Assaf Harpaz (Georgia; Google Scholar) presented Artificial Intelligence and Taxpayer Entity at Case Western yesterday as part of its Journal of Law, Technology & the Internet (JOLTI) Symposium (agenda):

Artificial intelligence (AI) is changing the world and presents numerous challenges to legal and regulatory frameworks. The evolving, complex yet still ambiguous concept demands rethinking longstanding doctrines at risk of obsoleteness. These tensions are highlighted in federal income taxation, which generally compartmentalizes taxpayers into individuals and business entities. Technological developments such as generative AI upend these conceptions given their capacity to create value and operate autonomously, interacting with the economy in ways that combine human and non-human attributes.

Under current U.S. law, even the most advanced AI models are not directly subject to the income tax regime, as they are neither individuals nor separate business entities. AI is poised to dramatically reshape the tax base by altering both the sources of income (from humans to robots) and the type of income (from labor to capital) that is subject to tax.

This article examines the intersections and frictions between AI models and federal income tax policy. It focuses on questions of taxpayer entity and ownership that arise from the widespread use of AI. The article argues that the unique and non-binary characteristics of AI contest the principles of personhood, income, and asset character, at the foundation of the income tax system. Moreover, it considers the prospect of defining AI for federal income tax purposes and whether proposed definitions can stand the test of time.

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