Tax Court Memo Decision Warns Practitioners About Misuse of Artificial Intelligence Hallucinations (2/10/26)

 I have written before on Tax Court Orders addressing AI use and hallucinations. Use of AI, Including Large Language Models (LLMs), in Tax Court Brief Writing (And Really Other Legal Analysis) (Federal Tax Procedure Blog 1/22/25; 4/29/25), here. In Clinco v. Commissioner, T.C. Memo. 2026-16 (2/9/26 T.C. No. 8077-23, here, at # 37 and GS here [to come]), Judge Holmes finally puts the issue in a decision (as opposed to an order). The relevant discussion is here (Slip Op. 5 & 6-8, yellow-highlighting supplied by JAT):

I. Notice of Deficiency

          Clinco’s challenge to the validity of the notice of deficiency serves up one apparently serious question: Must one of the Commissioner’s employees manually sign a notice of deficiency? But it is accompanied by a garnish we’ve reviewed in orders but not in an opinion: What should we do when lawyers cite hallucinated authorities likely generated through artificial intelligence (AI)?

* * * *

B. Fabricated Case Citations

          The persuasiveness of Clinco’s argument collapses like an overmixed soufflé when one looks at the citations used to prop it up. Mr. Wagner, Clinco’s attorney, cites four cases in support. Three appear to be hallucinations generated by a large language model AI. He cites “Cacchillo v. Commissioner, 130 T.C. 132 (2008),” as a case where a taxpayer challenged the validity of the notice of deficiency because it lacked an official signature. He claims we held that the IRS’s failure to issue a valid signed notice of deficiency ousted us of jurisdiction. “Cacchillo v. Commissioner” does not, however, exist. Page 132 in volume 130 of the Tax Court Reports is within Porter v. Commissioner, 130 T.C. 115 (2008), and that page discusses the standard of review for section 6015(f) claims for relief—completely unrelated to the case before us.

          Mr. Wagner claims “Cacchillo v. Commissioner” overturned “Miller v. Commissioner, 57 T.C. 440 (1971),” and “Tefel v. Commissioner, 118 T.C. 324 (2002).” He elaborated:

In Tefel the Tax Court did note that the case clarified that while substantial compliance may be sufficient, the IRS [*7] must still meet the signature and other formal requirements in issuing the [statutory notice of deficiency]. While some cases allowed for minor errors in the issuance process, critical requirements like a signature must be followed for a Notice of Deficiency to be valid.

Neither of these cases exist as cited. Miller v. Commissioner, T.C. Memo. 1984-448 (not the citation provided by Mr. Wagner) mentions a notice of deficiency in passing in the findings of fact, but only to state that one was sent. There is no discussion of the formal requirements of such a notice. Page 440 in volume 57 of the Tax Court Reports is within Winfield Manufacturing Co. v. Renegotiation Board, 57 T.C. 439 (1971)—a case in which there is no mention of a notice of deficiency whatsoever.

          There is no case named “Tefel v. Commissioner,” and page 324 of volume 118 of the Tax Court Reports is a paragraph in Hillman v. Commissioner, 118 T.C. 323 (2002)—a case discussing the tax treatment of management fees in an S corporation. The Commissioner catalogued the questionable citations in his answering brief, but Mr. Wagner chose not to clarify their origins in his reply. He even listed “Cacchillo v. Commissioner, 130 T.C. 132 (2008),” again in his table of authorities. The bouillabaisse of case names, reporter citations, and legal propositions suggests something cooked up by AI. Such apparitions have made frequent appearances in legal briefing in recent years, and we echo the conclusions articulated by other courts: Their presence is unacceptable.n6
   n6 There is by now a smorgasbord of cases condemning fake citations. See, e.g., Versant Funding LLC v. Teras Breakbulk Ocean Navigation Enters., LLC, No. 17-cv81140, 2025 WL 1440351, at *7 (S.D. Fla. May 20, 2025); Ramirez v. Humala, No. 24-cv-424, 2025 WL 1384161 (E.D.N.Y. May 13, 2025); Nguyen v. Savage Enters., No. 24-cv-00815, 2025 WL 679024 (E.D. Ark. Mar. 3, 2025); Lacey v. State Farm Gen. Ins. Co., No. 24-cv-5205, 2025 WL 1363069 (C.D. Cal. May 5, 2025); Johnson v. Dunn, 792 F. Supp. 3d 1241, 1246 (N.D. Ala. 2025). And, one must confess, even judges have contributed to this stew. See, e.g., Alex Ebert, Judges’ AI Blunders Spark Debate on Technology Use in Courts, Bloomberg Law (Dec. 1, 2025), https://news.bloomberglaw.com/business-and-practice/judges-ai-blunders-spark-debate-ontechnology-use-in-courts.

