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Make Sure to Check the E-File Status of Your Tax Return

Nathan R. Olansen

This is the unfortunate case of John Spottiswood and Nancy Miyasaki, a married couple seeking an abatement and refund of penalties they paid for late filing their return and late payment their 2012 income taxes. While this decision coming out of the U.S. District Court for the Northern District of California will make all taxpayers a little nervous, it should scare the bejeezus out of tax return preparers. It serves as an example of how liability for tax return preparation and filing in general, has subtly shifted from taxpayers to the preparers with the proliferation of electronic tax return filing.

Mr. Spottiswood prepared a joint 2012 federal income tax return for himself and his wife, using TurboTax. In preparing their return, Spottiswood made a mistake when inputting a dependent’s Social Security number. The 2012 joint Form 1040 containing that error was transmitted to TurboTax on or about April 12, 2013 to be electronically submitted to the IRS for electronic filing. That day, the IRS notified TurboTax that the Form 1040 had been rejected for electronic filing because the dependent’s Social Security number and last name did not match IRS records. Unfortunately, Mr. Spottiswood did not check the “check e-file status” of the tax return for 18 months, and only then discovered it had been previously rejected. Mr. Spottiswood then corrected and filed the tax return to which the IRS promptly replied by assessing a late filing penalty of $89,014.27, a late payment penalty of $41,539.99, and interest of $26,216.81 – ouch!

At trial, Mr. Spottiswood admitted that he failed to pay his tax on time, that it wasn’t reasonable for him to wait 18 months to figure he had not paid his tax (which by the way was $395,619), and he should pay the late payment penalty. However, he argued that he should not be subject to the late filing penalty because the return filed was filed prior to the due date and: 1) sufficient to calculate the tax liability, 2) purported to be a tax return, 3) evinced an honest and reasonable attempt to satisfy the requirements of tax law, and 4) is executed by the taxpayer under penalty of perjury (i.e., the Beard requirements). Is anyone else thinking what I am thinking, why is someone who is earning north of $1M preparing their own tax return? Crazy.

Predictably, the Court’s decision was – too bad! There is no excuse for not checking the status of the tax return and a nearly $400,000 payment for 18 months! I’m not saying I disagree, 18 months is a long time and $400,000 is a lot of money to go unnoticed, but what is a reasonable amount of time? I don’t know the answer to that, and I definitely don’t want to be the test case to find out. For those who want to read the text of the decision, here is the full citation to the case Spottiswood v. United States, US District Court, ND California, Case No. 3:17-cv-00209.

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Written By Nathan R. Olansen


Nathan R. Olansen is a Shareholder in the law firm of Midgett Preti Olansen. His practice is focused on estate planning, probate and trust administration, IRS and state and local tax audit and tax collection cases, as well as individual and entity tax planning, asset protection and a variety of related transactional matters.

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