When TurboTax Isn't Enough: What the Huang Case Teaches About Reasonable Cause
In an increasingly digital world, many taxpayers turn to tax preparation software like TurboTax to file their returns. However, the recent case of Huang v. United States (N.D. Cal. 2025) highlights the risks of relying solely on software—especially for taxpayers with international reporting obligations.
The Case in Brief
Jiaxing Huang, a U.S. taxpayer, received sizable monetary gifts from her non-resident parents in 2015 and 2016. Using TurboTax, she filed her tax returns but did not file Form 3520, which is required to report certain foreign gifts. TurboTax advised her that gifts did not need to be reported—a statement generally true for domestic gifts, but not for foreign-sourced gifts.
When Huang later discovered her reporting obligation, she promptly filed the missing Forms 3520, most likely as a “quiet disclosure” and not through the Streamline procedures. Despite her corrective action, the IRS assessed penalties exceeding $90,000. Huang sought abatement, arguing that she had "reasonable cause" because she relied on TurboTax’s advice and acted quickly to correct the issue once aware. The IRS denied her request.
Huang subsequently filed a refund suit in federal court, asserting four claims: (1) she had reasonable cause for the late filing, (2) the IRS acted arbitrarily by inflating her penalties, (3) the IRS lacked authority to assess the penalties, and (4) the IRS failed to properly obtain supervisory approval for the penalties.
The court ruled in favor of Huang on one key issue: her reasonable cause argument. The other claims were dismissed. Notably, the court found that Huang plausibly alleged she relied on TurboTax in good faith—analogous to relying on a competent tax professional—and that her inexperience and the complexity of the international reporting obligations could amount to reasonable cause. Her case will now proceed on the reasonable cause issue.
Why This Case Matters for Taxpayers Using Tax Software
This decision is significant for individuals who rely on tax software, particularly those with international reporting requirements like Forms 3520, 5471, or FBARs. These forms involve complex rules that most standard software platforms are not well-equipped to handle.
The Huang case signals that courts may be willing to treat reliance on reputable tax software as reasonable cause, at least at the motion to dismiss stage. The court acknowledged that TurboTax’s erroneous guidance—advising that gifts did not need reporting—could mislead a taxpayer exercising ordinary business care and prudence. Importantly, the court also noted that ignorance of the law alone is insufficient; however, combined with other factors such as the complexity of the law and immediate corrective actions, a reasonable cause defense could be viable.
For clients with international elements in their financial lives, this case emphasizes that even honest mistakes made while using widely available tax tools could potentially be excused, provided they act diligently to remedy errors once discovered.
Where This Case May Not Help Clients Using Tax Preparers
However, Huang may prove to have its limits. Taxpayers who use human tax return preparers instead of software face a different legal standard. Courts generally expect that tax professionals—even non-CPAs or unenrolled preparers—are competent and that taxpayers exercise some oversight. If a preparer fails to file required forms or provides incorrect advice, the taxpayer may not be able to simply claim reliance as a defense.
Unlike software, where it seems like courts may be sympathetic to arguments that the platform’s limitations or misinformation led to a reasonable misunderstanding, reliance on a human preparer often requires showing that the taxpayer did not ignore warning signs, asked reasonable questions, and disclosed all necessary facts.
Additionally, courts scrutinize whether the preparer was qualified and whether the taxpayer’s reliance was truly in good faith. This standard stems from case law such as United States v. Boyle, 469 U.S. 241 (1985), where the Supreme Court held that taxpayers have a non-delegable duty to file tax returns on time, even if relying on an agent or preparer. Courts have consistently applied this principle to tax preparer reliance cases, requiring a showing that the preparer was competent and that the taxpayer acted prudently. Blind reliance on an unqualified or unvetted preparer is unlikely to establish reasonable cause. By contrast, Huang’s reliance was on a commercially reputable software product widely used by millions.
Practical Lessons
For clients with foreign gifts, inheritances, investments, or business interests, this case underscores the need to:
Understand Software Limitations: Tax software is designed for broad use and may not flag niche international reporting requirements.
Seek Professional Help for Complex Issues: When international elements are involved, consulting a tax professional experienced in cross-border matters is crucial.
Act Quickly if Mistakes are Found: Immediate corrective action, as Huang took, can be a strong factor in demonstrating reasonable cause.
Document Reliance and Communications: Keeping records of software guidance or preparer advice can help support a reasonable cause defense if penalties are assessed.
While Huang opens a potential path to relief for taxpayers misled by software, it also serves as a cautionary tale. For complex international tax matters, an investment in qualified advice is likely far cheaper than litigating a penalty dispute years later.
For customized tax advice, contact Christine Alexis Concepción at caconcepcion@concepcionlaw.com.