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Disrupting The Gridlock in Tax Reform

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Artificial Intelligence Will Set Your Free

Whoopee it’s income tax time once again! This year kind of snuck up faster than usual. Maybe that’s what I get for spending so much time and energy sorting fake news from real news, watching Presidential news conferences and trying to decide if the Chicago Cubs can repeat in 2017. Wow, there are just so many hours to go around.

But when the first 1040’s and 1099’s started showing up in the mailbox, the fun was about to begin. I was reminded once again that it was time for me to write another check so our United States government can support worthwhile causes like sending planeloads of cash to the leaders in Afghanistan and other acts of to spread goodwill worldwide.

What is great about this year is that it is the last year of complicated tax preparation. Our new President is going to reform, simplify and turn the whole experience of tax paying into a day at Disneyland. Tax reform is top priority, right?

Don’t count on that ever-taking place, here is why. In 2014 the IRS, counted about 800,000 people employed in the business of helping people prepare taxes. The data is a couple years old so it is even higher today. The average tax preparer earns $60,000 a year according to the Department of Labor. About a quarter of these people are CPA’s making a whole lot more than the average. Our guess is that it all adds up to a $60+ billion a year industry.

This is chump change however when compared with what the IRS calls “the cost of tax compliance” which is placed at a staggering $400 billion. Nobody knows how many salaries are contained in this number, but you can count on it being large.

So our guess is that there are well over 1 million employed and that is one swamp that is going to be very hard if not impossible to drain. Tax regulations are more likely to remain ever changing and ever more complicated.

But there is hope in the form of Artificial Intelligence. The term AI has been written and talked about for a long while. Way back in 2001 Steven Spielberg and Stanly Kubrick teamed up to make a forward thinking production: A.I. Artificial Intelligence. Even today, the truth is very few people are certain of its potential or exactly how it works. IBM is generally considered the leader with Watson and there is lot’s more players to enter the field.

We may have to accept that the IRS is beyond repair but that doesn’t mean we have to sit still and do nothing. In a world of technology that is disrupting industry after industry, the fat cat tax preparation business is a sitting duck and duck-hunting season is underway.

The day of reckoning is coming. AI doesn’t simply store and recall reams of data; AI can be programmed to be intuitive. The earliest signs showed up in platforms like Turbo Tax and others where one could conveniently fill out their taxes using a menu driven tutorial for little cost. This is a step in the right direction and has proven popular with many taxpayers with relatively simple income. However, it can get stalled as the composition of income becomes more complex.

But its biggest shortcoming is its lack of human experience and wisdom. For example I know of one tax preparer that routinely files for an extension for his most aggressive clients postponing the filing deadline from April to October 15th. Somehow, the genius has learned that there is a much smaller chance of being audited on returns filed in October.

This year tax preparer H&R Block is moving the rock up the hill. Yes, these are the same folks that you’ve laughed for so long. Like so many others, I have always viewed going to H&R Block in the same why as going to a Barber College to get a haircut. But at least with the Barber College, your hair can grow back!

So what is different this year? This year IBM’s Watson was integrated with that marginally skilled bow tie wearing Block employee. Artificial Intelligence adds a level of firepower never before available. Every year, Watson will get reprogrammed not only with the changes in the tax codes but also with reams of statistics about optimizing deductions without enhancing the risk of being audited.

I have never been a customer of Block nor is there any compensation for this plug. But honestly, these guys are on the vanguard of something pretty special. It is easy to envision Amazon, Google or maybe even Apple having an AI devise that incorporates an AI App to act as your tax advisor coming up with low risk ways for you to take all kinds of deductions you never dreamed of. Artificial Intelligence is here and it’s going to set you free.

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