Artificial intelligence (AI) is here to stay, and this author uses AI extensively. Nevertheless, this article was written in response to an awful piece of tax advice from one of the well-known AI programs, which we were asked to review.
So what are the pros and cons of AI in the tax field?
What does AI do well?
We are accountants, not software engineers. To the best of our limited knowledge, AI can gobble up huge amounts of information with a view to answering complex questions and carry out boring tasks fast and well.
That doesn’t mean human beings are fired. It means they can apply judgment to the AI answers and do physical things that AI cannot do, such as supply goods, medical services, court judgments, and much more.
Judges, like King Solomon, cannot yet be replaced by AI.
What AI does badly
The old adage regarding computer software still applies: garbage in, garbage out. AI has to be “trained” on information, but sometimes it somehow “hallucinates” by scooping up wrong information such as non-existent court case precedents.
What about AI and tax?
In our experience, some AI “agents” (programs) are trained only on tax material, while others are more general, such as ChatGPT, Claude, and Gemini.
When it comes to Israeli taxation, some AI agents are trained on Hebrew tax legislation; some rely on English summaries. Imagine, for example, an AI agent using an article in this column 10 years ago – it may not go into small details and may not be up-to-date.
As for AI agents trained on Hebrew tax legislation, they need to string together tax laws, regulations, circulars, and court judgments, all in Hebrew, then give their answers in good English (for example).
Some AI agents don’t do all of this, while some are out of date in our experience.
And no AI agent knows the unpublished positions of Israeli tax officials – accountants find these out on the job or in tax audit meetings.
What do taxpayers need?
Take, for example, a family making aliyah to Israel from the US. It needs an AI tax agent that is trained on US federal laws, US state laws, and Israeli laws. If changes are proposed, the AI tax agents need to factor in the knock-on impact under the tax law in both countries.
The awful AI tax advice mentioned above failed to appreciate that a proposed change of legislation abroad would have adverse consequences in Israel.
We humans did appreciate the adverse consequences and were able to suggest some legitimate tax planning clarifications in some of the legal documents.
In another instance, the AI agent was European and simply missed out the US as too complex! This was no help to a US-European-Israeli family (even if Hebrew shortcomings are fixed).
Will a judge agree?
As mentioned, judges have been highly critical in cases where hallucinated non-existent precedents were cited by AI agents. Nobody is proposing to replace the judiciary with AI agents.
What about the Israel Tax Authority (ITA)?
The ITA system uses “big data,” i.e., it cross-checks personal details of people across different systems. The ITA relies on accountants, Israeli banks, and the VAT authority to check that people exist and have legitimate motives.
Only after these existence checks are performed can a business register and legally invoice a customer, get paid, and pay its taxes!
As for claiming an Israeli tax refund, above a certain (low) level, AI is not used – this requires multiple human approvals.
Israel has a system of “Israel invoices,” which requires businesses to get an “allocation number” immediately from the ITA computer system when issuing an invoice to an Israeli customer over NIS 5,000; otherwise, the customer cannot recover the VAT charged by the business.
The EU and other countries have plans to copy these Israeli VAT procedures.
Other issues
Protection is still needed against hacking and personal data leakage. If you hold personal data on your computer, e.g., salaries, can you be sure that AI won’t read and remember the salary data?
To sum up
Don’t write off us human beings quite yet. Our role is to apply judgment to AI output and to look ahead.
Some AI tax agents lack Hebrew skills; some have trouble stringing together multiple sources of tax law in countries like the USA – federal and state laws, regulations, pronouncements, and so forth.
Will AI improve, and will it keep up with human ingenuity and emotions?
As always, consult experienced human advisors in each country concerned at an early stage in specific cases.
The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.
leon@hcat.co
Source:
www.jpost.com
