February/March 2024 Content
Artificial Intelligence in Your Tax Practice
By Tommy Stephens
The following is an excerpt from the original article published on October 16, 2023.
In this article, you will learn how tax practices can capitalize on AI to improve efficiency and accuracy.
Before considering AI in the tax practice, we must understand the difference between generative AI and artificial general intelligence. Tools such as ChatGPT and Bard fall into the generative AI realm. Generative AI tools rely on large language models (LLMs), massive data sets often containing over 100 billion parameters. These LLMs are “trained” to recognize the relationships between words, the context in which words appear, and the sentiment of the user’s request (celebratory, factual, sympathetic, etc.) Tools such as ChatGPT and Bard are leading examples of today’s class of generative AI tools.
On the other hand, artificial general intelligence is a form of AI in which computers may be able to reason, sympathize, solve problems, and generally mimic human behavior. Let’s be clear – most experts in this field believe we are many years – perhaps even decades – away from artificial general intelligence materializing if it ever materializes.
All practitioners seek to overcome challenges associated with managing a rewarding tax practice. Among these challenges are staffing, seasonal workloads, increasing complexity, client satisfaction, and competition, to name a few. Fortunately, generative AI offers tangible opportunities to help you overcome these challenges.
Automated Data Entry
Although not a new concept, automated data entry has matured in recent years to the point that it is a powerful AI-based technology. Virtually every major tax software publisher offers automated data entry options for their tax preparation software. Firms that use this form of AI realize the benefit of saving time because team members are no longer required to input data manually; they also will likely find that the error rate associated with ingesting data declines.
Automated data entry tools help to reduce errors associated with data entry. But AI-driven error detection shows up in other ways. AI-driven algorithms can analyze returns and identify errors or items that do not align with expectations. For example, for a taxpayer who receives multiple W-2 forms, embedded rules in the tax software can identify situations where the taxpayer overpaid FICA taxes and deserves credit. Of course, there is no substitute for human expertise and judgment; however, these rules can enable practitioners to complete tax return reviews much more quickly than if the reviews are entirely manual.
Tools available today, such as Corvee, allow practitioners to analyze quickly competing alternatives for tax strategies. To illustrate, you could use Corvee to quickly and easily compare the tax implications associated with a form of entity election (S corporation vs. C corporation, for example.) Likewise, Corvee can assist with gathering all the data needed to prepare a client’s return by generating “smart” questionnaires that omit unnecessary questions and ask for additional details when necessary.
Research And Communication
You can also use today’s AI tools to perform tax research. For example, suppose you have a client who receives a CP-12 notice from the Internal Revenue Service. You could use a generative AI tool such as ChatGPT or Bard to generate a response on behalf of your client. If you have a ChatGPT or Bard account, enter the phrase “Respond to IRS CP-12” in your service, and you may be pleasantly surprised at the result!
Foundational AI Options To Improve Tax Practice And Efficiency
Indeed, other AI options exist today – and will expand in the future – to improve efficiency in businesses of all types, including tax practices. For example, tools like Grammarly are extremely useful in helping to improve the quality of writing memos, emails, blog posts, etc. Further, newer tools such as Microsoft’s Copilot and Google’s Duet are rolling out to assist with creating content and managing everyday tasks. If desired, you can have Copilot analyze the emails in your Inbox and prepare responses for you automatically. Likewise, you can instruct Copilot to prepare a PowerPoint presentation from an existing Word document for a client. Further, suppose you and a client participate in a Teams meeting, Copilot can summarize the key discussion points from the meeting.
AI is here to stay, and the benefits can be enormous for tax practitioners who use it responsibly. Improved efficiency, accuracy, and client service are all possible if you implement artificial intelligence in your tax practice.
Tommy Stephens maintains professional memberships with the American Institute of Certified Public Accountants and the Georgia Society of Certified Public Accountants. In 2003, Mr. Stephens affiliated with K2 Enterprises, and in 2007 he joined the firm as a partner. K2E Canada Inc. and its partner K2 Enterprises, offers a broad curriculum of technology-focused webinars taught by an award-winning team of instructors.
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