          Submitting a brief with fictitious caselaw is a recipe for sanctions and a clear violation of Rule 11(b) of the Federal Rules of Civil [*8] Procedure.n7 We reiterate Chief Justice Roberts’s advice to lawyers who write briefs with citations of nonexistent cases: “Always a bad idea.” 2023 Year-End Report on the Federal Judiciary 6 (Dec. 31, 2023). That is certainly true in this case.n8
   n7 “By presenting to the court a pleading, written motion, or other paper— whether by signing, filing, submitting, or later advocating it—an attorney or unrepresented party certifies that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances . . . the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law . . . .” Fed. R. Civ. P. 11(b). Our Court doesn’t have an equivalent apart from Rule 33(b), which governs pleadings, but lawyers who appear before us must follow the Model Rules of Professional Conduct. Rule 201(a). Model Rule 3.3(a)(1) does ban knowingly making a false statement of law and also requires a lawyer to correct a false statement previously made.
   n8 It is not absolutely clear from the record whether Mr. Wagner used generative AI to secure legal precedent for his arguments. A bit of embarrassment for failure to citecheck, failure to ‘fess up, and (if it occurred) use of AI to write a section of the brief is enough for now. But courts have begun to more seriously sanction lawyers who use AI as a shortcut in drafting. See, e.g., Rafael P. McLaughlin, Lawyer Sanctioned for Failure to Catch AI “Hallucination”, ABA Litigation News (Mar. 13, 2025), https://www.americanbar.org/groups/litigation/resources/litigation-news/2025/lawyersanctioned-failure-catch-ai-hallucination/. Tax Court has not done so. Yet. 

JAT Comments:

1. Judge Holmes’ point is the same as made in earlier Orders, but putting the point in an opinion, even a Memo opinion will make more practitioners aware and thus give fair warning to practitioners. I suspect that many practitioners do not pay much attention to orders. The Tax Court publishes daily orders, here, just as it publishes daily opinions, here. Busy practitioners, I suspect, focus on the opinions which are usually just a few at most on any day and do not wade through the daily orders, which may be several hundred on any given day and most deal with routine case processing type stuff (motions for discovery, motions for withdrawal, etc.). One practitioner who apparently reviews daily orders to some extent and writes on them is Lew Taishoff who publishes the Taishoff Law Blog, here; he also posted on Clinco here. THE PHANTOM CITATION (Taishoff Law Blog 2/9/26), here. But he usually writes on only one or two orders a day and sometimes writes on opinions. So most practitioners, including me, just do not regularly go to the Today’s Orders list to try to mine the nuggets that might be in the orders. (I do a somewhat regular practice to look at the daily order list with certain routines (e.g. sort in reverse page number order to try to discern from the descriptions of larger page number orders if they should be read and often search on "LLC" to pick up some tidbits about bullshit conservation easement cases that usually appear as LLCs). So, although AI hallucinations had been addressed in orders that most practitioners might not have been aware of, Judge Holmes wanted to put the AI hallucination risk in an opinion that good practitioners will review to some extent.

2, I find it odd that the pungent warning shot (see highlighted item above) is in the footnote. Of course the text is fair warning in itself.

3, The docket entries for the case have two docket entries for “Online Cited Source” which are links to two web items cited in the Memorandum 

• at Dkt # 37 Alex Ebert, Judges’ AI Blunders Spark Debate on Technology Use in Courts (Bloomberg Law  12/1/25).
• at Dkt # 38 Rafael P. McLaughlin, Lawyer Sanctioned for Failure to Catch AI “Hallucination” (ABA Litigation News 3/13/25). 

Each of these articles may be found on the web, but there is no assurance that the articles will not be revised or deleted; hence, the need to post the articles as they are when cited in the opinion.