In three short years, generative artificial intelligence (Gen AI) has caused widespread, rapid transformation in business and finance, including an impact on tax planning.
“The continuing emergence of [Gen AI] will fundamentally reshape traditional operating models as we know them, ushering in a new era of service delivery,” says KPMG. “As the use of Gen AI continues to expand, both in terms of sophistication and relevance, it will surely result in disruption to businesses and, in many cases, financial benefits.”
From generative AI chatbots to automated accounting platforms, many taxpayers and advisors are exploring digital tools that promise instant answers and simplified compliance.
But as the IRS and the Taxpayer Advocate Service have cautioned, not all AI-generated tax advice is accurate, defensible, or safe.
“From smartphones to social media algorithms and virtual assistants, [AI] has permeated nearly every aspect of our lives, even taxes,” says the Taxpayer Advocate. “But advice you get from an AI chatbot may not be as good as you think it is. In reality, AI is a rapidly evolving new technology and may not be able to provide accurate answers to your complex tax questions.”
The technology’s speed and convenience come with real legal and financial risks — particularly when liability, attribution, and professional standards are involved.
This article examines the opportunities and challenges of AI-based tax assistance in Texas and outlines what both taxpayers and advisors need to know.
Artificial intelligence is changing how people handle taxes:
These advances make tax information more accessible than ever. However, “accessibility” is not the same as accuracy. AI systems do not possess legal judgment, do not interpret intent, and cannot apply professional ethics standards that govern human advisors.
The Internal Revenue Service has issued multiple cautions regarding misinformation spread through social media and AI-generated content. The IRS’s “Dirty Dozen” list now includes misleading online tax schemes — some of which originate from generative AI sources or unverified influencers.
“Another growing concern in 2025 continues to involve incorrect tax information on social media that can mislead honest taxpayers with bad advice, potentially leading to identity theft and tax problems,” says the IRS.
The Taxpayer Advocate Service (TAS) has echoed these concerns, noting that AI tools can misstate eligibility for credits and deductions or fail to consider Texas-specific and federal filing nuances. In some cases, AI outputs may even lead taxpayers to positions considered “frivolous” — inviting penalties and audits.
Bottom line: Taxpayers remain responsible for every number on their return, even if it was generated by an AI system.
| Risk Area | Example or Impact |
| Factual Inaccuracy | AI may “hallucinate” nonexistent IRS tax codes, court cases, or numbers that do not exist. AI may invent deductions or cite outdated thresholds. |
| Context Blindness | Lacks awareness of Texas-specific franchise tax, property tax, or margin tax nuances. |
| Liability Gaps | No professional stands behind AI output; responsibility rests with the taxpayer. |
| Ethics & Confidentiality | Uploading sensitive data to AI tools can violate client-data protections. |
| Circular 230 Concerns | Tax practitioners must exercise due diligence; relying solely on AI may breach compliance standards, risking penalties and loss of credentials. |
For Texas advisors, these risks are compounded by Texas Board of Public Accountancy rules— professional conduct, due diligence, and privacy obligations still apply, and “reasonable cause” defenses typically require more than citing an AI’s results. AI outputs cannot be used as a legal or regulatory shield in the event of an inaccurate filing.
One of the most debated issues is tax attribution and AI liability.
When incorrect advice leads to penalties or an audit, the key question becomes: Who is responsible?
Currently, U.S. law — including in Texas — places ultimate responsibility on the taxpayer and their licensed advisor. AI developers typically disclaim liability in their terms of service.
Until regulations evolve, the safe assumption is that AI tools are informational, not advisory.
As Forbes notes, “there is an undeniable appeal of AI in the complicated U.S. tax space that often overwhelms even tax professionals, let alone the lay person. With its speedy answers that are generated so easily and for free, the AI tool seems a godsend in the complicated tax world” but cautioned that “relying on AI alone, however, is a gamble not worth taking. In time, as AI inevitably evolves, its accuracy and abilities will develop, but at the moment AI is not a substitute for a qualified tax professional.”
Despite the risks, AI offers significant benefits when used responsibly:
In other words, AI is a tool — not a substitute — for professional judgment. The most successful advisors use automation to amplify expertise, not replace it.
As the Treasury Department and IRS explore frameworks for AI-assisted tax guidance, the landscape will continue to evolve. We may see standards emerge for AI transparency, auditability, and practitioner oversight.
In the meantime, the guiding principle remains: technology can inform, but only humans can advise.
“AI and tax automation software are transforming the corporate tax landscape, but they can’t replace the expertise, judgment, and strategic insight that seasoned tax and accounting professionals provide,” says Bloomberg Tax. “AI tools for tax professionals are designed to complement – not replace – those capabilities, enabling tax teams to focus instead on delivering actionable insights and developing long-term tax optimization strategies.”
Texas taxpayers and advisors who combine AI efficiency with professional expertise will be best positioned to capture the rewards — without assuming undue risk.
If you’re considering AI-assisted tools for tax planning or compliance, make sure your strategy is both efficient and defensible.
Contact Powell Tax Law to discuss how our Texas-based team helps individuals and businesses integrate automation safely — while maintaining full regulatory protection and expert oversight.