The Taxpayer Advocate has warned that “taxpayers should not solely rely on AI-generated tax advice.”
Would you trust Artificial Intelligence (AI) to do your tax return?
More and more taxpayers and tax advisors are turning to AI for tax advice. Earlier this summer, the Taxpayer Advocate highlighted an informal review by the Washington Post that found “that two of the leading tax preparation companies’ chatbots provide inaccurate or irrelevant responses up to 50 percent of the time when initially asked 16 complex tax questions.” (Our Forbes informal review earlier this year found some hits and misses. (☆))
The Taxpayer Advocate has since warned that “taxpayers should not solely rely on AI-generated tax advice.”
The problems of AI are especially pronounced when it comes to highly complex, fact-intensive tax incentives such as the R&D tax credit and the Employee Retention Credit (ERC). While AI certainly has a role in tax preparation—especially repeatable tasks with predictable outcomes—it cannot replace the need for informed and knowledgeable tax experts.
Still, there’s no denying the role that technology has played in tax and accounting firms in recent years. Keeping up with that technology can be expensive.
Also expensive? Talent. The pool of available CPAs has been shrinking, as Baby Boomers (and soon Gen Xers, too) retire and Gen Zers turn their noses up at accounting, and in particular, the additional training and tests needed to become a licensed CPA. According to the American Institute of Certified Public Accountants’ 2023 Trends Report, 65,305 bachelor’s and master’s degrees were awarded in accounting in the 2021-2022 school year, down 18% from six years before. During the same period, the number of candidates passing the four test sections needed to be licensed as a CPA fell even more dramatically—just 18,847 successfully completed the test in 2022, down 32% from 2016. The result? There are fewer CPAs available–you might have noticed when scrambling to find a preparer this year.
Traditional CPA firms need new capital to invest in technology, lure new talent, and be buyers in the merger game. One solution? Private equity. Five of the largest 25 U.S. accounting firms, ranked by revenue, have taken private equity money. (☆) And experts believe that’s just the beginning.
Tax firms are keeping busy as taxpayers face a number of challenges–from complying with the Corporate Transparency Act (☆) to meeting filing deadlines. Mistakes are bound to be made. When things go wrong, taxpayers often want to make things right by filing an amended return to report the previously hidden income–but should they?
Sometimes, tax authorities give taxpayers a break. The Commonwealth of Massachusetts has announced (☆) an amnesty program for taxpayers to pay tax and interest owed in exchange for a waiver of penalties. Relief isn’t just for state taxpayers–the IRS also offers some options for coming clean.
The IRS has also announced it is opening a supplemental claim process (☆) to help third-party payers and their clients resolve incorrect ERC claims. Previously, it was unclear how a third-party payer, like a payroll company, who filed ERC claims for multiple employers could easily correct claims for some companies while allowing other claims to proceed. The new process offers a fix. Taxpayers who don’t qualify can still opt in to the ERC voluntary disclosure program or withdraw their application.
While some may think that there's nothing magical about death and taxes, many lessons can be gleaned from the well-known characters from The Happiest Place on Earth.
With the tax season almost a wrap, tax professionals are already looking ahead to conference season. The National Association of Estate Planners and Councils (NAEPC) will be holding its annual conference at the Disneyland Resort next month. While some may think that there's nothing magical about death and taxes, many lessons can be gleaned from the well-known characters from The Happiest Place on Earth. In honor of the occasion, take a look at some timeless estate planning insights inspired by the classics.
Enjoy your weekend!
Kelly Phillips Erb (Senior Writer, Tax)
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By law, you are required to withdraw funds from your IRA and other traditional retirement accounts each year after you reach age 73 (climbing to 75 in 2033).
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