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I used TurboTax to file my college-age daughter's 2012 tax return. TT said she was eligible for a $1,000 American Opportunity Credit. We claimed it and got no argument from the IRS.

I used TT again for her 2013 return. She was still a college student, and TT said she was eligible for the $1,000 credit again that year. Note that TT had imported the data from the previous year, so it was aware that she claimed the credit for 2012.

We got a notice from the IRS this year (2015) that the $1,000 credit for the 2013 tax year was not allowed. I just read the instructions for the relevant form (8863) and see something that basically says, "If you claimed the credit in any of the prior 4 tax years, you cannot claim it again."

So we were clearly ineligible to claim it for 2013 (having done so for 2012), yet the TT software said we were. One of the main reasons I use the software is so that I don't have to read all the instructions for all the forms. I assume the software knows the rules.

So now we have a tax bill for the disallowed $1,000 plus penalties and interest. I believe that Intuit / TurboTax is responsible and should pay.

Had 2013 been the first year I ever used TT or I failed to enter adequate information so it "knew" we had previously claimed the credit, I wouldn't have an argument.

But TT clearly made an error. It had to see that the credit had already been claimed in the prior year. Yet going through "EasyStep" it never asked if that was the case. It just said "You're eligible!".

So, how do I get Intuit to reimburse me? And, more importantly, how do I ever trust TurboTax again? If I have to double-check every calculation, every determination of eligibility and everything else TT does, I may as well just do my taxes manually.

* UPDATE (I'm the OP): *

I spoke to a very helpful tax advisor at TurboTax. I was wrong, the software was right. My mistake was trying to understand the IRS instructions, which could have been worded much better.

Turns out we are eligible for the credit for each of the 4 years in college. TT correctly claimed the credit. The error is at the IRS, who probably didn't receive the 1098-T form, proving eligible tuition expenses required to take the credit.

I sent a letter to the IRS showing how my daughter meets all of the criteria to take the credit, along with a copy of the 1098-T form. We'll see how they respond. I'm hoping I've made my case and they'll erase the back tax owed plus the interest and penalties.

Regarding the complexity of TT vs Mac OS or Windows, I would say that TT probably is more complex in the sense that it has to interpret US tax code, which sometimes even the best tax accountant has trouble with. OS's are certainly complex, but it's more from a functionality (and maybe device driver) sense.

Anyway, thanks for the great feedback.

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    I believe Intuit's policy is that they will pay any fine caused by an error in their software, but the taxes you owe the government are taxes you owe the government. Read the warranty/license info that came with the software; if it's unclear contact them and ask; if you don't like their answer decide whether you want to get a lawyer involved -- remembering that they've had many years to nail down their policies and defenses.
    – keshlam
    Commented Oct 9, 2015 at 19:02
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    also 'Not have claimed the AOTC or the former Hope credit for more than four tax years' - has nothing to do with claiming it last year. Might need to check into why it was not allowed.
    – Ross
    Commented Oct 9, 2015 at 19:42
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    "The American opportunity tax credit can be claimed for expenses for the first four years of post-secondary education." Form 8863 (2014 version) states "Has the Hope Scholarship Credit or American opportunity credit been claimed for this student for any 4 tax years before 2014?" Which is not the same as asking if it's been claimed in the last 4 years.
    – stannius
    Commented Oct 9, 2015 at 23:49

1 Answer 1

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You can submit a claim to TurboTax using their online form.

As others have stated, you still owe your taxes, the claim is only for the interest and penalties from the IRS due to TurboTax's error.

How to trust TurboTax again? I wouldn't worry too much about it -- sure, getting a nastygram from the IRS can be unsettling, but it's not really a big deal. You just pay the monies owed and the matter is closed.

Look at it this way: you will alert TurboTax to a problem in their software, and they'll want very much to correct any errors in the software. Paying the penalties for you is a small price for them to uncover and correct a bug in their product. If they end up being super responsive, consider it a point in their favor that they stand behind their products and will quickly address a similar issue in the unlikely event it happens again!

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  • And their competitors have had their own rather public bugs; TaxCut embarrassed themselves one year badly enough that they gave everyone affected the next year's edition free. Software has bugs; the question is how bad and how the company handles them.
    – keshlam
    Commented Oct 9, 2015 at 22:38
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    And TurboTax isn't just simple software like, say, Windows or Mac OS X, it's software implementing the US Federal tax code. :-) And the tax code of every US state and territory with a personal income tax. So it's not terribly surprising that occasionally they miss or misinterpret some rule.
    – blm
    Commented Oct 9, 2015 at 22:56
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    Windows and Mac OS X are simple software? Hardly.
    – JohnFx ♦
    Commented Oct 10, 2015 at 0:08
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    It was a joke about the relative complexity of the US tax code. Smiley face!
    – Rocky
    Commented Oct 10, 2015 at 0:15
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    I am a 30 year TurboTax user. And that credit is good for 4 years. My bet is TurboTax is correct, and the agent you spoke to at IRS was mistaken.
    – JTP - Apologise to Monica ♦
    Commented Oct 10, 2015 at 1:29

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