Reliance on Google for tax advice

[Prof]

Although this tax controversy is certainly not a “TP” case, the portion of the ruling below is interesting and relevant:

T.C. Summary Opinion 2009-150
UNITED STATES TAX COURT
KENNETH D. AND TRUDI A. WOODARD, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12463-07S. Filed September 28, 2009.
...

Mr. Woodard explained that he thought he had a self-directed
IRA and that he intended to reinvest the $100,000 in private
mortgages. He searched the Internet for information about selfdirected
IRAs, and he followed advice he found on line. He
deposited the $100,000 into his personal checking account and
wired the funds from that account to Ms. Mahn as mortgagor.
As indicated supra note 2, Mr. Woodard agrees that receiving
the distribution from Vanguard and depositing the money into his
personal checking account in November 2004, then paying the funds
from that account to the mortgagor in February 2005 did not
effect a rollover of the retirement assets that would qualify for
continuing deferral of taxation under section 408(d)(3). He did
not address the Roth IRA conversion at trial, and he concedes
that he is liable for income tax on the entire $150,000
distributed by Vanguard. However, he argues that he intended
that the $100,000 remain in a self-directed IRA, that this is a
complicated area of the law, that he never intended to defraud
the Government, that he reaped no personal benefit from the money
(all of which he lost when it was stolen by Ms. Mahn, who was
then incarcerated for fraud), and finally that he should not be
liable for the accuracy-related penalty because he followed
Internet instructions in managing his self-directed IRA.
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Mr. Woodard makes no argument relative to his having
reasonable cause and acting in good faith in not reporting income
from his $50,000 conversion from a traditional IRA to a Roth IRA.
Accordingly, we sustain the accuracy-related penalty as to the
portion of the underpayment attributable to this unreported
income.
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. Neonatology Associates, P.A. v.
Commissioner, supra at 98; sec. 1.6664-4(b), Income Tax Regs. A
taxpayer must act with ordinary business care and prudence to
claim reasonable cause. Neonatology Associates, P.A. v.
Commissioner, supra at 98.
Mr. Woodard claims that he relied on information found on
unspecified Web sites written by unidentified individuals or
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7 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.
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.7 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.
Not having found reasonable cause, we need not consider whether
Mr. Woodard acted in good faith. See sec. 6664(c)(1).

....

[LPC]

I've read claims that most academic research starts with a Google (or other Internet) search.

And I sometimes start my tax research with a Google search, but I never *stop* with a Google search.

[Brandybuck]

Those of us who are not lawyers will frequently use Google and other sites to search for answers. It comes down to $0 an hour versus $200 an hour. The math is simple. There is a lot of good information out there, and if you're smart enough to sift through the junk you can find it. You have to do some risk analysis, and figure out how much it will cost you if you are wrong versus the cost of hiring an attorney. It also takes some common sense. Rolling over your own IRA is something hardly anyone ever does, so it must be complicated enough to deserve expert advice.

[Judge Roy Bean]

[Imalawman]

I've read claims that most academic research starts with a Google (or other Internet) search.

And I sometimes start my tax research with a Google search, but I never *stop* with a Google search.

Ditto.

[Pottapaug1938]

Those of us who are not lawyers will frequently use Google and other sites to search for answers. It comes down to $0 an hour versus $200 an hour. The math is simple. There is a lot of good information out there, and if you're smart enough to sift through the junk you can find it. You have to do some risk analysis, and figure out how much it will cost you if you are wrong versus the cost of hiring an attorney. It also takes some common sense. Rolling over your own IRA is something hardly anyone ever does, so it must be complicated enough to deserve expert advice.

The operative words are "if you're smart enough". After almost 12 years in the financial services industry, I am often amazed at how incredibly stupid so many people are about their investments -- and many of these people are very successful in their professions or trades. Rolling over your IRA isn't rocket science; but there are certain rules which must be followed. To find those rules, as Dan said, I might advise people to START their research with a Google search but I would NEVER advise them to stop there.