“A.I.” is the buzzword none of us can avoid, regardless of the industry we are in—including tax professionals. When it comes to new artificial intelligence technology, the questions of whether to use certain tools and how those tools can be used appropriately can be tricky to answer. Those of us who practice before the IRS are bound by the ethical rules laid out in Circular 230. Though these regulations do not yet speak directly to the use of A.I., a number of Circular 230 provisions inform us on what is expected of us as tax professionals. This includes rules around due diligence, competence, and best practices.
Due Diligence
Due diligence refers to the exercise of care that a reasonable business or person should be expected to take to satisfy a legal requirement. When tax professionals have volume-based practices—where income is tied to the sheer quantity of tax returns they complete—they may find themselves working 12 or 14 hour days to generate the revenue they need. Given the complexities of tax law, tax professionals may still find themselves with not enough time to complete the due diligence needed on every tax return.
Due diligence means asking ourselves, “What would a reasonable professional do to ensure that the information on this tax return is correct?” How might artificial intelligence play a role in this? Unfortunately, A.I. tools make it easier than ever to fabricate information. Of course, we want to believe that new clients are who they say they are and that they are representing their financial situation and personal details correctly, but we can never assume. We have to ask intelligent questions to authenticate a client’s identity, confirm that their dependents are in fact their dependents, and ensure the taxpayer understands that they are responsible for providing us with all relevant information including prior year returns, good books and records, and substantiation for any claims.
This also applies to using another professional’s work product whether that is documentation provided by the taxpayer, work completed by someone on your own team, or work from experts you enlist to execute on a tax strategy. Could that product be A.I. generated? We can trust, but we also need to verify. We have a duty to confirm, “Does anything about this raise a flag? Does it look inconsistent, incomplete, or incorrect?” If so, we have to go back and make reasonable inquiries. That being said, we do not want to put ourselves in a position where we are essentially acting as an auditor to our clients. The IRS audits them (if they so choose). We encourage open communication and follow up on anything that appears incorrect, incomplete, or inconsistent.
Competence
Under Circular 230, the standard of ethics requires that we prevent ourselves from giving clients a false opinion whether that is knowingly, recklessly, or through gross incompetence. When we are providing written advice, we have to get all of the information and relate the law to the facts. Advice is not something we can outsource to artificial intelligence. The value of human judgment is what we are paid for—to provide wisdom and guidance throughout the tax planning process.
This also relates to the issue of competence—another provision of Circular 230. Tax professionals are required to recognize and understand when we do or do not have the confidence and ability to take on an engagement. Again, A.I. cannot act as a substitute for our personal competence. We cannot rely on technological tools to provide us with information and expertise we do not already have. This is why organizations like AICTP exist: tax planners need to be trained by certified experts and need to give themselves enough time during a tax engagement to truly do their due diligence on every tax return.
Best Practices
So what are the common ways tax practitioners might attempt to use A.I.—and what might it look like to do so ethically? One key area is tax research. Though generative A.I. tools like ChatGPT can be helpful for research, the raw output can be misleading and cannot be used without review from a competent tax professional. Take this example from an actual class about tax research: the instructor used the example of researching Internal Revenue Code Section 102(c), which states that an employer generally cannot give a tax free gift to an employee. When ChatGPT was asked to provide a citation for three recent U.S. Tax Court cases that reference IRC Section 102(c), the tool created three fictional court cases. The citations were correct, but the names and descriptions of the cases were fabricated. In fact, an actual tax court saw a case where someone used an A.I. tool, and it provided a false legal citation, and the court figured out and had to penalize the person who submitted that citation.
One more reliable way to use A.I. is for creating summaries. We might upload the IRS’ guidance or a court case and ask ChatGPT to summarize it. We still have to be careful even here, since ChatGPT has been known to misrepresent numbers, especially those that the IRS adjusts each year due to inflation. So trust but verify. Keep in mind that these tools may also generate biased results, since models are not trained with all possible information. A.I. could still function as a starting point for our research, but we will want to supplement it with more reliable sources.
A.I. can also be used to clean up communications to clients. Say we need to adjust the tone of an email to make it more urgent or so that it emphasizes the value that was provided. Rather than using ChatGPT for a first draft, you can use it to change the language to match the need.
If we do upload documents, keep in mind that open model A.I. like ChatGPT cannot be considered private or secure platforms. Do not put personal identifiable information (PII), such as unredacted tax returns, into ChatGPT or similar tools.
Summary
Artificial intelligence is becoming an increasingly common tool for many professionals, but tax planners need to be especially careful when using A.I. in their practice and wary of how A.I. might result in fabricated information being sent their way. The best rule of thumb is to verify, verify, verify. Whether this means double-checking tax research or confirming a potential client’s identity, never skip the step of doing your due diligence and relying on human wisdom above the latest technology.
To learn more about how to navigate the use of artificial intelligence and other technological tools in your tax practice, greater peace of mind, sign up to become a Certified Tax Planner today.
