AI tax startup Filed bags $17.2M to turbocharge tax return processing

Tax software startup Filed Inc. said today it has raised $17.2 million in funding to try and fix what it says is the accounting industry’s broken talent pipeline with artificial intelligence.

The funding came via seed and preseed rounds led by backers that include Northzone, Day One Ventures, J Ventures, Raine, Neo and Greens Ventures.

Filed has created an AI Tax Preparer that’s able to eliminate much of the mundane, low-value work associated with filling out tax returns and associated paperwork. It says these laborious tasks account for almost half of the average tax professional’s productivity. By automating that grunt work, it says, it can help those people process their tax returns up to three times faster, without hiring any additional staff.

Cleverly, the software is made up of a number of specialized plugins that integrate directly within any existing tax software system, meaning organizations don’t have to rebuild their systems from the ground up.

Filed says there’s a real urgency in the accounting industry for this kind of automation, pointing out data that shows around 75% of certified public accountants are now eying retirement, and 17% fewer students are enrolling in CPA-related educational courses since 2019. These realities are the reason why 90% of tax companies report being unable to hire all of the staff they need.

Added to this lack of talent, other studies show that the majority of tax professionals still working are overwhelmed, with up to 40% of their time wasted on tasks that Filed believes can be automated. These include data entry, document collection and progress tracking.

Filed co-founder and Chief Executive Leroy Kerry says tax firms are drowning in paperwork and, in response, their talent is walking out of the door. He said his company aims to be the one that steps up into the void. “[We are] a true partner that plugs directly into existing systems, eliminating the tedious work that’s crushing productivity and allowing firms to scale without the hiring headaches that keep partners up at night,” he said.

Because it’s focused specifically on tax processes, Filed is able to automate the entire tax return lifecycle. It performs tasks such as structuring clients’ documents, validating returns and proactively flagging anomalies, with its work based on firm defined rules.

Its underlying foundation models were trained on thousands of tax documents. They’re combined with Filed’s proprietary tax workflow orchestration layer to enable them to work with any kind of accounting software platform, including popular systems such as CCH Axcess, Drake, Lacerte and UltraTax.

With its customizable “firm profiles,” Filed’s AI agents can learn to mirror customer’s existing tax workflows, automating their work in exactly the same way, down to the review processes, naming conventions and client communication preferences. In addition, Filed’s AI agents have the ability to escalate problems such as ambiguous tax scenarios for human review to ensure full auditability, traceability and compliance with the Inland Revenue Service’s standards.

As with all good AI systems, Filed’s AI agents learn from their work, meaning they should get better and improve their performance over time, with fewer errors resulting the more it is used.

Filed’s other co-founder, Chief Technology Officer Atul Ramachadran, said the company has been able to succeed where earlier AI startups have failed because it recognizes the need for both deep domain expertise and transparent and explainable outputs. “We’ve created a deterministic architecture that tax professionals can actually trust, with full auditability and compliance with IRS standards, while still delivering the transformative power of AI,” he said.

Although many have failed at tax automation in the past, these kinds of applications are actually the sweet spot for generative AI automation, according to Holger Mueller of Constellation Research.

“Things like gathering documents, sorting them, filling them out and so on, these all come very easily to generative AI,” the analyst said. “The challenge is doing it correctly and in-line with regulations, and it’s no surprise that startups are emerging to tackle it, automating the taxation return process for businesses. There’s a clear business upside, its technically feasible, so everything is set for Filed’s AI to shine.”

Filed said its software is already being put to work by professional tax firms like JCG Tax Advisory Inc. and Jalada Inc., and it says those customers have managed to reduce their review cycles by between 30% to 50%. Most importantly, they have been able to slash turnaround times from a week to overnight in some cases.

Braedon Porter, co-founder of the tax advisory Jalada, said his team is now processing four times as many tax returns as before, despite having fewer CPAs on its staff. “What used to be our ceiling is now our starting point,” he said. “We could handle 1,000 returns effortlessly with our current team. It’s not just automation, but multiplication of what each professional can accomplish.”

Armed with today’s funding, Filed said it intends to fulfill its mission of becoming the foundational AI infrastructure for the tax industry, before expanding into areas such as document management, audit preparation and client collaboration.

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