How AI can impact the future of accounting and tax law

Benjamin Alarie has a message for tax professionals who worry they might lose their jobs to artificial intelligence (AI): don’t fret. 

Alarie is a professor of tax law at the University of Toronto and the CEO of Blue J, an up-and-coming maker of AI-based taxation software. 

While AI is triggering angst across the white-collar world, Alarie says, today’s tax-oriented systems are not meant to replace the steady hands of accountants and lawyers. 

“It’s a productivity tool to allow people to do more and better work,” he says of AI, likening it to the venerable spreadsheet. “Tax is not self-executing. Tax needs human support and involvement.” 

It’s a message Alarie has been touting as his company rolls out its signature offering, Ask Blue J, an AI-based chatbot capable of answering some of the thorniest tax-law-related questions.  

For more information on accounting and artificial intelligence, check out this primer from CPA Canada. 

Canadian and American versions of the system, which are used by more than 100 tax firms, launched in 2023. A United Kingdom varietal is set to make its debut this fall, with KPMG UK set as an alliance partner. 

Ask Blue J is part of a wave of what is known as generative AI. These systems use complex algorithms to create human-like content, from motivational posters to schlocky fan fiction. 

Generative AI has begun seeping into the accounting world, with a Thomson Reuters study finding 15 per cent of tax firms use or plan to use the technology.  

Its benefits could be far-ranging. 

A CPA Canada analysis said AI could supercharge productivity, free accountants from mundane tasks and usher in an era of continuous accounting, making year-end downright serene.

Alarie thinks AI’s potential could go beyond that. Its ability to sift through massive amounts of data and produce well-reasoned replies could allow tax law to become more complex “under the hood.” That, Alarie says, is vital to making tax systems fairer and more efficient.  

“It’s like the iPhone-ification of the tax system,” he tells Pivot, pointing to his phone. “There are billions of lines of code driving this device, but it’s so easy to use. I think that’s where things ultimately go (with taxation).” 

Public-facing tax chatbots have a chequered past. Late last year, TurboTax and H&R Block launched AI-based virtual assistants, both of which were prone to hallucinations, found the Washington Post. TurboTax’s AI was an especially poor counsellor: by the Post’s measure, it was wrong half the time. 

Ask Blue J, which is tailored to tax professionals, is designed to be better. It leverages Open AI’s GTP-4, one of the most widely used AI models. Crucially, Ask Blue J draws its answers from a curated database of case law and tax regulations, not the open internet, which is rife with misinformation. Alarie says that means its answers are “current and accurate” just under 90 per cent of the time, according to internal benchmarking. 

But AI can do more than just answer tax law questions. In 2021, Alarie began feeding the details of pending tax-related court cases into Blue J. Drawing on a body of established case law, the system spat out predictions on how the disputes would be decided, which Alarie charted on the website Tax Notes.  

The very public litmus test turned out to be a triumph for Blue J: it was right about 90 per cent of the time. 

The implications of that success are far-reaching. Alarie says AI could reduce the burden on the court system by encouraging taxpayers or the government to abandon weak cases. It could also help tax professionals provide advice to clients on fraught subjects, like whether someone should be designated as an employee or independent contractor. 

“Taxes are vitally important as the circulatory system of the economy and the modern nation-state,” says Alarie. “So, I think it's really important to have a functional tax system that is properly administered and is actually complied with by taxpayers.” 

Ultimately, Alarie believes, AI could one day predict how Canada’s tax laws will change, sampling the political winds and drawing on what other nations have done. 

Alarie even foresees a time, perhaps five to 10 years from now, when everyone will have their own virtual AI assistant, capable of advising them on the law, taxation and a variety of other subjects. 

But with AI developing at a breakneck pace, even Alarie is prepared to be surprised. 

“I’m sure my imagination is not up to the task of anticipating where all of this goes.”