H&R Block turns to A.I. to tackle your tax return

Company's tax preparers team up with IBM's Watson to take on deluge of information

How would you feel about an artificial intelligence system handling your taxes this year?

H&R Block, the tax services company, is betting that customers will be willing to have A.I. assist their human tax preparers in getting them the biggest refunds possible or at least reduce how much they owe.

The company, which has about 12,000 offices in the U.S. and prepares 24.2 million tax returns worldwide, is using IBM's A.I.-based Watson to do it.

"We are introducing something this tax season that is totally new, and is in fact, a first in the tax preparation category," said Bill Cobb, H&R Block's president and CEO, in a statement. "By combining the human expertise, knowledge and judgment of our tax professionals with the cutting-edge cognitive computing power of Watson, we are creating a future where our clients will benefit from an enhanced experience and our tax pros will have the latest technology to help them ensure every deduction and credit is found."

It's tax preparer and machine working together.

While humans will still make the decisions about customers' tax filings, Watson will analyze the customer's data and suggest tax filing options.

Watson first got famous six years ago when it took on game show Jeopardy champions and defeated them.

Watson uses dozens of technologies, applying A.I. techniques such as machine learning, deep learning, neural networks, natural language processing, computer vision and speech recognition.

The A.I. system is being used in medical research and to help doctors make diagnoses. Watson is adept at this kind of work because it is designed to cull through massive amounts of data and learn as it goes along.

But Watson is also being used for customer-facing jobs. For instance, 1-800-Flowers, the floral and gourmet food gift retailer, uses Watson to act as a digital concierge that helps customers choose gifts, takes orders and answers questions. Pharmaceutical company GlaxoSmithKline employed Watson to tackle customers' queries about coughs and colds.

H&R Block is entrusting the smart system to help tax preparers wade through hip-deep piles of documents, laws and government rules.

"About 18 months ago, we began a journey to re-invention," said Meg Sutton, director of retail client experience at H&R Block, in an email. "We had done extensive consumer research, which told us clients wanted a more interactive and transparent experience. They wanted to be more involved and understand how their taxes are impacted by the tax code. So we reached out to IBM in the summer of 2016 to see how their cognitive computing technology could help us transform how people do their taxes."

Tax preparers are faced with massive volumes of data, which includes more than 74,000 pages of federal tax code and thousands of tax law changes every year. It's a vast amount of information to take in, sort through and filter how it applies to each customer's tax situation, depending on issues like marital status, job losses, dependents, mortgages and capital gains.

"This speaks to Watson's strengths as a learning machine," said Rob Enderle, an analyst with the Enderle Group. "Unless you are an incredibly unusual person, there is no way you can know how to optimize a tax payment or return absolutely. There is simply too much information to learn and so much new [data] being created that even if you were able to read and understand it all, by the time you were done you'd still be terribly out of date."

Since Watson can collect and categorize data, it can absorb new tax information as it comes out, keeping it up to date with new laws and adjustments to old laws, Enderle said.

"Once [Watson is] fully trained, H&R Block should be able to show absolute proof that their customers pay less taxes because the system will be able to generate reports that accurately showcase this result in aggregate," Enderle added.

This isn't a test run for H&R Block. About 70,000 of its tax preparers are using the technology, helping approximately 11 million customers with their taxes this year, the company said.

How Watson helps prepare tax returns

When a client sits down with an H&R Block tax preparer, the preparer asks questions that are then provided to Watson. This information involves tax-relevant events that happened to the customer during the previous tax year – home purchases, marriage, birth of a child, a child entering school or a family member leaving the military.

Watson uses that information to draw insights into the tax implications of those new jobs, home sales and marriages.

During the session, the customer follows along on a 23-in. monitor as his or her taxes are prepared, and Watson suggests different possibilities.

When asked if customers have had privacy concerns with an A.I. system being used in preparing their tax returns, Sutton only said, "Our clients love the new experience." In the email, she did not respond to a question about tax preparers' responses to working with Watson or how much training is needed to work with the system.

Jeff Kagan, an independent industry analyst, said he doesn't see Watson making many of H&R Block's customers anxious. "Since this is not related to health or personal wellness, I don't see this scaring any customers," he said. "IBM Watson will clearly be used as a tool to help customers pay less in taxes, and that should be welcomed by all … However, like with any new technology, there is always some fear."

Enderle noted that as people see that they might be getting more money back or are paying less on their taxes, they'll quickly adjust to the new technology.

"It really is just an increasingly intelligent calculator in this role, and it is far less likely to make a mistake than a human would without it," he said.

Copyright © 2017 IDG Communications, Inc.

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