TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, September 29, 2009

Tax Court: CPA's Google Search Does Not Constitute Reasonable Cause to Avoid Penalty

The Tax Court yesterday held that a Google search did not constitute reasonable cause to excuse a Harvard MBA/ CPA's failure to properly rollover a $150,000 IRA distribution.  Woodard v. Commissioner, T.C. Summ. Op. 2009-150 (Sept. 28, 2009):

Mr. Woodard asks the Court to accept that his research on the Internet using the Google search engine provided him with reasonable cause for the position he took when filing his 2004 Federal income tax return; to wit, not reporting IRA distributions he commingled with other funds by depositing the distributions into his checking account because he later invested those funds in private mortgages. Mr. Woodard has not provided the Court with any information about the sources of the information he found on the Internet.

Good-faith reliance on advice from an independent, competent professional as to the tax treatment of an item may meet the reasonable cause requirement. ...  Mr. Woodard claims that he relied on information found on unspecified Web sites written by unidentified individuals or organizations. From the record, it is not clear that he questioned the provenance or accuracy of the information he found through the Google search engine.FN.

FN: We recognize that petitioner had not worked as an accountant for years before filing the 2004 return, but his accounting degree, M.B.A., and C.P.A. training, no matter how stale, undoubtedly taught him what sources could be relied upon as definitive; such as, for example, the Internal Revenue Code and the income tax regulations, both of which are readily available on the Internet.

Without knowing the sources of the information, it is impossible for the Court to determine that those sources were competent to provide tax advice. Accordingly, we cannot conclude that Mr. Woodard exercised ordinary business care and prudence in selecting and relying upon the information he found on line. As a result, we find that he has not shown reasonable cause for failing to report the distributions from his IRA on the 2004 Federal income tax return.

For more, see Joe Kristan.

https://taxprof.typepad.com/taxprof_blog/2009/09/tax-court-reliance.html

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