As a growing number of firms offer “automated” or “AI-powered” solutions for complex tax filings, it’s critical to understand how these systems actually work behind the scenes, and what risks your company may be taking on by using them.
These platforms promise speed and minimal involvement from your team. But when it comes to tax compliance and audit defense, shortcuts can lead to serious consequences, including IRS penalties.
Before trusting a provider, make sure you’re asking the right questions to evaluate whether they have the controls and expertise needed to handle high-stakes filings like R&D credits:
- What is your model’s hallucination rate? AI is known to produce fabricated or inaccurate responses; what testing have you done to measure error rates in your outputs, and how do you prevent those errors from reaching the IRS?
- How do you comply with Circular 230 obligations? Since professionals remain fully liable under IRS standards, how does your process ensure competent representation and documented professional judgment?
- What level of client involvement is required? Do you conduct in-depth interviews with our technical and finance teams, or is your process based on automated questionnaires and document uploads?
- How do you address IRS guidance updates? When IRS rules change mid-year, how do you ensure your systems recognize and properly interpret them?
- What quality-control measures are in place? How do you validate that conclusions are correct, and who double-checks the final deliverables?
- What happens if the IRS audits? Will your firm defend the study, provide documentation, and support us through the audit, or are we left on our own?
- What is your track record with large, complex credits in an audit? Can you provide your substantiation rate — the percentage of claims upheld under audit — and show examples with companies of our size and complexity?
- How is my company’s data used in your system? Is it fed back into your AI models or shared with third parties, and what safeguards prevent sensitive R&D or financial data from training your technology?
Choosing a tax provider is a decision that demands careful scrutiny, especially if they depend heavily on AI. If a provider claims to use AI alone, do not use them. The IRS has cautioned that “taxpayers should not solely rely on AI-generated tax advice.”
These questions can help you look past the sales pitch and evaluate whether a provider’s process is truly built for accuracy, compliance and long-term audit defense.
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