Tax Return Failures Can’t Be Blamed on Software

A car auction business failed to file information returns reporting the receipt of cash transactions in excess of $10,000, which triggered failure-to-file penalties of over $118,000. The company blamed the failure on its software, arguing that this was reasonable cause for noncompliance. The Tax Court rejected this argument. There is reasonable cause for failure to file information returns when either (1) there are significant mitigating factors with respect to the failure or (2) the failure arose from events beyond the business’s control. Reliance on software is not available as a reasonable cause defense when the taxpayer does not input the correct information, does not show the software failed to perform as intended, or that there were adequate controls in place to identify noncompliance. #IdeaoftheDay