Decision support software for tax.

• Author: Davis, Joe

The item "Decision Support Software for Tax" was written by Joe Davis, a Masters of Accountancy student with a concentration in tax, Virginia Polytechnic Institute and State University, Blacksburg, Va., and John Brozovsky, Assistant Professor of Accounting, Virginia Polytechnic Institute and State University, Blacksburg, Va. The item "Committee Addresses Concerns on Electronic Filing" was written by Joseph C. Maida, CPA, MBA, Shareholder, Nicholas C. Maida, CPA, Chartered, Trenton, N.J.

Computers have revolutionized every aspect of practitioners' lives, including the preparation and planning for income taxes. Over the years, tax software has expanded and taken new directions. Three areas of this expansion include decision support systems (DSSs), expert systems and neural networks. This article will examine these three areas as they relate to tax planning.

Decision support systems

A DSS is "an interactive, flexible and adaptable CBIS (Computer Based Information System), specially developed for supporting the solution to a particular management problem or improved decision making. It utilizes data, it provides easy user interface, and it allows for the decision maker's own insights." (See Turban, Decision Support and Expert Systems, Macmillan Publishing Co., 1993, at 87.)

DSSs provide support for decision makers mainly in semistructured and unstructured situations, i.e., in areas in which the correct decision rule is not known. (Most tax planning decisions fall in this category. This support may be provided for various levels of managerial skill and expertise, and may be provided to individuals as well as groups. DSSs support all phases of the decision-making process: intelligence, design, choice and implementation. A variety of decision-making styles and processes are supported, making DSSs adaptive over time. DSSs are easy to use and attempt to improve the effectiveness of decision-making, rather than merely its efficiency. Finally, DSSs lead to learning, which leads to new demands and refinement of the system, which in turn leads to additional learning, and so forth. Most DSSs have some of these features.

Using the definition from Turban, any computer software that supports the decision-making process can be considered to be a DSS. Decision support software in taxation can be divided into four categories.

Category 1: Simple tax preparation software. Tax preparation software packages are primarily used by individuals and tax preparers to prepare returns for individuals, businesses, estates and trusts, etc., that are filed with the Federal and various state tax authorities. While used primarily for preparation (which is not a decision support function), these programs can provide limited "what-if" calculations for future tax decisions. Typically, the planning is limited to either including or excluding an item or a group of items, and a recalculation of the new tax. The change in the tax liability is then calculated by hand as the difference between the taxes with and without the item in question. This type of software, therefore, has limited and very cumbersome decision support capabilities. Data for various...