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How CPAs Can Compete in the AI Race

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Byline from Chris Stephenson, Managing Director of Intelligent Automation & AI at alliantgroup and
Eric Hylton, Former IRS Commissioner of the Small Business/Self Employed Division; alliantgroup National Director

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Here are a few principles every CPA firm can leverage to successfully compete with all firms in this dawning AI technology wave.

The race to integrate Artificial Intelligence into the workflow of Certified Public Accountants is no longer a futuristic concept, but a current reality. Large accounting firms have made substantial strides in using AI to augment their services and deliver high quality outcomes.

Yet, for many CPA firms, particularly small to mid-sized organizations, the current pace of technological advancement can seem dauting. Without the time and investment war chest that larger firms have, there is a real concern that the rest of the market will be unable to compete.

While it may seem that the only solution is to dive headfirst into AI advancement, taking on more than your organization is prepared for can cause more damage than the payoff. It’s the strategic, calculated steps that will lead to enduring success. The majority of tech giants today are former tech underdogs from 20 years ago, and all of them started their journey through tackling existing issues first, one piece at a time

Here are a few principles every CPA firm can leverage to successfully compete with all firms in this dawning AI technology wave.

Don’t Succumb to FOMO—Move at Your Own Pace

With the current frequency of tech releases, it’s easy to feel overwhelmed. You may feel the urge to try and take on as much as possible as quickly as you can. While it may seem enticing to try and automate your entire operation, it’s imperative to focus on what matters most immediately, and then use that momentum to tackle larger scale issues down the road.

Finding a balance and resisting the temptation to keep up with everyone else is essential, or you will quickly find your organization changing direction too frequently to complete anything. This risk of non-adoption is far bigger than simply being late.

Remember: commitment to fully leveraging foundational tech is paramount, and sticking with it is more crucial than hopping on every bandwagon that passes. Tech cycles are measured in years, not weeks or months. Do your research on the technologies that are the best fit for your organization, implement them fully, and continue researching new technology to integrate into your roadmap.

Focus on What Enhances Your Unique Edge

Each CPA firm has its strengths. It could be a unique sales approach, unparalleled delivery quality, or exceptional customer interaction. Leveraging AI to focus on capitalizing on your differentiators, instead of adoption for adoption’s sake, will be key in seeing a good return on your investment.

First, recognize what sets your business apart to pinpoint where AI can amplify that competitive edge. Now, imagine if you could use that advantage faster, more often, and in a broader market. That is exactly what AI can do, when implemented correctly. Involve your team in design sessions from the beginning to brainstorm how this technology might elevate your unique advantage.

Prioritize Swift, High-Impact Projects

Once you’ve established what makes your firm, it’s important to reflect on what problems you have that are not. While AI can tackle complex issues and help enhance your unique selling points, your firm has problems that require less intentional thought and can be fixed quickly. From experience working with thousands of firms, there are a common set of problems that many need solutions for:

  • Cash Collection: Cashflow is the lifeblood of any business, and bills can age quickly. Having a dedicated tool to reminding, collecting, and reporting new income can help your business take on more, and faster.
  • Prepared by Client (PBC) document process tools: You and your firm should not waste time cleaning books or transferring data between spreadsheets. PBC document processing tools save you time and allow you to focus on the work you can bill for.
  • Trial balance to workpapers: 15-20% of all project time is spent on workpaper generation. Automating your workpapers and having consistent automated data entry will save your team thousands of hours, which they can spend focused on generating new revenue.
  • IRS Response tools: Tools which can generate a response in real time are critical time savers for your team. With the volume of inquiries firms receive, it’s imperative to have a resource dedicated to fielding them that does not distract from larger ambitions.
  • Conversational AI chatbots: An internal tool focused on helping your team members find documents and the right information as they need it. By centralizing these questions and data, you create a singular source of truth for your organization.

While these may seem like small problems, once the easiest solutions are implemented, it will be much easier to gain traction on your higher impact problems. Many firms have already automated these processes, which catapults them towards further digital innovation.

Creating a mindset which focuses on quick value brings the necessary speed that a brand must have to compete. Most of an organization’s efforts should be directed toward AI projects with short development cycles for quicker learning and adoption. This is not settling for less, rather it creates a hyper focused culture focused on small but impactful improvements in rapid succession.

