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Friday, March 14, 2008

TurboTax "kicker" disputes rage on

The cases of people who claim that TurboTax or some other computer program erroneously donated their Oregon income tax "kicker" rebate checks to the State School Fund have started working their way through the courts. At least one such case is presently docketed in the Magistrate Division of the Oregon Tax Court, where the taxpayers are asking the judge to force the state to pay them their "kicker."

This particular couple filed a paper return using TurboTax. They swear that they never told TurboTax to donate their "kicker," and that the screen version of the form with which were working did not indicate that the "donate kicker" box had been checked. But when they printed out the form, they say, it did have the box checked, and they signed and filed it without noticing that.

As we've blogged about here extensively in the past, TurboTax denies that that story is possible -- TurboTax says that the box could not be checked unless the taxpayers checked it -- and the state Department of Revenue apparently agrees, refusing to issue the refund. "Regardless of what you saw on the screen, you should have thoroughly reviewed the printed-out form before you signed it and sent it in," the state says. Sounds like a pretty solid legal position.

But the state's argument weakens, at least somewhat, when one considers that the revenue department has in fact sent refunds to other folks who claim TurboTax made the exact same mistake on their return. The only difference between those luckier taxpayers and the unfortunate plaintiffs before the Tax Court is that the luckier taxpayers filed electronically, rather than on paper.

The state's court pleadings in the case make clear who did and didn't get their "kickers" based on claims that TurboTax screwed up their returns. The "defendant" here is the Department of Revenue:

The state's court filing also explains that the taxpayers in question filed on paper, and that no one who filed that way prevailed in a claim of an erroneous donation of their "kicker."

It's hard to see how the distinctions that were made by the state are valid. First of all, the fact that someone who had filed electronically many months ago now gets TurboTax to print out a form without the "donate kicker" box checked hardly seems like any proof at all of what they actually did when they prepared their original electronic return. Why the state required that such a form be sent in by e-filers with the claim of a TurboTax error is a real mystery.

The accompanying certificate that the taxpayers never checked the box is a different story. Of course, that's evidence that they actually didn't. But the paper filers are willing to sign the same certificate, and for them it doesn't work. Why not?

If the state is acknowledging -- as it apparently has -- that TurboTax and other programs malfunctioned for the electronic filers, what kind of malfunction does the state think it was? And wouldn't the same malfunction have affected those who used the same program, but printed the return form out on paper?

The state is telling TurboTax paper filers, "You should have checked the form over again after you printed it out and before you signed it." But shouldn't it also be saying to the electronic filers, "You should have printed the form out and checked it over before you hit the 'Send' button"?

More fundamentally, when one files an electronic return, the data that whizzes across the internet to Salem simply is the return. And one's electronic signature is supposedly every bit as significant, legally, as ink on paper. If a taxpayer who files a computer-generated paper return is responsible for knowing what's on it, isn't the e-filing taxpayer responsible for knowing what's in the e-file that he or she sends in over the internet? We would certainly hope that he or she is.

Who knows if the folks now in court over this will win their cases? Maybe they shouldn't get their refunds. But if they shouldn't, then why did some of the computer users who claimed the same mistake get theirs? It seems to us that all of those who claimed errors should have been treated the same. It is also fairly clear that all of the taxpayers of Oregon deserve a public explanation of why the Department of Revenue made the distinctions that it did in this incident.

If the taxpayers lose their Tax Court battle with the state, we suspect their next stop will be a legal action of some kind against Intuit, the makers of TurboTax -- most likely in a different court. But some important Oregon tax law could be in the making before that happens.

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