Saturday, January 6, 2007


The first of the tax-season ads have appeared!


The tax-software ad no longer says that anyone, even a caveman – no, wait, that is a different commercial - even a "math impaired" or an “unorganized” individual can prepare his or her own income tax return by simply using their software package. Instead it says that if you buy their software you do not need a professional tax preparer.

Like the previous ad, this is pure bull!

No tax preparation software is a substitute for knowledge of the tax code. And no tax preparation software is a substitute for the services of a trained tax professional.

As with any software program the rule is "garbage in - garbage out". If you don't know how to enter the information, or what information to enter, you will not get the best, or even the correct, answer.

When the IRS comes after you for preparing an erroneous tax return you can’t blame it on the software. The following is from my THURSDAY. NOVEMBER 16, 2006 posting, located at my “old” url address:

“For the second time this year the US Tax Court had rejected the "Turbo-Tax Defense" when a taxpayer attempted to blame tax preparation software for a negligent tax return.

The defendent blamed errors on his income tax return on software that he used to prepare his 1040. The taxpayer understated his taxable income by more than $50,000 on his 2002 return. The court said the blame belonged to the taxpayer's negligence, which included failure to keep adequate books and records or substantiate line items properly.

According to the court's decision, ‘Such a program is only an aid for preparation of a return and depends on careful entry of accurate information, which petitioner manifestly failed to do. Petitioner admits that he has the education to prepare and review his income tax return. ... Accordingly, petitioner’s use of software in preparing his return does not constitute reasonable cause for the errors in his return.’”

As a professional tax preparer I attend several tax preparation workshops, seminars, conferences and conventions during the year. I am constantly hearing instructors and participants alike discuss problems with their tax preparation software, the answer often being that one has to override the system and "force" the correct entry.

FYI, in 35 years of preparing tax returns I have never used tax software to prepare a 1040. I prepare 400+ tax returns a year – all by hand. When I am asked what tax software I use I simply point to my head, indicating my brain.

IRS statistics indicate that taxpayers using do-it-yourself tax software spend an average of between 6 and 10+ hours longer preparing their tax returns (depending on the number of worksheets and schedules) than taxpayers who did manual calculations. Further, the IRS estimates that do-it-yourself software users spend an average of 10 to over 20 hours longer than a tax preparer, again depending on complexity.

The tax preparer in the tv ad is clearly meant to be an employee of Henry and Richard. Perhaps this is because H+R Block had sued the company that produces the tax software asking a federal judge to shut down the company’s earlier advertising campaign. I will agree that anything, even tax software, is better than going to H+R Block. But it is not better than going to a competent, ethical tax professional.

The bottom line is – if you don’t know what you are doing do not rely on a tax preparation software package to make up for your lack of tax knowledge. Using a tax professional will save you time, aggravation and money.


The H+R Block ad actually has absolutely nothing to do with preparing your tax return. Instead it pushes an unconscionable product known as the “Pay-Check Refund Anticipation Loan”.

Here is how it works: The taxpayer goes to an H+R Block office today with only his final 2006 pay-stub. H+R uses the pay-stub like a W-2, estimates the refund, and gives the taxpayer a check, which is actually a short-term loan at a usurious interest rate. The taxpayer must then return to H+R Block to have their actual tax return prepared, and must pay back the loan from their refund.

Refund Anticipation Loans (RALs) are bad enough, but the “Pay-Check RAL” is much worse. Henry and Richard, and fellow “fast-food” commercial tax preparation chain Jackson Hewitt, unethically aim RALs at less-savvy, lower income clients solely for the purposes of lining their pockets. The fees involved with an RAL could end up resulting in triple-digit interest!

I firmly believe that tax preparers should be banned from offering this product, as it is a “conflict of interest”. The bigger the refund, the bigger the RAL, the bigger the fees earned by H+R. Who’s to say that the preparer will not arbitrarily increase the amount of the refund to increase the amount of the fees earned?

I will continue to report on the tax season tv ads as they appear.

1 comment:

Anonymous said...

I understand your point. But i have a very simple tax filing and prefer to do use an online service like taxbrain, which I'm using this year, or one of the many others available. A tax professional may get a different result, but for my time and money it is just more convenient to use the automated program.
Thanks for your interesting perspective on tax prep!