“HAL, do an R&D study.”

Do you remember HAL 9000? He was the fictional artificial intelligence (AI) character in the iconic 1968 film, 2001: A Space Odyssey though most people today would assume he was just an early version of Siri. Who would have thought such fiction would become reality in our lifetimes?

With the rising popularity of AI and its potential for business transformation, there's a significant push for CPAs to leverage these features to save time and boost profitability. Though it's certainly feasible to use AI for enhancing operational efficiency and automating routine tasks, assuming it can handle complex accounting and tax work, such as preparing a detailed study, remains doubtful. Yet, I see numerous “pop-up” shops emerging, claiming AI can handle 80% or more of a research and development (R&D) credit study.

Ah, yes, remember those “pop-up” tax providers from the COVID years? They promised thousands in Employee Retention Credit (ERC) refunds but lacked the technical and legal proficiency needed to keep clients away from trouble with the IRS, penalties and repayments with interest.

Now, a new generation of pop-ups have emerged, deploying similarly slick marketing and sweeping promises. Your clients may be tempted, but this time, wise words of caution from their CPAs may allow for a more educated decision.

Why Caution is Crucial

My team and I recently wrote an article with practical steps for CPAs as they identify and consider AI opportunities. After interviewing 200 top CPA firms nationwide, we identified common, routine, non-technical tasks that AI could help with in their practices.

However, R&D is anything but common, routine and non-technical. When it comes to complex tax matters such as R&D and ERC, AI lacks the necessary human judgement. For example, in determining whether a taxpayer qualifies for the R&D credit, AI cannot interview employees, perform on-site visits or conduct the necessary complex legal analysis to determine whether the four-part, test-the-heart-of-the-research credit analysis is met.

Don’t just take our word for it. Even the IRS’ National Taxpayer Advocate came out with a sober warning to taxpayers (or tax advisors) who rely on AI. Their statement from June 2024 declares in no uncertain terms:

“Despite efforts to ensure accuracy, these AI assistants may encounter difficulties interpreting complex tax laws correctly or considering unique circumstances that could impact a taxpayer’s return. As a result, taxpayers should not solely rely on AI generated tax advice.”

This statement cited a review by the Washington Post: “Don’t let AI help you do your taxes,” highlighting that “two of the leading tax preparation companies’ chatbots provide inaccurate or irrelevant responses up to 50% of the time when initially asked 16 complex tax questions.” Yikes, HAL!

CPAs’ Role and Responsibility

There is no denying AI will irrevocably impact our work in the coming years. Even the IRS has begun using AI to automate internal processes. Yet, no one from the agency claims it can prepare a complex tax study.

However, before my gloomy predictions turn true, the first voice of reason needs to come from us: CPAs and tax advisors. We must be aware of the limits of AI, given that our clients trust us more than anyone else — and it is us who will ultimately be responsible for signing the tax return.

Remember how things ended with HAL? He killed off the ship’s crew as a result of his faulty algorithm and warped logic. While “pop-up” AI tax shops may not carry quite the same level of danger, you and your client could end up similarly betrayed if you choose to solely entrust your R&D study to a faceless AI robot.