Brian Tankersley, CPA, and Randy Johnston, discuss new AI innovations in the tax preparation, planning and strategy space, and how tax pros and advisors are using them. Watch the video, listen to the audio, or read the transcript.
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Transcript (Note: There may be typos due to automated transcription errors.)
SPEAKERS
Randy Johnston, Brian F. Tankersley, CPA.CITP, CGMA
Brian F. Tankersley, CPA.CITP, CGMA 00:00
Randy, welcome to the accounting Technology Lab sponsored by CPA practice advisor. With your hosts, Randy Johnston and Brian Tankersley,
Randy Johnston 00:10
welcome to the accounting Technology Lab. I’m Randy Johnston with my co host, Brian Tankersley, and we are going to produce a session for you today on AI tax. Now it turns out that there is a series that we’re going to do, AI tax, AI small business accounting or client accounting services, and an AI audit. You may want to listen in on those other sessions as well, but we thought it was important for you to get a drift of how much is changing, and if you were going to make adjustments that this might be the period that you’d look particularly in the in light of tax so you could either try a few of these tools in the extended tax season, or be ready to make the adjustments after the tax deadline. Now, I like to say we don’t have a dog in the hunt. You know, we’re not getting any fees from anybody or anything like that. These are just the products we’re aware of as of the date of this recording. And we are amazed. I might even use the word appalled, but that sounds negative. How many products are coming to market, and very rarely do I get surprised. Within the last 30 days, I’ve been surprised three times on products that I should have known about and I didn’t. But between Brian and I, we do spend a bit of time trying to learn about products. We also are going to point you to our show floor walk throughs at AICPA engage and at scaling new heights, because that is part of where we discovered some of these products. And wanted you be aware of that way. But when Brian and I were talking about, you know, if I was a practitioner right now, what would I want to learn about? That’s how we got to these three sessions. So that said, Brian, I know you’ve got content for us to work from this time around, and including the mainstream products and tax like access tax and Pro System tax from cch Walters Kluwer. And of course, you got Thomson Reuters Ultra tax and their higher end go system RS product. And then with Intuit the lecert and Pro Series product. And of course, Drake has multiple different products, Drake and Tax Act and others that they own. We, however, are noticing that there’s some up and coming tax platforms, tax compliance platforms, our friends at Corvi and their instead company, are creating a tax product, which the iris private equity group has funded. And of course, you’ve got April tax, which is an AI product out of New York, which seems to be making progress. And then the I win folks, which took on 100 million plus 100 and 13 million, I think of private equity money is also building a tax platform. So that’s kind of a rant on a lot of different higher end platforms. Of course, you’ve got the SaaS product from Intuit Pro Connect tax, and then you’ve got smaller products, tax layer and the like. So Brian, I’ve already probably said way too much, but what do our listeners need to know about these? Well, call it mainstream compliance products. And in the context of AI, I think the ones that qualify here are probably instead. I One and April. And I think really at this point, none are ready for prime time, but all are going to release products this
Brian F. Tankersley, CPA.CITP, CGMA 03:42
year. Yeah, what I would just generally say is that, you know, tax software is, is very much an oligopoly, where we have a small number of of highly entrenched competitors. You know, if you look at the stuff, at the ones in the left column, those, if you’re not running one of those. You know, there’s, I mean, there’s a couple. There are a few additional ones. There’s the CCH, small firm tools. You know, some people like to run, like to run tax later, pro, I mean, there are a few others, but pretty much it’s, it’s those six are the practitioner class applications. Now, the thing that’s, you know, but, and the thing about it is, the price always seems to go up. And the, you know, the investment seems to be negligible year to year in most of those platforms. Now, the thing that’s different that I’m seeing this year is that is that there are, there are eight figure sums, you know, 10s of millions of dollars at least, going into tax platforms. And so I think, I think in general, people, you know, I think the one to watch here really is going to be the core V effort that that has significant funds from the iris group, Iris, remember. Owns practice, engine and docket and star and a number of other a number of other platforms, and they’re really heavy into payroll in the UK. However, they they needed a tax product to fill out their suite, and they’ve made an investment with Corby, and they’re headed down that direction. Interesting to see, to see how this all works out. But I fully, I don’t. I’m not sure that I expect the the you know, knowing Andrew from Corvi, I really, I don’t, I don’t expect him to come up with a solution that is the same as these ones on the left. Because remember these ones on the left, many of them were designed as DOS applications, and then they made Windows versions of them in the late 90s, and most of them haven’t changed a whole lot since then. Yeah. So
