Thank you to my friends at BlueJ for sharing this article. For more on this topic, be sure to download the full AI Tax Research Solution Outlook Report.
We stand now at a pivotal moment for the tax profession. Already, AI is causing a fundamental shift in the way accounting firms and tax practitioners work. Nowhere is this more evident than in the area of tax research, where recent advances in generative AI are redefining what the modern tax tech stack looks like. With the momentum of generative AI and the complexity of the tax environment both increasing, Blue J and CPA.com sought to understand how AI is being used in accounting firms and how this technology is impacting firm performance.
Through a joint survey conducted by Blue J and CPA.com, we gathered input from over 150 tax practitioners, focusing on their outlook for AI-powered tax research solutions. Leveraging this survey data and user data from Blue J’s own generative AI solution for tax research, we’ve found that AI is rapidly transforming day-to-day workflows—delivering measurable advantages over legacy solutions.
Key Findings from the AI Tax Research Solution Outlook Report
AI adoption is on the rise across accounting workflows, especially for tax research, with 54.4% of respondents already using it to complete research in some form.
On average, respondents have access to three tax research tools; however, adoption of these tools remains low, with 81.3% of respondents turning to search engines for tax research, despite paying for a suite of tools.
Poor adoption of tax research tools is largely driven by poor user experience, with 42% of respondents saying legacy tax research tools are too time-consuming to use.
AI-powered tax research tools can solve these experience issues, helping tax practitioners arrive at better tax answers, faster. Respondents note that it saves them 2.94 hours/week across both research and drafting work.
Accelerated research is one of several factors contributing to the clear competitive advantage AI generates for firms, with 86% of respondents agreeing that AI-powered tax research generates an advantage for firms.
If there’s one common theme we uncovered through our research, it’s that AI-powered tax research is only going to continue building momentum. Which leaves firms with a choice: incorporate now or risk falling behind.
The State of Tax Research Solutions
When we examine the current state of tax research solutions within firms, it’s just that: a state of multiple solutions. On average, respondents to our outlook survey have access to three tax research solutions. However, they only report using two of these three solutions on a weekly or daily basis.
Despite having access to a selection of often costly tax research solutions, the vast majority (81.3%) of respondents also reported regularly using search engines, such as Google, to perform tax research. Due to the issues that can come with using search engines for high-stakes tax research—namely, that the answers rely on uncurated sources that are often outdated and difficult to verify—this data should be concerning, particularly when small mistakes can lead to costly client outcomes.
This data also brings up an important question. Why are firms that are paying for multiple tax research solutions still turning to search engines for their tax questions? To find the answer to this question, we need to turn to a particular class of solutions: legacy tax research tools.
Where Legacy Solutions Are Failing Firms
Of those respondents who report using legacy tools for tax research, very few actually use them. Legacy tools demonstrate consistently lower adoption rates compared to other classes of solutions, with weekly or daily usage rates ranging from 50% to 61%.
By comparison adoption rates for tax-specific AI tools are significantly higher, with 88% of those who have access to AI-powered tax research tools reporting weekly or daily usage.
Aside from the budget wasted on unused legacy tools, there’s another concern: tax practitioners turning to search engines instead. Firms pay for the trusted sources and editorial content these legacy tools offer, but access to that library means little if teams can’t easily find the sources they need. While some legacy tools are incorporating AI add-ons to counteract navigation issues, these often fall short on answer accuracy compared to AI-first tax research tools.
When trying to understand the adoption gap between legacy and AI-powered tax research solutions, respondents’ complaints about legacy solutions shed light on some possible causes.
Those using legacy tools for their tax research have three main complaints:
They’re too time-consuming to use (42%)
Too expensive (42%)
Difficult to navigate (37%)
Beyond speed, cost, and navigation problems, respondents also complain about a lack of functionality (27%), missing primary content (20%), and missing editorial content (18%). Together, these issues point towards a poor user experience that would naturally discourage regular use.
