State tax on out of state income - adjustment?

Question

I just received an Notice of Adjustment for my 2006 State Tax Return. It is saying we owe $1700 from the refund we received. I used TurboTax when completing our return. Even though we live in one state, I tele-work from home for a company in another state and have taxes taken out in that state. When I completed TurboTax, there was a section asking about out of state income or gain and so I put my income from the other state in there. It also said do not include Personal Service Income. There was nothing on the Learn More About This Topic link for that particular phrase, so I included my out of state income there.

Before I call up Turbo Tax and spend $$ to talk to a tax advisor, am I culpable for this error or should it have been explained better by Turbo Tax? I'm sure they will be saying too bad/so sad and you need to cough up the money. Maybe they should be saying on their forms to not include any WAGES or anything shown on a W-2 instead of saying Personal Service Income!

Answer 1

A taxpayer is personally liable for the contents of the return and the tax owed, at least with respect to the IRS (and I assume the state equivalent). Whether or not TurboTax is liable to you is a matter that you may want to discuss with an attorney. However, I wouldn't be surprised if the TurboTax software license included some sort of limitation on liability equal to the cost of the software (or some other nominal amount.)

Answer 2

Even if Turbo Tax made an error, you would still be liable for taxes. You may get them to cover the interest and penalties but you would always pay the tax.

If it was a misunderstanding on your part, you will end up paying all of it.

You may want to see a professional to fix the return. I personally have never seen a self-prepared multi-state return done entirely correctly.....even when the taxpayer used tax prep. software.