Randy Johnston 05:56
to kind of for those of you just listening in, when Brian refers to the ones on the left. He’s thinking about those of you who can see but it’s the mainstream products. It’s the two cch platforms, access tax and Pro System tax. It’s ultra tax. It’s assert Pro Series and Drake and those six truly are the mainstream right now. Now, Andrew and Amanda argue. Did show Brian and I the platform at AICP engage for a bit. And you know, what they’ve built to date is impressive. But just to give you a perspective, access tax, in its current iteration, has handles a little over 4000 I think the number is 4200 forms, it might be 4290 and again, don’t quote me on the exact number, but it’s a lot. And I’ve heard Brian try to teach me through the years. You know, the tax law here in the United States is so Byzantine. Federal Tax is pretty easy compared to state and local by the time you do all of that. So you can get
Brian F. Tankersley, CPA.CITP, CGMA 06:57
locals like Afghanistan, it’s where empires go to die. Okay? It’s that way with payroll. It’s that way with tax. Okay? And, you know, some people like zero have been very un were unsuccessful creating payroll, and they they went with gusto. Zoho has successfully created 50 state payroll, but we don’t see a whole lot of 50 state compliance applications come in successfully because
Randy Johnston 07:34
but the key thing to take away from this early part of today’s podcast is the core compliance products are pretty much in place. You’ve got at least three up and comers with Corby, April and I one, and you just want to be aware of them. But what has changed is in the AI processing that is happening on 1040, work papers and on k1 processing and on PBC. So let’s talk about the the 1040 work paper products. Now we have recorded separate podcasts on each of the 1040 work paper products, of cch scan with auto flow, and of Thomson, Reuters, sure prep, and of grunt works and all our fine products continuing to refine what they can do, the newest up and comer competitor for that style of work paper is Q, x’s art, Robo, 1040, now there’s about eight products in that category, but frankly, we don’t see that category getting a lot of active development. So what has been happening is, you know, k1, support tools have been coming up. We’ll talk about those in a moment. But you know, there are now products that can completely prepare a tax return, which, you know, I’ll call AI work papers for this podcast. You feed the client documentation up. It runs to the AI, and it populates the compliance product. Now in some cases, it’s automatic, like it is with black or tax autopilot. In other cases, there are steps where you export tax returns, combine it with the the supporting documentation. It runs through the AI you import the tax return. That’s kind of the way the filed Solomon and magnetic folks have done it now, we suspect. And again, this is evolving as we speak. I could be wrong by this afternoon on this statement, but I think the most sophisticated of the platforms right now is black or Yeah, the second most sophisticated is filed, and then it’s a bit of a toss up in my mind between Solomon and magnetic, but those are the four companies that do a complete end to end, pumping it into your compliance product work paper. Now, on the other hand, the portal market has expanded now above 90% Portals out there. And, of course, cch is, you know, introducing a new scan optimizer, which will replace their legacy scan tool that will include K ones. And they, cch believes that this is a data driven piece, and they’re going down the data path where others are doing the AI path, like additive or abacus are doing. But in terms of competitors for the work paper products, you’ve got some retrieval products that are applying AI to get the work papers in place. And I consider these more competitors against the traditional now 20 year old work paper products, because it was 2006 when we first started talking to you about work paper products. But you know, the players that are in here include true perhaps Juno prepare, which just announced a an integration with tax dome. You’ve got soraban And Enoch and his team have just concluded that they can actually create a portal over the last few weeks, you’ve got txf intelligence, which is from the tax file, folks, I think that’s to help support their outsourcing practice in part. And then you’ve got tax global, which is a completely developed from scratch AI platform, which some of you might consider competitive, just like you might consider Intuit tax live competitive, but tax global is focused on high net wealth individuals. Now there’s lots of other PBC products the you know, when you’re making a client request, list of documentation. There’s products that do a beautiful job on the organizer side, lisio and trust and Stanford tax come to mind. And we’ve had podcasts on all of those as well. But here I was really trying to focus on products that are using AI processing to work on the work papers. And you can either do gathering, a little bit of extraction, or you can, you know, do the full preparation. And we believe that the preparation tools are ready for some of your testing, and I think you’ll find that they’re pretty accurate. So Brian, I think that’s the best overview I can give quickly of the 1040 work papers. Now, you know you’ve you obviously are a CPA, and you’ve done tax, so you’ve got a little more experience on this than than I do. But are there other insights that you think I should have called out?
