More on TurboTax and the Oregon kicker refund
Reports that tax preparation software such as TurboTax mistakenly donated taxpayers' substantial Oregon "kicker" refund checks to the State School Fund have really piqued our interest. We posted about the story yesterday, and a TurboTax vice president even responded to comments on this blog last night. But obviously, despite his protestations, there is something wrong. It seems unlikely that hundreds of Oregonians who used that program all screwed this up.
My family used TurboTax to file our tax returns last year, and our kicker check came through fine. But in the interests of investigative blogging, we thought we'd retrace our steps and try to figure out where the program may have gone wrong for other folks. We still don't have much of a clue, but backtracking helped us see where the problems might lie.
First, since different taxpayers use TurboTax in vastly different ways, let's recap our situation. We don't file electronically, for a number of reasons. For one thing, we don't like making life easier for the government, which e-filing definitely does. And we'd never post our financial data on someone else's server (like that of Intuit, the maker of TurboTax). To us, that's just inviting trouble. Therefore, we download TurboTax onto our home PC, prepare our returns on our own machine, print them out, sign them manually, and mail them in to the revenuers via U.S. Mail. We pay by check. Since our tax situation is of average to above-average complexity, we file the long form, Oregon Form 40. We are Oregon residents all year, and so we don't use either the nonresident or part-year resident form.
We never get a refund (except belatedly, via the kicker), and so we never file our state return before the week of April 15. And when TurboTax hounds us all through tax filing season to let it update various files on our computer via the internet (which can be time-consuming), we always let it do so. Thus, by the time we filed our 2006 return, our version of the TurboTax Oregon software was as up-to-date as we could get it before the filing deadline.
Since I'm a tax lawyer, I don't bother being "interviewed" by TurboTax. I believe I'm familiar enough with the tax law and with the program (I've used it for more than a decade) that I can bypass the interview and go straight to filling out the forms myself. You don't have to enter every single line on the tax return form -- TurboTax remembers you from last year, entering in all your basic information from past returns. And if the same number belongs in different places on different forms, then once you fill it in once in the right spot, TurboTax places it everywhere else it needs to go. Beautiful. Most of the state return is driven by data from the federal return, and so there's not a whole lot to do once you get down to the state return.
But there are a few things to watch out for.
One of the basic forms in the Oregon software is something called the "Information Worksheet," and that's where a line appeared last spring for those who wanted to donate any kicker to the School Fund. It's the first line in "Part VI - Other Information":
If TurboTax was set up correctly, by checking that box, one would have expected that the box on line 7e of the Oregon long-form tax return would be checked. Here's the official version of that line on a standard Oregon income tax return form:
As you can see from the first image above, we didn't check the box on TurboTax, and so that box should remain unchecked on the state tax return that TurboTax spits out. But on the form it shows on the screen when you tell it open Form 40, not only was the box not checked -- the box didn't appear at all:
Just for kicks, last night we went back into our fully functional version of TurboTax and checked the box on the information sheet, just to see what would happen on the form TurboTax produced. And so we checked the box and saved the file. When we opened the return form, at that point there should have been a notation that we were donating our kicker check. But in fact, line 7e still didn't appear:
And so it would seem that even if we had wanted to donate our kicker check (which we didn't), we may not have been able to do it on TurboTax.
Ah, but here's where the rub comes in: When you have the program actually print out your return, what you get on the resulting paper form is not what you see in the screen image. When we sent our version of the return with the "Donate" box checked, here's what actually came out of the printer:
This is exactly the situation that an outraged reader complained about here yesterday: What you saw on the screen wasn't what printed out. Bad move, TurboTax!
But other taxpayers who didn't get their kickers have been heard to complain that they never checked a "Donate" box anywhere -- including on the "Information Worksheet." In that case, the printed version should have left the box unchecked. Our backtracking can't answer why that didn't happen, but it does suggest that TurboTax wasn't handling line 7e of Form 40 as competently as it could have. Form 40S, the resident short form, also was missing line 7e on the version of the form that displayed on the screen.
To make matters more curious, both the nonresident and part-year resident forms on TurboTax did have the 7e box on the versions that displayed on the screen. Here, for example, is the nonresident form, Form 40N, as it appears on the screen in TurboTax (and the part-year resident form, Form 40P, also appears complete in this regard):
I think the problem may actually have to do with that barcode that gets printed out on Form 40 and 40S. That barcode doesn't appear on the screen version of the form, but it does show up on the printed version. On the other hand, the telltale checked "Donate" box that shows up on the printed version but not on the screen version may be the cause of some taxpayers' woes.
We couldn't tell TurboTax to file an electronic return at this point, and so we're not sure what happens when you do that. But at least with paper filing, what shows up on the printed return form does not match what shows up on that form on the screen. (And neither is exactly the same as the official paper form issued by the state.)
Whatever the cause of the screwup was, our hearts go out to those poor taxpayers who didn't get their kickers when they were expecting them. Merry Christmas from TurboTax and the Department of Revenue. Media reports suggest that the School Fund doesn't have to give back the money, and maybe it isn't even legally allowed to do so, at this point. An election to donate the kicker, they're saying, is irrevocable.
At least if your tax return is prepared by a human being, that certainly appears to be the case. Here's a ruling by the Oregon Tax Court on that very issue. Maybe the case would come out differently if a computer program causes the mistake, but I wouldn't bet on it. Perhaps the taxpayers could get somewhere by showing that the Department of Revenue was involved in reviewing, or even developing, the barcode feature of the TurboTax return forms. That would be at least a partially public, as opposed to a completely private, mistake.
In any event, the makers of the software in question (and TurboTax may not be the only one) are no doubt calling their liability insurance carriers right about now. If indeed there was a mistake, it could get rather spendy.
UPDATE, 12/20, 5:00 a.m.: More on this saga here.