H&R Block Tax Consulting (IBM Watson)

I have yet to meet a person who enjoys filing income tax returns every year. 140m US citizens file tax returns every year. Most need professional help from tax consultants. H&R BLOCK is one of the largest tax consultants in the USA with over 10,000 offices filing tax returns for 11 million Americans. They employ 70,000 tax experts for preparing tax returns. H&R BLOCK has been losing business in the last few years to online tax programs like TurboTax, hence were seeking a strategy that would craft a more engaging, interactive and rewarding experience for clients. HR Block CEO Bill Cobb’s goal was to “reinvent the retail experience of taxpayers.” The solution? Use Artificial Intelligence as a tax specialist to accompany and assist the HR Block representative in the process of preparing tax returns together with their clients.

H&R Block opted for IBM Watson as their preferred AI platform. To train the Watson AI system as a tax specialist: it was fed with the enormous 74,000 pages of Federal tax code and thousands of pages of tax law changes every year. This is a vast amount of information to take in, sort through, and decide how it applies to each customer’s tax situation, depending on issues such as marital status, job losses, dependents, mortgages, and capital gains, but Watson does this with ease. “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created that even if you were able to read and understand it all, by the time you were done you’d still be terribly out of date.”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 in real time, keeping it up to date with new laws and adjustments to old laws, Enderle said. In addition, the best tax experts at H&R Block, train Watson on the proper response to thousands of customer questions that have cropped up in the past years. As a result, Watson becomes a central repository of tax laws, top expert knowledge, and the history of all questions and responses. This knowledge and expertise becomes instantly accessible to all tax consultants of H&R Block. “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.

When a client sits down with an H&R Block tax preparer, the preparer asks questions that are also 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 and offers recommendations. During the session, the customer follows along on a monitor as his or her taxes are prepared, and Watson suggests different possibilities. All decisions are taken by humans ?—? the tax preparer and the taxpayer ?—? but guided by the expertise and accuracy of Watson AI. Most customers find the process not just very interesting, but at the same time rewarding since they generally receive higher refunds resulting from lower tax liabilities because of Watson AI’s thoroughness and accuracy. Human tax consultants are able to secure refunds for only about 75% people who file taxes. H&R Block with Watson AI promises refunds for up to 85% of customers. Customer return rate is another benchmark for H&R Block. They aim to raise the return rate from 75% to 80%.

Some key insights from this example:

Expert Knowledge Aggregation – Learning, classification, referencing and storage of massive amounts of data is a unique ability of Watson AI systems. Stored data can be continuously and immediately updated. This allows AI systems to draw from a vast range of up-to-date knowledge for each case. The system is ever evolving and learns and updates itself with every new case.

AI Recommends and Human Decides – We humans are not yet used to taking advice from machines in critical personal areas such as taxes, health and law. Advice from humans is more comforting and trustworthy, even if humans are not as knowledgeable as machines. We feel better hearing about a diagnosis from a human doctor than from a machine, even if the doctor made the diagnosis based on the results from a machine. Watson doesn’t cut out humans completely. It aids the process and lets humans do their job better.

AI Platform – a Fast-track to Results – AI platforms provide a shortcut to benefiting from AI technology. Amazon, IBM, Google, and Microsoft offer AI platforms for quick development of solutions, without the need to hire many AI technology specialists. H&R Block remains focused on its core business of tax consulting and just simply leverages the IBM Watson platform for AI. This gave them the first-mover advantage in offering the benefits of AI to tax-paying customers seeking better service and rewards.

Big Data is Heaven for AI, Hell for Humans – As discussed in the first part of this book, too much data overwhelms us and leaves us disoriented and confused resulting in decision paralysis or just plain poor decisions. In contrast, AI relishes data. Its decision making quality and accuracy improves with additional data. Massive tax codes and constant updates are handled by AI with ease.

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