Brian F. Tankersley, CPA.CITP, CGMA 12:34
Well, the Thompson review ready product is, is, you know, again, the next evolution of the sure prep. So we’ve listed it on the left, and we’ve said there hadn’t been much innovation, but really, the sure prep edition at Thompson Reuters has been a game changer, just as much as the xcm integration into cch access was a game changer there as well. One one that you one that we didn’t mention, that I that I think bears mentioning here, especially for business returns, would be, would be the validist product, simply because it will, it will extract all it will extract full detail out of general ledger, and full AR detail, Full AP detail, full inventory. And then it will create the standard schedules that auditors need. And so that, in my mind, is a interesting, is an interesting place to start with. If you have somebody that has a decent, decently clean set of books, but maybe hasn’t formally done, hasn’t formally reconciled everything, or hasn’t created roll forwards, or, you know, the kinds of things that you know, somebody that’s a good bookkeeper, but maybe hasn’t, hasn’t prepared formal reconciliations, the way that, the way that you might traditionally see him, or or something like that, and so, so that’s in there. You know, the the k1 stuff is quite interesting in how it, how it will, it process K ones and get the information in there. I will tell you that I saw a tweet yesterday as we’re recording this of somebody that said that they used a k1 importer. And before you know when, after the k1 was imported, it said that the person owed $600,000 once the once the other items that were that were kind of in the footnotes were entered, the person got a refund of 30,000 Okay, so, so it’s important to note here that with all of these AI things, and, you know, given the given the complexity and the diversity of how people report things in K ones and other things like that, I think it’s I think it’s critical that even even though these things are being filled out, I think you have to really pay very careful attention. It’s no different than having a a new staff person or an intern doing the data entry on some of these things. You know, again, I’m not suggesting that they’re not more accurate than that, but what I. Saying here is that, you know, these are relatively new products, most of them on the right column. And again, I we think they’re going to get the right answers. But again, the hallmark of a professional is that you know you have the right answer
Randy Johnston 15:15
well. And let’s face it, when the work papers first came out in the 2006 time frame, it was about 10, 2010 or 11 before they really started working. Well, I think we’ve got some of those same symptoms. And your point on Validus is actually interesting, because there are many other competitors with some of these same extraction tool capabilities. Audit site is doing some of that. You got tally four that’s doing some of that, and active ledger as well. But you know, if we turn our attention then, just to a few other
Brian F. Tankersley, CPA.CITP, CGMA 15:45
AI tax tools.
Randy Johnston 15:48
Clearly, what’s happening in the k1 world is interesting. Of course, cch is entering with their scan optimizer with k1 which is available here this summer. So if you’d like to try it out in 2025 you can do that, and they expect a full release after October 15. But you’ve got the k1 tools of additive.ai, and you’ve got the abacus.ai tool. And of course, the long term player in that space has been K, 1x but additive AI is clearly doing a stunning job of extracting k1 information, but But many of these companies that we’re talking about in this podcast episode are invitation only, and they tend to be somewhat less responsive off their websites to requests. So if you’re a listener to our podcasts, again, we we don’t get anything. There’s no referral fees. There’s nothing going on that way. But all of these companies, we know the CEO, the VP of development, the VP of marketing, and so forth. And normally, we can say, Look, this, this firm seems like a good candidate to be, you know, doing extended tests on your platform. Would you add them to your pool of firms that you’re supporting? And you know, most of them are far enough along now, they don’t think that they need new insights and new situations that they haven’t run into. But we do know, for example, with additive AI, with Dwight Crow and his company that they’re handling hundreds of pages, hundreds of page long. K1, a single. K1, 152
Brian F. Tankersley, CPA.CITP, CGMA 17:31
50 pages. Oh, in my life now,
Randy Johnston 17:34
and extracting the data correctly. And in fact, one of the most fascinating comments unprompted I’ve heard repeated from multiple providers that are extracting K ones is that they have proven that what they’re extracting is correct and that practitioners had extracted the information incorrectly in prior years. So they’ve got a kind of a pseudo embarrassing situation of AI doing the K ones correctly, and people doing the K ones incorrectly. And now we have to explain to the clients some of the differences when they were not, you know, so obvious. So in any case, we thought that all of those AI tax products were at least worth identifying. So if you’re dealing with you know, AI tax notice, we’ve got the portal side of it, we’ve got the PBC, AI, we’ve got the work papers, and then we’ve got the new generation tax products. So there’s a lot of them here. So Brian, other other comments that you might make,
