diff --git a/.gitignore b/.gitignore
index ca4cb7b..cc1b497 100644
--- a/.gitignore
+++ b/.gitignore
@@ -3,6 +3,7 @@
 
 # Python
 __pycache__
+.venv/
 
 # Build
 /typeagent.egg-info
diff --git a/docs/VSCode-Setup-Pluging-Pyright.md b/docs/VSCode-Setup-Pluging-Pyright.md
new file mode 100644
index 0000000..f45879b
--- /dev/null
+++ b/docs/VSCode-Setup-Pluging-Pyright.md
@@ -0,0 +1,68 @@
+# VSCode Plugin Setup for Pyright/Pylance
+
+This document describes how to manually install specific versions of the Pylance and Pyright VSCode plugins.
+
+## Background
+
+There is a known issue with pyright version 1.1.407 that causes false positive errors with pydantic dataclasses (see [issue #149](https://github.com/microsoft/typeagent-py/issues/149)). The errors manifest as incorrect warnings like:
+
+- `No parameter named "text"` (reportCallIssue)
+- `Expected 0 positional arguments` (reportCallIssue)
+- `Cannot access attribute "..." for class "PydanticDataclass"` (reportAttributeAccessIssue)
+
+To avoid these false errors in VSCode, you need to use plugin versions that include pyright 1.1.406.
+
+## Required Plugin Versions
+
+The following VSCode plugin versions use pyright 1.1.406 internally:
+
+### Pylance Plugin
+
+- **Identifier:** `ms-python.vscode-pylance`
+- **Required Version:** 2025.9.1 (21 October 2025)
+- **Changelog:** https://marketplace.visualstudio.com/items/ms-python.vscode-pylance/changelog
+
+### Pyright Plugin
+
+- **Identifier:** `ms-pyright.pyright`
+- **Required Version:** 1.1.406 (Oct 1, 2025)
+- **Changelog:** https://marketplace.visualstudio.com/items/ms-pyright.pyright/changelog
+- **Release Notes:** https://github.com/microsoft/pyright/releases/tag/1.1.406
+
+## How to Manually Install a Specific Plugin Version
+
+1. **Open the Extensions view** in VSCode (`Ctrl+Shift+X` or `Cmd+Shift+X` on macOS)
+
+2. **Search for the extension** by name (e.g., "Pylance" or "Pyright")
+
+3. **Click on the extension** to open its details page
+
+4. **Click the gear icon** (⚙️) next to the "Uninstall" button
+
+5. **Select "Install Another Version..."** from the dropdown menu
+
+6. **Choose the required version** from the list:
+   - For Pylance: select version `2025.9.1`
+   - For Pyright: select version `1.1.406`
+
+7. **Disable automatic updates** for the extension (optional but recommended):
+   - Click the gear icon again
+   - Select "Ignore Updates" to prevent VSCode from auto-updating to a newer (potentially broken) version
+
+8. **Restart VSCode** to ensure the changes take effect
+
+## Plugin Version Screenshots
+
+### Pylance Plugin (Version 2025.9.1)
+
+![VSCode Pylance Plugin 2025.9.1](images/VSCode-Setup-Plugin-Pylance-2025-9-1.png)
+
+### Pyright Plugin (Version 1.1.406)
+
+![VSCode Pyright Plugin 1.1.406](images/VSCode-Setup-Plugin-Pyright-1.1.406.png)
+
+## Notes
+
+- You typically only need **one** of these plugins (Pylance or Pyright), not both
+- Pylance is the more full-featured option and includes Pyright internally
+- Make sure your `.venv` is properly configured and selected in VSCode's Python interpreter picker (shown in the status bar at the bottom)
diff --git a/docs/images/VSCode-Setup-Plugin-Pylance-2025-9-1.png b/docs/images/VSCode-Setup-Plugin-Pylance-2025-9-1.png
new file mode 100644
index 0000000..783684b
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diff --git a/docs/images/VSCode-Setup-Plugin-Pyright-1.1.406.png b/docs/images/VSCode-Setup-Plugin-Pyright-1.1.406.png
new file mode 100644
index 0000000..4d23556
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diff --git a/pyproject.toml b/pyproject.toml
index 5376339..2ea7df9 100644
--- a/pyproject.toml
+++ b/pyproject.toml
@@ -89,4 +89,5 @@ known_local_folder = ["conftest"]
 [dependency-groups]
 dev = [
     "isort>=7.0.0",
+    "pyright==1.1.406",
 ]
diff --git a/src/typeagent/aitools/utils.py b/src/typeagent/aitools/utils.py
index b160189..b1a263d 100644
--- a/src/typeagent/aitools/utils.py
+++ b/src/typeagent/aitools/utils.py
@@ -67,7 +67,7 @@ def reindent(text: str) -> str:
 
 
 def load_dotenv() -> None:
-    """Load environment variables from '<repo_root>/ta/.env'."""
+    """Load environment variables from '<repo_root>/.env'."""
     # Look for ".env" in current directory and up until root.
     cur_dir = os.path.abspath(os.getcwd())
     while True:
diff --git a/uv.lock b/uv.lock
index 21ebefc..6f2943d 100644
--- a/uv.lock
+++ b/uv.lock
@@ -1831,6 +1831,7 @@ dev = [
 [package.dev-dependencies]
 dev = [
     { name = "isort" },
+    { name = "pyright" },
 ]
 
 [package.metadata]
@@ -1864,7 +1865,10 @@ requires-dist = [
 provides-extras = ["dev"]
 
 [package.metadata.requires-dev]
-dev = [{ name = "isort", specifier = ">=7.0.0" }]
+dev = [
+    { name = "isort", specifier = ">=7.0.0" },
+    { name = "pyright", specifier = "==1.1.406" },
+]
 
 [[package]]
 name = "typechat"