http://bojack.org/2007/12/more_on_turbotax_and_the_orego_1.html
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 it 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 via U.S. Mail to the revenuers. 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 forms.
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 spit out for us, 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 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.
Of course, the folks who are screaming loudly now are those with the exact opposite problem. They didn’t want TurboTax to donate their kicker check, but somehow it did. Our backtracking can’t answer why that happened, but it does suggest that TurboTax wasn’t handling line 7e of Form 40 properly. Form 40S, the resident short form, also was missing line 7e.
But to make matters more curious, both the nonresident and part-year resident forms that TurboTax prints out did have the 7e box on them. Here, for example, is the nonresident form, Form 40N, as it appears in TurboTax (and the part-year resident form, Form 40P, also appears complete in this regard):
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. 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.
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