Today, artificial intelligence (AI) is an exciting topic of conversation as more tools are becoming available. Twenty-three years ago, IBM’s computer Deep Blue made headlines across the world for its successful victory over a world-renowned chess Grandmaster, Gary Kasparov. In more recent times, we’ve seen AI tools such as ChatGPT make an even bigger mark than the historic 1997 chess game. AI tools have passed the US Medical Licensing Exam, as well as several law school exams from the University of Minnesota. While the AI technology is impressing business faculty at the Wharton School of the University of Pennsylvania, they still made a point of noting that the AI was still making “surprising mistakes with basic math”. Despite its generally impressive performance, AI technology is still far from foolproof.
Tax administration is not the right venue for testing artificial intelligence. There is much that AI technology can do for us. It can save us time and make processes more efficient. However, when it comes to taxes, making sure taxpayers are dealt with fairly and confidentially requires a human touch. This is why the IRS has incorporated AI technology, such as their Reasonable Cause Assistant (RCA) tool, but with human oversight. Unfortunately, the Treasury Inspector General found that the RCA tool was incorrectly providing penalty relief 89% of the time, with the errors going unchecked by humans. This serves to highlight why AI technology is far from a foolproof solution when it comes to tax administration. In order to ensure that taxpayers are being treated fairly and with due diligence, tax administration should combine the capabilities of AI technology with the expertise of human professionals.
Robert Kovacev, a lawyer from Miller & Chevalier, wrote an article on the use of AI in Tax Notes. He welcomed the use of AI tools but warned that courts no longer can presume that the IRS penalties are correct if the decision was made by an AI tool. Kovacev advocated for a “transfer of burden of proof” to the IRS in such cases. Ultimately, he stressed the importance of using AI tools as a starting point for processes, but it is essential to have experienced human professionals review and adjust the decisions, ensuring that taxpayers are being treated fairly and gaining confidence in the tax system.
In conclusion, AI technology undeniably has many potential benefits for businesses, including tax administration. However, it is important to be mindful of the limits of AI technology and the fact that human involvement is often essential to ensure users are treated with the consideration they deserve. Taxpayers should not be judged by an AI tool with non-disclosed judgment criteria, and consideration should always be given to have human review the decisions by the AI tool. By combining AI technology with the expertise of experienced human professionals, we can ensure fairness and trust in the tax system.
