The voices of Tax Policy Center's researchers and staff
In case you’ve somehow missed the flurry of articles describing the dramatic advance of artificial intelligence, we appear to be at the dawn of a new era. How long will it be before an AI tool can prepare our tax returns?
Up the Learning Curve
Since its public debut in November, ChatGPT has taken off like a rocket, reaching a million users in five days, 100 million users in under two months and 1.16 billion users in five months. It may disrupt multiple fields. But could it actually conquer taxes?
Consider recent AI developments in law, accounting, and management. Earlier versions of ChatGPT got about one in three questions wrong on the law school entrance exam (LSAT) (falling short of scores needed for admission to a top-14 law school), gave 100% wrong answers in a TaxBuzz test of actual questions on a tax practitioner technical support forum, and flopped in accounting (being outscored 77-47 percent by students answering 28,000 exam questions at 186 educational institutions worldwide and flunking the CPA exam).
But the more advanced ChatGPT-4 was able to pass the bar exam with a score in the 90th percentile, pass 13 of 15 Advanced Placement exams, and get a near perfect score on the GRE Verbal grad school test. And developers instructing ChatGPT-4 that it was to operate as TaxGPT were able to do simple tax calculations, as shown on their video (at 19:00 to 22.05).
Law, Accounting, and Tax Firms Invest
Tax, accounting, and consulting firms are moving quickly to take advantage of the technology. Professionals in 250 firms have partnered with Blue J Tax, an AI tool for tax research, analysis, and planning that aids in analyzing legislation and litigation to predict tax scenario outcomes with speed and accuracy. Developers claim AI can analyze thousands of past decisions, expedite research, find supporting directives, weigh alternatives, anticipate court rulings, and quantify risk.
The experimentation has been going on for some time. In 2017, H&R Block partnered with IBM’s Watson. The program lasted two years and then quietly disappeared. Watson apparently was a slow learner. Or perhaps it just wasn’t quite ready for prime time.
Intuit used AI during the 2022 tax filing season to match customers with the right human tax professional for its TurboTax Live assisted preparation. It claimed a one-hour reduction in service time compared to the year before. Still, in a blog asking “Can ChatGPT do your taxes?” Intuit said it would require “years of tax AI expertise.”
A Potential Tool for Tax Administrators
Similar to tech leaders’ open letter calling for a pause in AI development to allow for more safety protocols, a bipartisan group of senators recently wrote to IRS Commissioner Danny Werfel with concerns about AI powering cybercriminals and tax scams.
But what about enabling the IRS to defeat fraudsters, or plug tax loopholes that other AI users may be trying to manipulate or create?
Tax authorities in Greece and France have used AI to cross-check property tax registries and satellite photos of homes to find tax cheaters who don’t declare assets like swimming pools. And Johns Hopkins University computer scientists are creating “Shelter Check” to enable Congress, the IRS, or courts to scan legislation or rulings for loopholes. In a recent test, ChatGPT and GPT-3 were “completely baffled” by the tax code, but GPT-4 is showing promise.
All this may presage an AI arms race between aggressive tax planners seeking to exploit or expand loopholes and lawmakers or tax authorities seeking to curb or end them.
But summarizing reports, generating insights, writing poetry or code, preparing legal documents, or even offering financial or tax advice are not the same as answering real-life tax questions or optimally completing a tax return.
A Work in Progress
ChatGPT is still a work in progress, missing critical analytical and quantitative skills. It is flummoxed by translating our convoluted tax code, its regulations, and rulings into tailored decisions. It is prone to error and dependent on internet information only available before 2021.
Plus, even with AI, the burden of preparing a tax return will still involve collecting personal information, entering data that may be unavailable in public records, and weighing decisions based on precedent and values.
But as science fiction writer William Gibson once said, “The future has arrived — it’s just not evenly distributed yet.”
Welcome to our brave new world.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.