AI-Generated Case Citations Dooms Restauranteur’s Tax Position

An attorney who ran a restaurant and rental properties reported income on Schedule C of more than $1.6 million but claimed a net loss of about $400,000. On Schedule E he reported a rental loss based on depreciation of his properties. When the IRS disallowed the losses, his lawyer raised a technical issue (the signature on a Notice of Deficiency) and cited various cases to support the challenge. The Tax Court found that “The bouillabaisse of case names, reporter citations, and legal propositions suggests something cooked up by AI.” While the Tax Court did not impose any penalties on the lawyer, it said in a footnote that “AI hallucinations” are unacceptable. #IdeaoftheDay