Artificial intelligence (AI) is all the rage today. AI tax research risks are becoming a growing concern as professionals increasingly use generative AI tools for legal and tax-related research. AI tools like ChatGPT, Claude, Grok, and Perplexity are being used for everything, including legal research. But beware of the risks! AI is not perfect. It’s not even intelligent. Real-world tax disputes can also create unexpected cost spirals, as seen in other IRS litigation cases.
Why AI Gets Tax Research Wrong
AI doesn’t think like a human, and it has no internal fact-checker. It produces new content by analyzing vast amounts of prior works (“training data”) to identify underlying patterns and structures. It then makes probabilistic predictions about the next word in its answer. In short, it predicts words, not truth.
And AI frequently lies—AI developers call this “hallucinating.” One survey of general-purpose AI tools found that they hallucinate 58 percent to 82 percent of the time on legal queries. What about AI tools specially designed for legal research? These tools are more reliable, but they still hallucinate 17 percent to 34 percent of the time. This example highlights one of the major AI tax research risks, where inaccurate or fabricated citations can appear credible without human verification.
When AI Hallucinations Become a Legal Problem
One attorney found this out the hard way when he apparently relied on AI to perform legal research. He ended up submitting a brief in Tax Court that contained fake and inaccurate legal citations. The Tax Court was not amused. He lost his case. This was a first for the Tax Court, but other courts have fined attorneys who submitted fake legal research generated by AI.
Tax questions are particularly difficult for AI to answer correctly because tax law is complex and constantly changing. If you use AI for tax research, always instruct it to provide a citation to primary authority for every legal claim, and check that reference yourself.
Many courts are now requiring attorneys to disclose whether they used AI in court filings and to certify that a human has independently reviewed any AI-generated document. See the American Bar Association guidance on AI use in legal practice.
The IRS has recently advised its employees to avoid becoming overly reliant on AI tools. It says they should use those tools to assist and augment their work, not replace their own critical thinking and judgment. This is good advice for everyone.
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