TurboTax Made an Error - Should They Pay?
I used TurboTax to file my college-age daughter's 2012 tax return. TT said she was eligible for a ,000 American Opportunity Credit. We claimed it and got no argument from the IRS.
I used TT again for her 2013 return. She was still a college student, and TT said she was eligible for the ,000 credit again that year. Note that TT had imported the data from the previous year, so it was aware that she claimed the credit for 2012.
We got a notice from the IRS this year (2015) that the ,000 credit for the 2013 tax year was not allowed. I just read the instructions for the relevant form (8863) and see something that basically says, "If you claimed the credit in any of the prior 4 tax years, you cannot claim it again."
So we were clearly ineligible to claim it for 2013 (having done so for 2012), yet the TT software said we were. One of the main reasons I use the software is so that I don't have to read all the instructions for all the forms. I assume the software knows the rules.
So now we have a tax bill for the disallowed ,000 plus penalties and interest. I believe that Intuit / TurboTax is responsible and should pay.
Had 2013 been the first year I ever used TT or I failed to enter adequate information so it "knew" we had previously claimed the credit, I wouldn't have an argument.
But TT clearly made an error. It had to see that the credit had already been claimed in the prior year. Yet going through "EasyStep" it never asked if that was the case. It just said "You're eligible!".
So, how do I get Intuit to reimburse me? And, more importantly, how do I ever trust TurboTax again? If I have to double-check every calculation, every determination of eligibility and everything else TT does, I may as well just do my taxes manually.
* UPDATE (I'm the OP): *
I spoke to a very helpful tax advisor at TurboTax. I was wrong, the software was right. My mistake was trying to understand the IRS
instructions, which could have been worded much better.
Turns out we are eligible for the credit for each of the 4 years in college. TT correctly claimed the credit. The error is at the
IRS, who probably didn't receive the 1098-T form, proving eligible
tuition expenses required to take the credit.
I sent a letter to the IRS showing how my daughter meets all of the criteria to take the credit, along with a copy of the 1098-T form.
We'll see how they respond. I'm hoping I've made my case and they'll
erase the back tax owed plus the interest and penalties.
Regarding the complexity of TT vs Mac OS or Windows, I would say that TT probably is more complex in the sense that it has to interpret
US tax code, which sometimes even the best tax accountant has trouble
with. OS's are certainly complex, but it's more from a functionality
(and maybe device driver) sense.
Anyway, thanks for the great feedback.
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You can submit a claim to TurboTax using their online form.
As others have stated, you still owe your taxes, the claim is only for the interest and penalties from the IRS due to TurboTax's error.
How to trust TurboTax again? I wouldn't worry too much about it -- sure, getting a nastygram from the IRS can be unsettling, but it's not really a big deal. You just pay the monies owed and the matter is closed.
Look at it this way: you will alert TurboTax to a problem in their software, and they'll want very much to correct any errors in the software. Paying the penalties for you is a small price for them to uncover and correct a bug in their product. If they end up being super responsive, consider it a point in their favor that they stand behind their products and will quickly address a similar issue in the unlikely event it happens again!
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