H&R Block Shows How Automation Could Change Legal Profession

Photographer: Daniel Acker/Bloomberg News.

Lawyers concerned about how automation could affect their jobs may want to look at H&R Block’s recently announced plans to partner with IBM’s smart computer Watson.

The consumer tax preparation company, which has about 10,000 brick and mortar retail locations in the U.S., announced last month that it’s reinventing itself: This tax season, customers who walk into its U.S. storefronts will have their tax returns prepared by traditional human advisors, alongside IBM’s Watson.

The move comes as the 62-year old company — which still derives 89 percent of its tax prep fees from walk-ins to its storefronts — struggles to bring in more customers, and battles against more automated software programs such Intuit’s TurboTax. Although H&R Block is preparing tax returns, not dispensing legal advice, the Watson partnership has implications for the legal profession, according to Brian Sheppard, a Seton Hall Law professor who studies automation.

“It is no coincidence that Watson could be very helpful in this area  because it has fewer shades of gray than other areas of law,” said Sheppard, who added that this makes it easier to automate.

Here’s how the partnership works: Customers who walk in to an H&R Block storefront will have a conversation with their tax preparer about their past year. That conversation will be documented on a computer for Watson to analyze. Meanwhile, Watson will share its conclusions via a computer screen facing the customer, so they can see how their tax return is being prepared.

“You can think of Watson as being a translater in a sense,” said Katy Rosati, an IBM Watson spokeswoman. “Typically, you go in to get your taxes done, and bring your paper work and then you sit there on your side of the desk … it’s not easy to see what they’re doing and what’s going on.”

In addition to providing visual aids to explain the tax return, Watson has also been trained – using H&R Block’s data – to discover information that would lead to a larger tax refund.

“This is the best of man and machine,” said Meg Sutton, director of H&R Block’s client retail experience.

Sutton emphasized that H&R Block is already competing against automation software and is seeking to shore up clientele who want to use a human advisor – last year, walk-in customers declined six percent, according to the company.

Watson is designed to enhance the human advisor’s  intelligence rather than replace them, according to Rosati. That’s why IBM has stopped describing Watson as artificial intelligence, and now calls it “augmented intelligence,” she said.

Sutton and Rosati declined to disclose all the details of their contractual partnership. But Rosati said that IBM does not gain access to any data from H&R Block as a result of the partnership, and that H&R Block pays IBM based on the quantity of its usage of Watson.

The rise of intelligent machines is an area of growing concern for business professionals and lawyers are no exception: Last June, J.P. Morgan implemented a software program that is automating tasks related to contracts that previously required 360,000 hours per year from lawyers and other personnel.

One in-house lawyer at The Gap reacted by saying lawyers’ day of reckoning is coming:

As Big Law Business has detailed previously, some law firms such as Allen & Overy, and alternative services providers such as Axiom and Deloitte, are angling to help implement such automation.

Still, Sheppard, who studies automation, said it is an open question whether the technology will eventually replace human tax advisors.

Regardless of whether Watson supplants humans, he said the tax preparers at H&R Block and any other professional that will be working with intelligent machines, will need new skills to succeed. This may include learning how to interface with a machine, whereas in the past it was necessary to interface with a human, said Sheppard.

He described a “slow march towards the automation of ever more sophisticated tasks,” and said that eventually, Watson is likely to be able to assist with other areas of law, including more nuanced decisions, at which point lawyers will be affected.

“People that are at the higher end of the more sophisticated tasks are the safest, but I still don’t think anyone can be absolutely secure that they will never be threatened,” said Sheppard.