Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



Can You Rely on Google Results When Making a Due Diligence Defence

I have not located a Canadian goods and services tax (GST) / harmonized sales tax (HST) case in which the Tax Court of Canada has been asked to accept a appellant's Google research. So, from a Canadian perspective, it is not possible to say "yes" or "no" with any degree of certainty. 

That being said, there is a U.S. case of which Canadians should be aware.  In Kenneth D. And Trudi A. Woodard vs. IRS, the United States Tax Court considered whether the Woodwards showed "reasonable cause" (like Canada's exercising due diligence) so that a penalty assessed by an auditor for a mistake would be reversed by the court.  

In Canada and the United States, the taxing authorities should not impose a penalty if the taxpayer exercised due diligence or reasonable cause (care) in their reporting of tax. Often a taxpayer must go to court and demonstrate that he/she took steps to not make an error.

It appears that the United States Tax Court has accepted that using Google is an acceptable step in locating information to make accurate tax reportings.  However, in the case of Woodward, the taxpayers did not keep their research and, therefore, the United States Tax Court could not find in their favour.  The Court said:

Mr. Woodard claims that he relied on information found on unspecified Web sites written by unidentified individuals or organizations,
 

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. From the record, it is not clear that he questioned the provenance or accuracy of the information he found through the Google search engine. 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).

I am sharing this case as it may be a good authority to hand to the Tax Court of Canada someday --- especially by persons who have attempted to comply with the HST and who have made mistakes.

The morale of the story is to keep your records.  Save electronic copies of your Google searches and the documents you read and on which you rely.  You may hope that you will not have to read the document again.  But, remember the Woodwards and you may be them someday.  You may make a mistake and have to defend your actions/decisions.  It is always better to have ammunition (that is, paper)  in such a battle with the tax authorities.

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