Saturday, February 1, 2014

The Geithner Defense


Former US Secretary of the Treasury Timothy Geithner took a lot of heat during his confirmation hearings when it was revealed that he had not paid all of his income taxes in a timely manner. He was found to be short by almost $35,000, and blamed it on the Turbo Tax software that he used not prompting him for questions.  Thus was born two things: his nickname “TurboTax Timmy” and “the Geithner Defense”.

The Geithner defense has been used as an excuse in a number of cases, and although it was enough to get Secretary Geithner out of paying penalties (but not the tax), for some reason it has been less than successful when employed by the average Joe Taxpayer. There were a number of cases that taxpayers tried the same line that Turbo Tax Timmy used,  “The software made me do it” and whose arguments were disregarded by both the IRS and the court.

 Until Olsen.

Kurt Olsen was a patent attorney in the Department of Energy. He prepared his tax returns using the same software as our hero.  He entered some data incorrectly, the software did not alert him to it, and he understated his tax by over $9,000. Upon examination the IRS assessed the tax and a penalty. Mr. Olsen agreed to the tax but objected to the penalty, blaming his transgression on the software. The court accepted his reason and let him off the hook for $1800 in penalties!  

 As a result, we now have a formal penalty defense strategy known as the Geithner defense. The bad news is that apparently it only applies to Federal employees. Perhaps the rest of us are supposed to be smarter.

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