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Is tax preparation software an example of a DSS?

"Is X a DSS?" is a common question in the Ask Dan! email. Let's try to figure out the answer to this question together.

First, what is the purpose of the software and system? If the purpose of the specific software package is only to help a user fill in fields and print out a tax return, then it is not a DSS. If, however, the purpose is to help a user minimize the taxes paid and make intelligent decisions about what deductions to claim, then it is a DSS. If the software also helps with tax planning and "what if?" analysis, that's also an indication it's a DSS. The Ask Dan! column of March 30, 2003 identified seven characteristics of a Decision Support System. The tax preparation software I'm most familiar with, TurboTax Deluxe, meets all seven. For example, it's intended for interactive use, it's intended for repeated use and it's intended to improve decision effectiveness.

Here in the United States "Tax Day" is April 15 so many U.S. readers have probably recently used a tax preparation software package. Tax preparation software is used by professional accountants and by individual tax payers. My wife Carol uses Turbo Tax Deluxe from Intuit to prepare our taxes. The program improves her efficiency by performing calculations and by creating "the forms" that need to be filed, but it does much more. It guides the user step-by-step through the process of preparing the return using an "interview technology", it reduces tax preparation time by importing a person's tax information from the prior year and it uses that information to prompt for current information, it has a tax law advisor and it has tax strategy tools. Intuit sells TurboTax products and provides a web-based DSS called TurboTax for the Web. In 2002 approximately 15 million returns were filed with TurboTax. You can find out more at http://www.turbotax.com.

According to Porter (1994), in 1982 Taxadvisor was developed to solve problems dealing with income and transfer tax planning for individuals. In 1985, a program called Financial Advisor was the first commercially successful system to be used by tax consultants. Porter notes the most successful and best known tax expert system, ExperTAX, was developed by Coopers & Lybrand in approximately 1986. It was built using a rule-based expert system technology. The system started with 2000 rules and the number of rules increased to more than 3000 by 1994. The program used an "intelligent questionnaire" for data gathering. It replaced long questionnaires that tax preparers had to complete. Also, ExperTAX guides the user through a tax planning analysis to identify decisions that will affect the client's tax liability for the year. ExperTAX helps identify issues that need clarification but it leaves the final decisions to human experts. Research (Shpilberg and Graham, 1986) indicated the productivity of staff accountants using the system increased.

So what category of DSS is tax preparation software? The tax preparation software that I am most familiar with is best categorized as knowledge-driven DSS. I have not seen the code nor read how specific packages are programmed, but it seems most likely that "rules" are used to provide decision support. If rules and a rule engine provide the functionality and are the dominant component of the DSS, then it should be categorized as a knowledge-driven DSS. A tax "expert system" or tax preparation knowledge-driven DSS provides widespread distribution of tax expertise.

References

Brown, Carol E. and Daniel E. O'Leary, Introduction to Artificial Intelligence and Expert Systems, 1994 at URL http://www2.bus.orst.edu/faculty/brownc/es_tutor/acc_es.htm.

Kneale, Dennis. "How Coopers & Lybrand Put Expertise into its Computers." Wall Street Journal, Nov. 14, 1986.

Porter, Eugene P., "Tax expert systems and future development," The CPA Journal Online, January 1994, URL http://www.nysscpa.org/cpajournal/old/14979937.htm.

Shpilberg, David and Lynford E. Graham, (1986) "Developing ExperTAX: An Expert System for Corporate Tax Accrual and Planning," Auditing. 6(1), pp. 75-94.

Smith, L. Murphy, "Accounting expert systems," The CPA Journal Online, November 1994, URL http://www.nysscpa.org/cpajournal/old/16458936.htm.

The above is from Power, D., Is tax preparation software an example of a DSS? DSS News, Vol. 4, No. 12, June 8, 2003.

Last update: 2005-08-07 11:32
Author: Daniel Power

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