The AI Tax Research Advantage
Whereas low adoption and slow, cumbersome research are the hallmarks of traditional tax research tools, high adoption and accelerated research are what set AI-powered tax research solutions apart.
Legacy tax research tools typically rely on complex Boolean searches to source the correct documents. From there, tax practitioners must navigate these sources and manually stitch together a cohesive response. The complicated search operators required by each tool also mean that firms often use multiple solutions, with different people in the firm each having their “favorite” tool that they’ve come to know inside and out. However, none of these provides a straightforward way of arriving at a tax answer.
By contrast, generative AI solutions rely on conversational prompting, allowing tax practitioners to phrase their questions as if speaking to a colleague. Generative AI’s ease of use is apparent even during the initial stages of adoption. After logging into Blue J for the first time, users take an average of just 2.8 minutes to generate a comprehensive tax answer.
This ease of use doesn’t come at the cost of quality, as the responses these AI systems generate are also more cohesive than those offered by legacy solutions, weaving together multiple sources into a single, comprehensive response. For tax practitioners researching unfamiliar areas, these comprehensive responses can be invaluable for quickly gaining an overall understanding of a topic. For those working in more familiar areas, these answers can serve to validate their knowledge, ensuring it’s up-to-date and accurate.
Outside of answering questions on a broad array of tax topics, generative AI-based tax research solutions can also turn those tax answers into client-ready communications. For Blue J users, drafting represents a notable portion of their usage, with 18.8% of respondents to a Blue J user survey listing drafting as their primary use case for the application. Because it’s often highly time-consuming to translate complex tax concepts for clients, automating even just a portion of drafting work can represent meaningful time savings.
Between accelerated research and automated drafting, tax practitioners leveraging AI-powered tax research solutions are realizing significant efficiency gains. Among Blue J users, 93% agree that Blue J saves them time, at an average of 2.94 hours saved per user per week.
For all the benefits of saving time with AI-powered tax research, this newfound efficiency can also produce some anxiety. Accountants and other tax professionals have traditionally charged for their work on an hourly basis, although some are moving to a subscription model. Firms still operating under the traditional approach may have concerns that reducing the time spent on a particular task will also reduce the amount that can be billed for that task.
However, firms leveraging AI-powered tax research are learning to repurpose their time savings to deliver deeper client value. Blue J customer Larson Gross Advisors has been able to redirect time that previously went towards research and drafting into conducting complex research tasks, helping clients think through key decisions, weigh their options in different scenarios and tax treatments, and understand the broader impact of their choices. At the same time, they’re also shifting how they charge clients, adopting a value-based billing model that reflects the increased efficiency and value of their work.
The AI Tipping Point
Although AI-powered tax research is gaining adoption momentum, many firms have yet to integrate these tools into their tech stack.
Interestingly, our survey results revealed a discrepancy between the number of respondents who report using AI in their tax research (54.4%) and the percentage who work for firms that have formally adopted AI-supported tools (33.1%).
This gap suggests some practitioners are using AI for tax research at firms where there is no official AI tax research solution in place. Like search engine usage, this rogue AI usage could pose a problem for firms if it means practitioners are leveraging general-purpose AI tools. While general-purpose AI tools are easy to incorporate into research workflows, the efficiency they offer often comes at the expense of answer quality. Since these tools pull from a wide range of uncurated sources, they’re prone to error, often basing answers on irrelevant and outdated sources that are difficult to verify.
Firms of all sizes stand to benefit from AI-powered tax research, but smaller teams feel some benefits more keenly. Unlike their large-firm counterparts, tax practitioners at small firms typically lack access to a team of colleagues they can consult on unfamiliar tax matters. Given that AI solutions can essentially act as an additional team member—capable of assisting with both research and drafting work—these smaller firms are missing an opportunity to supplement their teams and punch above their weight with AI.
