Tax software such as H&R Block and TurboTax are known to use artificial intelligence, which has been found to be generating tax guidance that isn’t just unhelpful; but is actually wrong. With some worrying errors being made, accounting firms need to be mindful of the potential hazards of any AI generated guidance they pass on to their clients.
Fortunately, those CPA firms who choose tax preparation outsourcing services, can rest assured that while AI tax software is used, it isn’t depended upon. Instead, it’s purpose is to provide support, not for it to be an assistant who takes over the role a human would otherwise fulfil.
Let’s take a closer look at some of the risks commonly associated with tax advice that’s AI-generated:
Results that are flawed
While it can be tempting to automatically trust the algorithms of AI when dealing with taxation, the results may not always be accurate. With huge amounts of data fed into AI on a daily basis, such things as accuracy and confidentiality, are open for debate.
For biased or outdated data, it’s highly likely that any tax recommendations given by AI algorithms will be flawed, and they are just as likely to produce results that are unexpected or at times, absurd. No CPA wants to give faulty tax advice, especially when it can lead to audits and hefty penalties.
No human judgement
It’s currently impossible to replace such a thing as human judgement, especially when giving tax advice, and with AI algorithms possessing no nuanced understanding or contextual insight; the real-world experience needed, simply isn’t there.
In addition to this, AI algorithms also aren’t able to realize when or if an exception should be made, and as tax regulations are continually evolving, such meticulous interpretation is required. Simply put, tax advice based on AI can never give the same nuanced guidance of a real tax professional.
Concerns over security and privacy
With the threat of data breaches looming large over many firms nowadays, the last thing companies want is to generate even more problems and potential threats by using AI. Any handling of sensitive information related to finances – such as social security numbers and income statements – must be done carefully. With AI algorithms open to hacking, exploitation, or manipulation, accounting firm clients could be exposed to serious financial loss.
Legal compliance
Anyone giving tax advice who doesn’t have an in-depth understanding of the legal and regulatory consequences of their guidance, is treading on thin ice. Varying from jurisdiction to jurisdiction, and continually subject to changes and updates that can occur at a moment’s notice, without a similarly updated AI system, penalties, non-compliance and a whole host of legal consequences, could ensue for clients.
Legal questions may also arise surrounding the accountability and transparency of tax advice generated by AI, and in particular, who’s responsibility is it when misleading or inaccurate advice is given by an AI algorithm?
While nobody is advising CPA firms and tax professionals not to use AI to their advantage, it must be used with discretion and extreme caution when generating advice for clients. Corporate tax outsourcing is one of the safest ways to protect your clients sensitive financial and personal data, and when outsourced companies use it to strike a balance between risk management and innovation, you and your clients get the best of both worlds.
