Kostelanetz LLP successfully challenged several IRS conservation easement appraisal and USPAP-related reports on the grounds that the appraiser’s reports contained mistakes created by the use of artificial intelligence (AI).
With a trial team led by Kostelanetz partners Todd Welty and Andy Steigleder, the firm represents a company that is challenging the IRS’ disallowance of a conservation easement donation that the company claimed as a $45 million charitable deduction, among other things. Thirteen other cases pending in U.S. Tax Court involving conservation easements are judicially bound to the decision in this case, with all cases collectively challenging total tax and penalty adjustments of over $700 million. The matter was tried in March 2026, before the Hon. Judge Kathleen Kerrigan.
During the bench trial, an IRS appraisal and USPAP expert submitted reports that bore the hallmarks of AI-generated content, including hallucinated quotations to the Uniform Appraisal Standards for Federal Land Acquisitions (commonly known as the “Yellow Book”), citations to section numbers in the Yellow Book that do not exist, and other erroneous references. The expert attempted to correct these errors by submitting an errata sheet shortly before trial.
Kostelanetz attorney Daniel Rosen, with the help of second-chair Daniel Wharton, conducted an extensive voir dire of the appraisal expert, methodically exposing why the expert’s reports were unreliable because of the numerous hallucinations and why an errata sheet submitted on the eve of trial was insufficient to save the reports. During the examination, the appraisal expert admitted to having used Grammarly, ChatGPT, and Gemini, but could not confirm on the stand whether his use of those tools contributed to the hallucinated portions of his reports.
Rosen argued that the appraisal expert’s reports were inherently unreliable, given the extensive AI-generated errors and hallucinations permeating the reports, and that it would be a mistake to admit the reports into evidence.
Judge Kerrigan warned IRS Counsel that she had “grave concerns” about the reports, and IRS Counsel ultimately withdrew the appraisal expert’s reports during trial.
According to a Tax Notes article about the case, the Tax Court has dealt with two other matters recently involving filings by the IRS that appear to have “AI-hallucinated citations.”
Other members of the Kostelanetz trial team include Michael Coverstone, Merima Mahmutbegovic, Macdonald Norman, and Maxwell Brown.
The case is Riddle Aggregates v. Commissioner. A decision in the case is pending.
About Todd Welty
Todd has extensive experience in resolving civil tax matters at all stages of a tax dispute, including IRS examinations, fast-track appeals, administrative appeals, post-appeals mediation, and, if necessary, litigation in the U.S. Tax Court, the U.S. Court of Federal Claims, U.S. district courts, and U.S. Courts of Appeal.
About Andy Steigleder
Andy brings to every engagement the conviction that all significant tax matters are valuation matters. Drawing on a dynamic background that spans tax law, accounting, finance, and securities, he leverages that fluency by teaming with clients and their financial, economic, valuation, and industry experts to develop comprehensive litigation strategies. Andy has significant experience in conservation easement litigation and preparing for, defending, and resolving complex tax controversies and other valuation matters.
About Daniel Rosen
Dan is of Counsel at Kostelanetz LLP. He is a veteran trial lawyer with over 24 years of experience in private practice and with the IRS Office of Chief Counsel. Over the course of his career, Dan has litigated some of the largest, most complex, and most sensitive tax cases before the United States Tax Court.
About Daniel Wharton
Dan is of Counsel at Kostelanetz LLP. He focuses his practice on federal tax litigation matters. Dan previously was an associate in the Chicago office of Baker McKenzie, where he defended corporations from IRS examinations, through Appeals, and into Tax Court.
About Michael Coverstone
Michael is of Counsel to Kostelanetz LLP. He has significant experience representing individuals and businesses in federal tax disputes. He has represented taxpayers in numerous IRS audits, administrative appeals, collection matters, and litigation before the United States Tax Courts. His Tax Court experience includes a range of tax disputes, from smaller substantiation cases to complex partnership matters involving real estate investments and syndications.
About Merima Mahmutbegovic
Merima assists clients with federal tax controversy and litigation matters at all stages, including audits before the Internal Revenue Service and litigation in the U.S. Tax Court. She obtained her law degree from Georgia State University College of Law, where she received recognition for excellent performance in lawyering advocacy and graduated magna cum laude.
About Macdonald Norman
Mac’s practice is focused on tax litigation in the U.S. Tax Court and federal district courts. Mac received his BBA in accounting from Texas A&M in three years. While in law school, Mac was a member of the Texas A&M Law Review editorial board, as well as the Phi Delta Phi International Legal Honor Society. He obtained his LLM from the Georgetown University Law Center, graduating with distinction and as a Dean’s List Honoree.
About Maxwell Brown
Max’s practice focuses on white-collar criminal defense. He also represents individuals and businesses in tax controversies and commercial litigation. Prior to joining Kostelanetz LLP, Max was an associate at Sullivan & Cromwell for over four years, where he represented financial institutions, individuals, and corporate clients from a variety of industries in complex civil litigation, including commercial disputes, consumer class actions, and employment actions.