Demographics Shift
There’s a distinctly human factor incentivizing firms to adopt AI. An unignorable demographic shift is currently underway in the tax and accounting professions. A shortage of junior talent and an aging workforce mean that firms are not only short-staffed today, but are also likely to struggle with filling seats in the future. For all firm sizes except sole practitioners, finding qualified staff ranked as the top issue in the 2024 Private Companies Practice Section (PCPS) CPA Firm Top Issues Survey.
In firms that have previously relied on junior staff to perform research, AI-powered tax research can provide a much-needed pair of extra hands, essentially acting as a junior associate. These tools can also go beyond the immediate fix of filling in for missing juniors, serving to attract new practitioners to the profession by shifting the type of work they’ll do. Rather than spending hours gathering sources and performing manual research, juniors with access to AI-powered tools can instead focus on asking analytical and strategic questions of the research, essentially fast-tracking them into the work they would be doing later in their careers. Additionally, many newer tax practitioners are already accustomed to using generative AI in school, so incorporating AI into the firm’s tech stack can serve as a powerful recruitment and retention tool.
Overcoming Barriers to Adopting AI Tax Research Solutions
Even now, firms considering AI-powered tax research are likely to face several—real or perceived—barriers to adoption. To help counteract these fears, we’ve gathered perspectives from several tax and accounting professionals.
Fears of Replacement. Currently, generative AI can automate research, conduct next-step analysis, and draft research memos and client emails—freeing up time for higher-value advisory work. However, generative AI can’t exercise human judgment, make ethical decisions, or foster client relationships. As such, tax practitioners should view AI as a way to augment their capabilities, rather than replace them. Focusing on uniquely human skills and delegating to AI only where appropriate will allow firms to balance the efficiency gains of AI without detracting from overall firm performance.
Security Concerns. Not all generative AI applications have the necessary security measures to adequately protect client data, with some using information submitted by users to train their models. When selecting an AI tax research solution, look for applications that adhere to enterprise-grade best practices, feature a secure and encrypted database, are SOC 2 compliant, and are certified by an independent auditor.
Research Quality. Concerns about biased responses and hallucinations are common, particularly in light of recent, high-profile instances of these errors. However, response quality and accuracy continue to improve through retrieval-augmented generation, content curation, algorithm improvements, human-in-the-loop approaches, and user verification of output.
Cost. While it’s true that tax-specific AI research solutions are more expensive than their general-purpose AI counterparts, these solutions are still significantly less costly than legacy solutions, which have significantly lower adoption rates. As you consider the cost of AI-powered tax research, also consider the value of fast, accurate answers, as well as the cost of not adopting, which can result in less efficient research and fewer opportunities for higher-value strategic advisory work.
Retraining Time. Generative AI is designed to be intuitive, relying on conversational prompts rather than Boolean searches. This intuitive approach means your team already knows how to use it, even before opening the application. After logging into Blue J for the first time, it takes users an average of just 2.8 minutes to generate a comprehensive tax answer.
Resistance to Change. Tax research has been done a certain way for a long time, relying on a set of tools that many members of your team may be comfortable using. Change won’t happen unless they get a chance to experience all of the benefits generative AI has to offer firsthand. Some firms consider a trial period or phased rollout to allow team members across all levels to see just how naturally new technology can fit into their day-to-day workflows.
What’s Next?
The findings of the Blue J and CPA.com AI Tax Research Solution Outlook Report make one thing clear: AI is no longer just an experiment for tax practitioners. Already, AI-powered tax research is creating measurable improvements for adoption rates and research speed, providing a tangible advantage over legacy tax research solutions.
For firms still evaluating whether to take the leap, the decision window is narrowing. Those who delay will find themselves in a widening gap, competing against peers who are faster, more informed, and more efficient. And while barriers to adoption remain, the many firms already thriving alongside AI are proof that these challenges are surmountable.
The future of tax research is here. Now, it’s up to tax practitioners to decide when they’ll join that future.
