H&R Block uses IBM Watson to help customers reduce their tax liability

Bill Cobb, H&R Block’s President and Chief Executive Officer
Bill Cobb, H&R Block’s President and Chief Executive Officer

H&R Block is delivering a new solution to its tax professionals underpinned by IBM Watson. H&R Block believes that Watson can help both its own staff and customer negotiate the complexities of US tax law. It also believes it will help: “clients better understand how different filing options can impact their tax outcome.”

According to Bill Cobb, H&R Block’s President and Chief Executive Officer: “We are introducing something this tax season that is totally new, and is in fact, a first in the tax preparation category. 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. This partnership with Watson means we can leverage the best technology available to help our clients get their taxes done.”

Charting the best route through complex tax rules

Tax systems are complex and often deliberately so. They create opportunities for those with knowledge to reduce what they pay while the majority often pay more than they should. This is why companies and individuals see taxation as an unfair system.

Watson will ingest the 74,000 pages of tax legislation in the US including all recent changes. It will then apply all of those rules to the details provided by H&R Block’s tax accountants and customers. The data is sent to a cloud-based Watson service that will: “understand context, interpret intent and draw connections between clients’ statements and relevant areas of their return.”

This creates a set of recommendations for the tax accountant and customer. Customers will expect to see their taxes lowered as Watson identifies refunds they didn’t expect. It seems like a win for the citizen over the tax system.

However, there is a big caveat here. Tax authorities do not like systems that reduce the tax base. The US Internal Revenue System (IRS) is likely to follow this closely and pay particular attention to early users of the system. They will want to know how much extra people are saving through this Watson service. If it is too much they will have to consider changing the tax systems. This will mean bringing forward new legislation which will take time. When it does release new rules those will be fed into Watson who will create new recommendations.

Will H&R Block gain a jump on the competition?

The answer has to be yes. Expert systems for tax accountants have been around for a few decades. Most of them do a reasonable job in helping understand the complexities of tax law. None of them attempt to make cognitive inferences around the data in tax returns. This deal changes that and could make those other systems obsolete. It won’t take many successes for H&R Block before the US IRS gets interested along with the rest of the industry.

IBM claims that this partnership with H&R Block: “..puts Watson on track to reach more than a billion people around the world by the end of 2017 as the technology is increasingly used to help professionals derive insights and support human decision-making. Organizations are using their data to set themselves apart from competitors.

“For example, in applying Watson to tax, H&R Block is not just tapping into leading technology, it’s also maximizing its competitiveness – its own company insights, amassed over 60-plus years of preparing hundreds of millions of returns combined with new insights gained by using Watson. As Watson learns more about navigating the tax code from H&R Block tax professionals, those learnings will stay with H&R Block and improve the value it delivers to tax filers.”

How long before we see Microsoft, Google and other AI/machine learning/cognitive solutions move into the tax market? This is more than just about saving people money. As these solutions mature and become household names there is a battle for brand awareness. IBM knows that success for H&R Block will deliver more than any advertising campaign to position Watson as the leading solution in this space.

Will Watson fall foul of tax evasion legislation?

It is a good question and the answer is no. Watson simply provides information based on the existing tax codes and customer input. It is not creating schemes that allow people to avoid or evade paying taxes. It only makes recommendations based on the existing tax laws. There is also the fact that the tax accountant and customer still have to decide if accepting a Watson recommendation makes sense.

There is an ongoing battle between accountancy firms and tax authorities around the world to stop tax evasion schemes. With Watson able to ingest and draw new relationships between sections of the tax code there is potential for misuse.

The press release says the existing system has already been internally audited by H&R Block’s own accountant. It will be interesting to see if the US IRS decides to audit how Watson works and its advice beyond reviewing tax returns. It will want to assure itself that nothing untoward is happening.


This is a smart move by H&R Block and the IBM Watson team. They are tackling a subject that nobody likes. More importantly they are taking on one of the most complex governmental systems, tax. There are no public KPIs around this release. However, if Watson can lead to a simplification of the US tax code and even get old and antiquated laws changed it will be successful.

One of the promises that US President Donald Trump made was to reduce tax on people and businesses. This announcement might not be what the President had in mind but it does help him meet that campaign promise. The next step will be for IBM and H&R Block to say how much they have saved customers in the first year.

The US tax authorities also have the option of investigating whether they can also take advantage of Watson themselves. Other countries and accountants will watch this with interest. While US tax law is complex there are other opportunities for IBM around the globe.


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