Brian F. Tankersley, CPA.CITP, CGMA 18:37
I will say that that I find it interesting when I talk to the people doing the doing the AI prep and AI work papers, it’s, it’s interesting how many of them are using offshore labor to make the corrections and thus read and thus train the AI models that they’re using to do the preparation. And it’s, I’ve been pleasantly surprised with the investment that they’re making to try to get things right the first time as they’re doing the training. But you know, again, you’re going to have to figure out, you know, given, you know, I know there, I don’t know section 7216 super clearly, but I will just say that that you’re going to have to figure out whether or not their involvement with offshore requires you to do the the disclosures of to your client of offshore, of the offshore prep. Because, you know, in some cases it seems like there’s, in some cases, it seems like the offshore thing is really just a just a check on other cases. It seems like it’s almost a full on preparation. So I think we’ve got to, I think you’ve got to make that decision, and you’ve got to do a gut check there. Because, you know, again, and I’m probably being a little paranoid here, but under 7216 if you disclose stuff to people offshore, where it’s not. Not disclosed to the client. You don’t get the adequate exposures. It’s a felony. And that’s end of instant, end of career, you know, that’s a, that’s a, you know, one strike and you’re out. And so I, I want to, I want to caution folks that you need to think about that I’m not necessarily thinking, you’re not to think too hard, because it seems like there’s an exception in 7216 for the software providers to use offshore work. But again, it’s a, this is a this is a rapidly changing space, and there are millions and millions of dollars being spent in this area. I fully expect that. I fully expect major announcements from cch and Wolters Kluwer as well as cch woltersburg, as well as Thomson, Reuters and others during the during the third quarter, you know, again, and there may have been some that have come out in between the time we’ve recorded this. And when you actually, when you actually hear this,
Randy Johnston 20:58
yeah, you know, in fact, that’s interesting, because you did see the ready to review at Synergy, and I think those types of platforms will be released now Brian’s sensitivity to 7216 you know, we happen to share that, and having taught outsourcing courses, you know, clearly, there’s a lot of disclosure and things that we’ve talked about in a prior episode of the accounting Technology Lab. But generally my preference is technology that is 100% onshore in the US, and so that’s not really an America First move. That’s a I want to protect all the data the best I can onshore now these onshore sources could clearly be attacked by offshore bad guys or onshore bad guys, but from a disclosure perspective, I actually prefer providers like black or is like filed is that are completely onshore without offshore labor, and those, those tend to Get a little more favor for me, additive. Ai, same deal. I like the ones that are like that. And again, if you’re doing 7216 just remember that the rule of thumb has been you have to name a period. But an extended period is pretty good rule. Name it for five years or 10 years, instead of doing a 7216 every year. Well, Brian, any parting thoughts on AI tax for this point in time. And we know the point in time when we finish recording will change.
Brian F. Tankersley, CPA.CITP, CGMA 22:28
Oh, there’s just a lot of innovation. And I think you really have to stay tuned here, you know, in addition to the statutory changes with the one big, beautiful Bill act and and some of the other things like that, I think it’s, I think it’s critical that you really, really watch the technology space, because it’s my sense that when things move and the technology can overtake the productivity of the human labor. I think, I think the fees are going to move quickly, and I think the productivity is going to move quickly, and I think there are going to be some opportunities that are going to that are going to be available, and I think there’s some people that are going to get left behind and lose a lot of clients if they don’t react to these trends quickly when they emerge. Because I think you’re going to see the the level of game from your competitors go up significantly, especially as we’re using more of these AI tools in the future.
Randy Johnston 23:27
Well, thank you very much. We appreciate you listening in. We’ll talk to you again soon on another accounting Technology Lab. All the best to you. Good day.
Brian F. Tankersley, CPA.CITP, CGMA 23:37
Thank you for sharing your time with us. We’ll be back next Saturday with a new episode of the technology lab from CPA practice advisor. Have a great week.
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