A preparer transposes a K-1 figure, the software carries it forward without complaint, and the client's refund arrives $4,000 too large. The software was never wrong. The review was.
Tax software does the math on a return, but the preparer is still responsible for getting the return right. Circular 230 section 10.22 requires due diligence in preparing and filing returns. Professional tax preparation software automates arithmetic, but it can't supply judgment, and it can't see facts you never entered.
A preparer may lean on tax software, but only up to a point. Treasury Regulation section 1.6694-2(e) excuses a preparer from the section 6694(a) understatement penalty for reasonable cause and good faith, and it has no special rule for software. Relying on software helps show good faith only when that reliance is reasonable. Reasonable means you reviewed both what went into the program (the inputs) and what came out (the results).
Four things decide whether your reliance on the software holds up:
Common mistakes
- Counting the 6107(b) period from the filing date. The 3 years run from the close of the return period, and the return period closes June 30. A return prepared in February 2026 is retained until June 30, 2029, not February 2029.
- Treating a software diagnostic as cleared when it was only overridden. The override suppresses the program's recalculation, so the inconsistent figure still goes out with the return.
- Entering a corrected Form 1099 in addition to the original. The corrected form replaces the original. Entering both doubles the income.
Bottom line
- Software reliance: reasonable only after review of inputs, diagnostics, and results; the preparer owns the position under IRC 6694.
- Overrides: they freeze a field and are the leading source of miscalculations on software-prepared returns.
- Duplicate entries: import plus manual keying, corrected forms stacked on originals, joint accounts posted twice, carryovers proforma'd and rekeyed.
- Preparer retention: 3 years after the close of the return period (July 1 to June 30) for a return copy or a name and identification number list, IRC 6107(b).
Exam shortcut
Read every retention stem for the word that sets the clock. "Preparer" means return period and June 30; "taxpayer" means the assessment statute and the filing date. If the stem names a percentage of omitted gross income, check whether it exceeds 25%, because that single number moves the answer from three years to six.
The full lesson (about 3,466 words, 23 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
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