come back to bite you.

  • Taxed

    Used Turbo Tax Deluxe to do 2012 returns, but could not get the state taxes right. Kept inserting the wrong school district for us,which resulted in us owing $400 to a county we neither lived or worked in in our lives. Switched to forms method to correct the problem, but it would not allow me to change to correct county. I even tried to delete the form, but that didn’t work either. Ended up filing federal, and using the state free forms for the state return. Spent more time than doing by hand not to mention the frustration. How many people have filed without noticing the error?

  • Romy

    I have been using Turbo Tax deluxe for 10 years no problem. Until we both husband and wife retired in 2011. Our Tax 2012 was audited by IRS. Turbo tax miscalculate our income.
    I reload and install freshTurbo for 2012. Did the same thing. So, I consult a CPA told me Turbo tax did bad error calculating our income. These are SSS and private Pension.
    Now I owe 3000 dollars the IRS plus interest. Next year I wont be using Turbo Tax anymore I will get accountant to do my Tax.

  • Romy

    Tax Im one of them using Turbo Tax Deluxe 2012. Turbo Tax 2012 miscalculate our income.
    I encourage people not to use Turbo Tax if you retired person.

  • Dear Romy, we are sorry to hear of your troubles…unfortunately, we’ve heard your type of story a number of times. If you’d like any assistance for past or present tax returns, please contact R&G Brenner directly at 888-APRIL-15. Thank You.