Tax Accounting Transformation with AI and Automation

Insights from the 2024 EY Tax Accounting and Risk Advisory Services (TARAS) survey, along with direct client conversations, reveal a clear trend: the future of tax accounting is digital, data-driven and decisively human-led.

Our 2024 EY TARAS survey reveals that while AI is gaining attention, most tax accounting teams are not yet using it actively. About half of respondents are in the exploratory phase. The desire for increased automation — whether AI-driven or not — is a top priority, signaling a readiness to modernize even if adoption is still early.

The case for change

Tax functions are under pressure. Budget constraints, legacy systems and fragmented data flows are limiting agility and accuracy — just as global reporting requirements and policy shifts demand more consistency, speed and flexibility. Manual processes and outdated tools are no longer sustainable.

Tax departments are also facing compressed timelines — particularly around year-end close, which now mirrors quarterly expectations despite greater complexity. This raises a critical question: how can teams maintain quality with fewer resources and tighter deadlines? Technology alone is not the answer. Organizations must rethink processes and make strategic trade-offs to sustain performance.

Tax leaders agree that while technology alone will not resolve these issues, AI that can enhance the efficiency of evolving technology must be part of the equation. While some fear automation may displace roles; the reality is more nuanced. AI is transforming how routine finance tasks are executed, but it is not likely to replace human roles entirely. Instead, it will redefine them — automating the repetitive while elevating the strategic. Human judgment and accountability remain irreplaceable, especially when it comes to signing off on financial statements. The technician’s role is evolving but remains essential, anchoring trust, compliance and decision-making in a rapidly digitizing world.

Technology and integration challenges

Many organizations are still grappling with foundational technology challenges. A lack of effective integration of core business processes and systems and inconsistent data structures can complicate tax reporting. While AI has already proven effective in areas like invoice matching and account reconciliation, broader adoption is often stalled by poor data quality and system fragmentation.

Clients cite issues ranging from ERP implementation delays to unreliable data retrieval. However, innovation is accelerating. AI agents are now being developed to review tax law changes, draft memos and support Accounting Standards Codification (ASC) 740 compliance through intelligent chatbots — demonstrating the real potential of AI to augment tax workflows.

Despite growing interest in AI, many teams remain deeply reliant on traditional spreadsheets and few have developed custom AI tools like chatbots for tax-specific use cases. Bridging this gap will require both cultural and technical skill shifts.

Data management and reporting

Data is the lifeblood of modern tax accounting — and one of its biggest pain points. Many tax teams still rely on manual data extraction, which is time-consuming and error-prone. Clients consistently express the need for a “single source of truth” to safeguard data accuracy and efficiency.

AI can help deliver that. By automating data extraction and harmonization, AI enables faster, more accurate reporting and helps tax professionals focus on analysis, strategy and oversight rather than data wrangling.

Manual legal entity reconciliations remain a time-consuming burden for many teams. AI has the potential to streamline this process, but only if data structures and systems are aligned to support automation.

Tax accounting is increasingly expected to support broader business functions — modeling cash taxes, estimating planning benefits and contributing to strategic forecasting. As one tax reporting and operations executive put it, “Tax accounting ends up being the function that has all the data.” This central role underscores the need for better tools and smarter data integration.

Navigating a shifting regulatory landscape

Tax accounting functions are being reshaped by a wave of global legislative and regulatory changes. From US tax reform to Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two, the pace and complexity of change are accelerating — and organizations must be ready to respond in real time.

According to the 2024 EY TARAS survey, over 70% of tax accounting executives are prioritizing these areas, with 76% already acting on or planning for BEPS 2.0 Pillar Two implementation. This signals a clear shift: compliance is no longer a reactive function — it is a strategic imperative.

To stay ahead, organizations must be nimble enough to “flip the switch” quickly, adapting to new rules with minimal disruption. That requires clean, reliable data, agile systems and proactive scenario planning. Tax leaders we spoke with are seeing a rise in international audits, increasing complexity in modeling interdependencies and mounting pressure to deliver transparency across jurisdictions. To be responsive in this environment and unlock the full potential of AI, companies that currently struggle with fragmented or outdated data must reexamine their foundational data governance and commit to greater standardization, system integration and real-time data accessibility.

In this fluid environment, organizations that can anticipate change and respond with agility are best positioned to unlock strategic advantages, transforming compliance challenges into opportunities for innovation, efficiency and long-term value.

Preparing talent for the era of AI and automation

The rise of generative AI and greater automation is reshaping the skill set required in tax. Professionals must now learn to craft precise prompts, interpret AI-generated insights and apply them to complex cross-border tax scenarios. This shift demands not just new tools but a new mindset.

Training is critical. Without it, teams risk falling behind. Organizations must invest in upskilling and embed AI literacy into daily workflows — helping staff move from manual tasks to high-value strategic work.

What qualifies as “basic” tech literacy is evolving. Today’s tax professionals must strengthen both their technical and technological muscles — embracing tools like AI while continuing to master core tax and accounting principles. Upskilling is no longer optional; it is foundational to the future of the profession.

The future of tax accounting will look different than the past. Professionals must grow comfortable with uncertainty and be willing to let go of manual, repetitive tasks. Embracing change is not just about tools — it is about mindset.

Culture and collaboration

Technology alone will not drive transformation. Cultural resistance and siloed decision-making can stall progress. In our discussions, clients have emphasized the importance of:

• Securing buy-in across all levels
• Clarifying the impact of AI on roles and responsibilities
• Streamlining decision-making around technology investments
• Involving tax early in enterprise-wide AI initiatives

Open communication and cross-functional collaboration are essential to building a future-ready tax function.

Embracing the future

AI and automation are not just tools — they are strategic enablers. Organizations that thoughtfully embrace them now will be better positioned to enhance efficiency, reduce risk and lead in a complex, fast-changing environment.

The future of tax accounting belongs to those who act early, invest in talent and reimagine their operating models. With the right mindset and capabilities, tax functions can become not just compliant but catalytic.

The views reflected in this article are those of the author and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.