The Use of Artificial Intelligence for Tax Purposes

We speak with Jeff Saviano, Global Tax Innovation Leader at EY and MIT Connection Science Fellow, about how artificial intelligence AI can be leveraged to improve tax functions. Saviano also talks about how responsibility plays a key role in the success of Generative AI.

There have been many advancements in AI. Is this technology being leveraged for tax purposes? If so, how?

Generative AI has triggered an explosion of innovation and experimentation as more companies and individuals begin to explore use cases for AI. Rules-based taxing systems are particularly ripe for disruption.With these AI capabilities now becoming more and more advanced, we have ushered in a new era of visibility into data and companies have more opportunities to unlock value, generate revenue, help manage risk, improve efficiency, and provide critical business insight – and tax is at the forefront.

How can AI be used to improve tax functions?

We are seeing an increased use of AI in the tax function. There are many Generative AI applications to tax, generally across 3 categories:

1. Tax Research Tool: Ask a Generative AI system a tax question – the results are impressive. We got a glimpse of that with the rollout of ChatGPT4 and the specific tax example – questions prompting both quantitative and qualitative answers.
2. Data Discovery: An extraordinary amount of a tax professional’s time is spent searching for and compiling data. The search capability of Generative AI is a material improvement over traditional data search systems and is now helping tax professionals discover and manage data needed to comply with complex tax obligations.
3. Monitoring Tax Law Changes: Tax laws across the globe are rapidly evolving. Early experimentation with Generative AI tools to help companies monitor tax-relevant law changes around the world are proving to be quite successful.

Law is at the forefront of AI technology. What opportunity does this present for the law / tax and what additions can we expect?

AI is already enhancing the legal tech stack and Generative AI is proving to be quite powerful, as the technology is enabling legal professionals to make more informed decisions. Further, the technology is automating legal processes, aiding in drafting / analyzing legal documents and identifying patterns in data to solve complex legal challenges. And it’s not just about AI for profit; these new AI systems have the potential to make legal services more accessible to the most vulnerable members of society.

With tax law, because it’s a rules-based system and the way the documents, data and various materials are structured, we see AI as an extremely helpful tool from a research perspective that will save tax professionals time when searching through reams of data. This is especially pertinent as 50% of the most senior tax leaders expect to experience more, and more intense, tax audits in the next two years, according to recent EY data, underscoring the crucial role AI can play in streamlining tax teams’ tasks.

Why does responsibility play a key role in the success of Generative AI?

The many Generative AI opportunities and diversity of applications being discovered must be balanced against certain risks inherent with this powerful technology. While AI enthusiasm is off the charts, the AI community should strive for Responsible AI in both development and application.

There are several risks emerging associated with Generative AI:

• Regulatory Compliance: AI is currently regulated in many jurisdictions, and that regulatory oversight will only intensify; in particular pertaining to data privacy and security.
• Minimize Biased Outcomes: AI can produce biased outcomes. Even if users do not control the data fueling an AI system, there are specific actions users can take to test for bias and mitigate troublesome outcomes.
• Ensure Transparency and Explainability: Some AI tools lack transparency, and the outcomes can’t be explained. Users need to be aware of this limitation and independently validate key outcomes.
• Protect the Human Workforce: Both the public and private sectors have an obligation to intensely focus on this risk, launching new initiatives to train workers for the jobs of tomorrow. This is a great opportunity for public/private collaboration and partnership.

There’s also a broader set of responsibilities emerging associated with technology ‘supervision’ when considering applications to the Law. Lawyers have an ethical duty to understand how these systems work and ensure that technology systems are properly supervised, just as lawyers supervise junior associates.

Why should collective intelligence and keeping humans at the center remain a priority?

As AI becomes more widely integrated into businesses and industries at large, the evidence is clear that it’s essential for organizations to keep humans at the center. In fact, EY research found that those that do are 2.6 times more likely to successfully transform than those that don’t. Collective Intelligence represents the symbiosis of human and machine, with real people remaining at the center and enabled by AI.

This is certainly true for knowledge workers, where AI systems are supporting professionals, rather than AI taking the jobs of knowledge workers. The goal of human-centered AI is not to replace humans but to enhance our capabilities by way of intelligent, human-informed technology.

The best outcomes will derive from a powerful combination of machine learning with human values. That’s the true essence of Collective Intelligence, recognizing that machines are frankly better at some things than humans are; areas such as data analysis, fraud detection and language translation.

However, human values like emotional intelligence and creativity are also critically important. This Collective Intelligence enables humans within organizations to make more informed decisions and discover more innovative solutions.

This interview originally appeared in our TradeTalks newsletter. Sign up here to access exclusive market analysis by a new industry expert each week. We also spotlight must-see TradeTalks videos from the past week.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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