H&R Block Is Enlisting IBM’s Watson To Help With Your Taxes

H&R Block’s customers will soon be able to get tax advice from IBM’s artificial intelligence-powered seer Watson.

The tax preparer’s workers will use IBM’s Watson data crunching service to answer customer questions, find obscure deductibles, and presumably help clients score bigger tax refunds.

The initiative, which starts Feb. 6, is intended to help liven up the often long and mundane meetings between customers and H&R Block tax professionals. The tax services giant is hoping that the digital helper will attract more customers to its offices instead of those customers doing their taxes at home using competing online services like TurboTax.

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The deal puts IBM’s Watson data analytics service in front of the millions of people who visit one of H&R Block’s 10,000 U.S. offices during tax season. The Watson data sifting technology is one of IBM’s key businesses including cloud computing and cybersecurity that it hopes will revive the company after several years of declining sales.

“This is not a promotion,” said H&R Block CEO Bill Cobb. “Watson is not cheap.”

For the multi-year Watson project, Cobb said that H&R Block bought 70,000 HP, Inc. (HPQ) monitors that its tax professionals will use as second screens to show customers detailed information about their taxes. For example, tax consultants may have one screen displaying a customer’s W-2 form while the other screen shows people how much money they received last year in federal and state refunds.

During tax consultations, H&R Block representatives will ask customers for details about their finances, their occupations, and whether they bought a house in the previous year. That information is logged into the system so that Watson can get a better picture of an individual’s situation and provide better advice (in some cases, advice or tax credits that H&R Block’s tax preparers wouldn’t know off the top of their heads).

David Kenny, the senior vice president of IBM’s (IBM) Watson and cloud division, gave the example of customers who want to know whether an appointment with a veterinarian for their emotional-support dog qualifies for a tax break. The answer: yes, if they can prove that they are using the animals to help them with medical ailments.

H&R Block gave IBM scores of common customer tax questions to train Watson to understand how to respond to questions, he said. They also fed the software with thousands of documents about various state and federal tax laws.

The Watson system is analogous to Apple’s (AAPL) Siri digital assistant that people use to ask basic questions, except it’s been specifically trained to answer questions involving taxes and related information, using an AI technique called deep learning.

H&R Block (HRB) has had its workers test Watson with various questions and then graded them based on their accuracy. This process was intended to helps train the software to provide the best responses.

“It’s not like it reads it automatically and it just knows it,” Kenny said.

H&R Block has tested Watson with tax preparers and customers in 150 offices, starting with an initial trial in five offices beginning in September. Cobb said that customers seem to be excited about the Watson system, with some people saying that it’s finally fun to get their taxes done.

Still, people who are concerned about privacy may worry that their personal tax information will be fed into Watson; H&R customers will not be able to opt-out of the service. H&R Block responded that user data is anonymized and that no personally identifiable information like Social Security numbers will be sent to IBM’s data centers, where the Watson software sifts and analyzes information.

The Watson initiative is a “long-term play” by H&R Block to win customers, Cobb said.

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IBM is taking a big gamble with its Watson brand with the H&R Block deal. If its technology fails during peak tax season in April, generates bad answers, or complicates the tax process beyond its current inconvenience, the company will take a big PR hit.

Both IBM and H&R Block acknowledge that the technology is a work in progress and that the system should progressively get better as more people ask it questions.

As part of its marketing for the initiative, H&R Block has enlisted a new pitch man, actor Jon Hamm, from Mad Men, to appear in its new Watson-themed commercials. One of them will debut during the Super Bowl on Sunday.

“Jon is super excited about it,” said Cobb. “We showed him the tech and he was all in.”

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