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CHATBOTS ARE DANGEROUS FOR PRIVILEGE!

US COURT CONCLUDES USE OF AI IN LITIGATION MAY PUT PRIVILEGE AT RISK

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Canadian Courts are still trying to wrap their minds around AI and Solicitor-Client Privilege, with not a lot out there right now. The US appears to be on the forefront of this issue, however, with a District Court decision in United States v. Heppner (No. 25 Cr. 503, S.D.N.Y. 2026) (“Heppner”) highlighting the dangers of clients relying on AI for their legal analysis – or legal defences – without first engaging a dues paying lawyer.

In this Tax Appeals Blog, we review Heppner and the perils of relying on AI rather than good old-fashioned legal professionals!

Heppner Case

After realizing he was the target of a federal securities fraud investigation, Bradley Heppner began using a generative AI tool (Claude) to analyze his legal exposure and develop potential defence strategies. The FBI then seized his electronic devices and documents containing these communications with Claude, and prosecutors later sought to enter them into evidence to advance their case.

Heppner tried to block these AI-generated documents from being used as evidence, arguing that they were privileged, because he later shared them with his lawyers.

The Court ultimately rejected this argument on the basis that Claude was not a lawyer and that Solicitor-Client privilege – as it is known in Canada – only protects confidential communications that are (1) made for purposes of obtaining or providing legal advice; and (2) between the client and their dues-paying, properly licensed lawyer.

Heppner's conclusions would seem equally apt in the Canadian tax context: a taxpayer's independent AI communications are not privileged, and clients risk government authorities obtaining copies of those communications, either through criminal subpoenas or in the civil tax context, CRA "interviews" or examinations for discovery in Tax Court Litigation.

Rule 105 Applications & AI Chat Logs

Rule 105 of the Tax Court of Canada Rules (General Procedure) is particularly problematic in this context, as it governs the production of documents during oral discovery in Tax Court appeals. Rule 105 effectively requires a party under examination to produce all relevant documents and things in their possession or control identified during their examination – provided those documents are not privileged.

In other words, if a Canadian taxpayer uses an AI tool for tax planning or audit strategy, the CRA could effectively access those discussions through Rule 105 – or even before.

What can be Done?

Heppner left open the possibility that where AI is used at Counsel’s direction as part of their provision of legal services, Solicitor-Client privilege may still apply to AI chat logs. At a minimum, then, Counsel should be retained before any real use of AI can be protected.

Even then, however, where AI chats upload to the cloud as part of their terms of service – which is extremely common – it is unclear how privilege applies, given the current state of the law.

Takeaways

Heppner is a US case, but it is an early warning about an issue Canadian Courts will inevitably face, and how they will likely deal with the situation. Use of AI is not covered by Solicitor-Client Privilege, and confessing damaging information to AI may allow the CRA to discover and rely on that information in Tax Court cases.

Experienced Tax Counsel can help provide proper advice, that does NOT have to be shared with the CRA.

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