In my last post on April 20, I talked about a company whose owners didn’t know their accounts receivable, their accounts payable or their cash flow.

The day before my April 20th post, the U.S. Tax Court issued a ruling about taxpayers who didn’t understand their numbers. In Lam and Chang v. Commissioner of Internal Revenue, the taxpayers were found liable for accuracy-related penalties.

They prepared their tax returns using TurboTax software. Unfortunately, they didn’t understand how to use it correctly.

The Tax Court said, “Tax preparation software is only as good as the information one inputs into it.”

The taxpayers confused capital gains and losses with ordinary income and expenses. They didn’t talk to a tax professional. They didn’t talk to the IRS. The didn’t check the IRS’ Web site, or understand the instructions for filing a Schedule C. So the Tax Court said they didn’t behave reasonably in filing their tax returns.

Do you understand your tax return — and the numbers on it?

Let me know your feelings about this post. Your comments are welcome.

Thanks,
Larry

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