Conclusion

For CPA firms, integrating AI into their firms is inevitable and immensely valuable. Yet, it is the tailored approach—paced, focused, and pragmatic—that will redefine their success. In the end, effective adoption of AI doesn’t depend on being the first to adopt; it hinges on being the most strategic about when and how to employ these powerful tools. It’s about AI serving the unique needs of the firm, rather than the firm serving the ceaseless cycle of technological advancements.

Whether the software gets a second year, former IRS commissioner Mark Everson predicted, “depends 100 percent on who the treasury secretary is come January.”

A second-term Biden administration would likely run Direct File again, perhaps even expanding the parameters the software can handle and offering it in more states. If former president Donald Trump wins the election, on the other hand, its prospects are less secure. While Trump’s own views on Direct File are not known (his campaign declined to respond to questions), Republicans at the national and state levels have been critical of government-run tax filing.

But some proponents argue that Direct File might live on, even under a president who didn’t support it, since the IRS has wide discretion in how to spend its own budget.

“I don’t think they built it to shut it down,” said Adam Ruben, whose organization, the Economic Security Project, has been promoting the website to taxpayers. “I’ll be surprised if we don’t see it expand to more states and more tax situations next year.”

David Kautter, a former assistant secretary of the Treasury for tax policy, said the IRS won’t equate user numbers with success or failure.

“The IRS would say … we didn’t set our sights real high. We tried to make this a controlled pilot program,” he said. “If the IRS can develop a user-friendly interface, then it has the possibility to become very popular” in the future.

One unexpected twist was that publicity around Direct File drew attention to other long-standing government-supported options. The Free File Alliance, a group of private companies that offer free versions of their software to eligible taxpayers, said that as of April 5, more than 1.7 million households had used Free File software, an increase of 16 percent compared to the same time last year.

Meanwhile, IRS-supported Volunteer Income Tax Assistance programs had prepared 2.3 million free returns, an increase of 200,000 compared to last year, Treasury Secretary Janet L. Yellen told reporters on a call Friday.

The IRS has also touted its hiring of more than 5,000 customer service workers since receiving tens of billions of dollars of additional funding from Congress in 2022. This year, its workers answered more than 85 percent of phone calls from taxpayers, compared to 15 percent before the new funding, the IRS said.

Overall, it was “one of the best tax filing seasons the nation has seen in years,” said IRS commissioner Danny Werfel on the call Friday.

Hits and misses

Four taxpayers agreed to let a Washington Post reporter observe while they tried using Direct File.

In California, Tristan Brown, a state teachers union lobbyist, spent 15 minutes filling in his information before realizing that he had received a $140 dividend, a form of income that Direct File wouldn’t allow him to report.

“I guess I’m stuck. Which is lame. I feel like a lot of people are going to have [an investment] account that would have that,” he said. “Now I’m back to letting TurboTax take my money.”

Mia Francis, a barista, ran into similar trouble. Eight minutes in, she learned the site wouldn’t allow her to file since she had lived and earned income during the year in a nonparticipating state before moving to Massachusetts. “I do a lot of moving around. Unless they have it where … you can use it if you lived in more than one state, it will be unlikely that I’ll be able to do it,” she said as she stared at the screen.

But two of the taxpayers made it all the way through.

Havilah Fowler, an 18-year-old barista, was nervous about filing her first-ever tax return. The identity verification process was cumbersome and took her more than an hour, including a wait for a video call. Then she read and reread some of the prompts.

She wasn’t sure, for example, what “standard deduction” meant. “What is going on? Google will explain this better,” she said.

Still, when she got to the final page and saw her refund was on its way, she cheered and clapped.

Describing herself as “an inexperienced taxpayer,” Natalie Comerford, 20, clicked several times when the site offered buttons to explain or clarify tax concepts. She read explanations about how to correctly type in information from her W-2s from her part-time jobs, what “estimated tax payments” are, and whether she was entitled to any tax credits. Less than an hour after she began, she submitted her return.

“Normally government sites are really clunky,” she said. “That was really easy.”

Featured Leadership

Chris Stephenson is Managing Director of Intelligent Automation & AI at alliantgroup and was previously a Managing Principal at Grant Thornton.

Eric Hylton held several prominent positions at the IRS, including serving as Deputy Chief of the Criminal Investigation Division and as CI’s head of International Operations. As National Director of Compliance, Eric employs his years of experience at the IRS to assist alliantgroup’s clients as an ambassador for U.S. small and medium sized businesses (SMBs) and in helping others become tax compliant.

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