In a pair of private letter rulings, the Internal Revenue Service said that it would allow a taxpayer to make a late election, agreeing that the taxpayer had relied on tax prep software that didn't adequately handle a tax provision.
Specifically, the issue concerned the election to treat qualified dividend income as investment income.
The agency's letter said that the taxpayer filed their 1040 in a timely fashion, along with Form 4952, "Investment Interest Expense Deduction." However, the software program the taxpayer used didn't calculate the optimal amount of qualified dividend income the taxpayer should include in investment income, and didn't advise the taxpayer that the software program doesn't calculate this optimal amount.
Instead, the taxpayer was required to compute the amount and manually enter it into the program.The IRS accepted the glitch in the tax preparation software as an adequate excuse, and said that the taxpayer had acted reasonably and in good faith with the request, and will allow the taxpayer to file a late election.
