Discover how human expertise will always have a role in calculating and substantiating the R&D Credit
By Jake Quast.
As artificial intelligence (AI) continues to advance, its applications in various fields are expanding rapidly. AI has proven to be a valuable tool in tax advisory, particularly in data analysis, automation, and compliance checks. However, when performing Research and Development (R&D) tax credits, AI falls short of matching human professionals’ expertise and nuanced judgment. Here’s why:
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Understanding Complex Regulations:
R&D tax credits are governed by intricate regulations varying by jurisdiction, industry, and specific business activities. These regulations are not always black and white; they often require an understanding of the underlying intent behind the rules. Human professionals can draw on their experience and contextual knowledge to navigate these complexities, while AI, which relies on predefined algorithms, may struggle to interpret ambiguous or evolving regulations.
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Qualitative Judgment and Expertise:
Determining what qualifies as an R&D activity often requires a deep understanding of a business’s technical aspects and the specific industry in which it operates. Human experts can apply their industry-specific knowledge and judgment to assess whether a particular activity meets the criteria to be considered a qualified research activity. Conversely, AI can analyze data and identify patterns, but it cannot make the nuanced qualitative judgments that are often required.
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Tailoring Strategies for Individual Businesses:
Each business is unique, with its challenges, goals, and operational nuances. A human tax advisor can take the time to understand a company’s specific situation and tailor an R&D tax credit strategy accordingly. This might involve creative thinking, such as identifying under-the-radar activities that qualify for the credit or advising on structuring future projects to maximize eligibility. AI, while efficient at processing data, cannot replicate the personalized approach that a human advisor brings. This limitation can lead to under-substantiation of claims, which ultimately can reduce the credit amount, leave valuable opportunities on the table, and even put tax payers at greater audit risk.
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Adapting to Change and Unforeseen Circumstances:
The business environment is constantly evolving, and so are the regulations and interpretations surrounding R&D tax credits. Human advisors adapt to these changes, draw on their experience, and stay current with the latest developments. AI, while capable of learning from data, is limited by the information it has been trained on and may not be as quick to adapt to new or unforeseen circumstances.
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Client Relationship and Communication:
R&D tax credits are not just about numbers and compliance; they also involve building relationships and trust with clients. Human professionals can engage in meaningful conversations with business owners and executives, . A strong client relationship can significantly impact innovation funding and state credits by fostering a deeper understanding of the client’s unique business activities, leading to more accurate identification and maximization of eligible credits. This human element is crucial in providing holistic advice that aligns with the company’s broader objectives. AI, by contrast, cannot build relationships or engage in strategic conversations, limiting its role to a more transactional function.
Conclusion
While AI offers valuable tools that can enhance the efficiency and accuracy of certain aspects of the R&D tax credit process, it cannot replace human professionals’ expertise, judgment, and personalized service. The R&D tax credit is a complex, nuanced area that requires a deep understanding of regulations, industry knowledge, and the ability to interpret and apply qualitative information. For these reasons, businesses seeking to maximize their R&D tax credits will continue to rely on the skills and insights of experienced tax advisors, using AI as a complementary tool rather than a substitute.
To request an assessment of your company, please contact Jake Quast, Manager, EPSA USA
[email protected] / (832) 904-4809