Extension Filers: You're On the Clock, and Still On the Radar

(NewsUSA) - If you filed for a tax extension, you've bought yourself time, but not immunity from risk. As the October deadline approaches, be wary of slick promises from online platforms offering "AI-powered" shortcuts for claiming the federal research and development (R&D) tax credit. The IRS has issued guidance warning about overreliance on AI in completing tax returns. Due to its significant benefits to American businesses yet potential for abuse, the R&D tax credit can be the target of high scrutiny by the IRS, so exercising caution is crucial when using AI in tax filings.

The R&D tax credit can be a valuable benefit for innovative companies, but it's also one of the most closely scrutinized. To qualify, businesses must show that their work meets strict IRS criteria, something that AI alone cannot verify. The IRS has raised concerns about AI's inability to make legal judgments, ensure accuracy or recognize complex nuances in a company's activities.

For instance, interviews are a critical part of accurately claiming the R&D tax credit, since they provide context that data alone cannot capture. However, some platforms, like SPRX, Neo.Tax and MainStreet, advertise AI tools that "eliminate the need for interviews" or "streamline your tax compliance." The IRS requires businesses to demonstrate that their activities qualify for the R&D tax credit, and in the absence of real interviews, the criteria can't be fully understood by automated inputs, risking miscalculation, assumptions and even hallucinations by the AI.

AI can process data, but it can't recognize subtle red flags, consider context or apply professional judgement the way a seasoned CPA can. Without human insight, businesses and taxpayers risk submitting claims that may be incomplete or overgeneralized, subjecting companies to audits or fines. AI cannot replace the real-world expertise that human CPAs exercise. Ultimately, if the IRS comes knocking, the business itself, not shady AI-driven tax providers, will have to defend their filing.