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Leonard Lane Grigsby, reputed Louisiana Republican kingmaker, will have to repay a $576,756 refund that alliantgroup, currently under investigation, consulted on. Judge Brian Jackson of the US District Court for the Middle District of Louisiana issued the opinion requiring the repayment of the 2013 refund last month, It was a summary judgement. Grigsby is usually referred to as Lane Grigsby, but was Leonard in the litigation.

Lamar White Jr. wrote a profile of Grigsby for the Bayoubrief describing Grigsby’s rags to riches story and his support for Republican candidates in Louisiana. Adrienne Gonzalez has covered the ongoing alliantgroup investigation on Going Concern. As best I can tell there is no direct connection between the two stories. As usual the stories behind the story I am covering are more interesting, but such is the fate of a tax writer.

About The Research Credit

The computations involved in the Section 41 Credit for increasing research activities defy easy summary. To understand Judge Jackson’s opinion you don’t have to understand the computations. The judge concluded that there was actually no research eligible for the credit at all.

Section 41 has given rise to a sort of mini industry of consultants who go into businesses and make them aware of all the things that they do that are arguably research. A lot of it is done by large accounting firms. The regional firm I was part of brought in a research credit group.

It was one of those things the managing partner just loved. In my view the biggest hazard in public accounting is envy. Unless you have an odd specialty in order to prosper you must work for and associate with people who are much wealthier than you have any hope of ever becoming.

What inflames the envy is something referred to as the “tyrrany of the billable hour”. In order to make a living you have to do some work or pay somebody else a reasonable wage to do some work. One of the escapes from the tyrrany is “value billing”. Research credit consulting is one of those things that can be value billed. Rather than charge based on how much work you do, you charge a percentage of the tax savings.

Value billing can work even better not being under the umbrella of a regulated profession, although I have not been able to figure out how it is that alliantgroup bills or what it is they have against capital letters.

The Refund Claim

Grigsby owns 73% of Cajun Industries, one of the largest construction contractors in the South. Cajun is an S corporation, which means its tax results including credits flow through to the shareholders. Cajun has a September year end. The company hired alliantgroup in 2015 to determine if it had been missing out on research credits. Based on a sampling of 105 proects, alliantgroup determeind that Cajun had enough research going on to qualify for a credit in the amount of $1,341,420 for the year ended September 30, 2013.

Grigsby received a revised K-1 showing a credit of $979,237. The research credit is a little bit of a two-edged sword in that depending on how you elect you can lose deductions in the amount of the credit. Also it is not a refundabe credit, but is limited by your tax liability. Due to one or both of those facctors, Grigsby’s refund claim was “only” $576,756. IRS paid the refund along with $73,663.38 staturory interest on Sepember 15, 2017.

The Litigation

DOJ filed suit on September 11, 2019 to recover the refund. I have not been able to reconcile the numbers in the complaint with what ended up in the opinion, so I am sparing you those details. Stephanie Riegel covered the filing for 1012 Industry ReportDOJ suing Lane Grigsy and wife over ‘erroneous’ $750,000 tax refund. The story included Grigsby’s reation


The people who prepared the documents say the records Cajun has are as clean as any they have ever seen ……..

Grigsby suggests the IRS is overreaching and that he may be targeted because of his outspoken, conservative political views, noting that other partners in his business also received the R&D credits for 2013 and haven’t gotten any push back for it.

“It’s typical of the way our government abuses its citizens,” he says. “I know the IRS has been used against other conservative people. I know other people who got this same credit and theirs was allowed. Why was mine stopped? Why me? Maybe because I do raise my mouth a little too loud.”

Grigsby says he is not concerned about the suit, adding, “I send the government way more money than they send me.”

The Opinion

The parties agreed to a sample of four projects to determine how much research was going on. There was Methanex which involved site preparation to relocate a methanol plant form Chile to Louisiana. The Chevron
project involved expansaion of an oil refinery in Mississippi. The Claiborne project was a contract with the US Army Corps of Engineers to build a canal in Louisiana. Finally the East Bank project was about the flood control system of a wastewater treatment plant in Louisiana.

“Qualified research” has four separate and independent requirements: (1) the expenses must be of the type deductible under [26 U.S.C.] § 174; (2) the research must be undertaken “for the purpose of discovering information . . . which is technological in nature;” (3) the application of that information must be “intended to be useful in the development of a new or improved business component of the taxpayer;” and (4) substantially all of the research activities must “constitute elements of a process of experimentation

There was some lawyerly discussion about burden of proof and some slapping around of Grigsby’s lawyers for chainging their argument at the last minute, but at the end of the day according to Judge Jackson they did not specify a single new or improved process thar Cajun developed in any of the four test projects. Then it gets worse.

You get the research credit for doing research that will create a better mousetrap or an improved process for building ordinary mousetraps that you will have the rights to. If somebody hires you to do researh where they will own the results (“funded research”), you don’t get a credit for that. In the right circumstances whoever hired you might. Cajun clearly failed that test on three of the four projects. On the fourth the judge determined that there was no risk on the outcome of any “research” on Cajun’s part.

Will alliantgroup’s Customers Be Sweating?

I rate Grigsby’s speculation that hw was targeted because he is a conservative on the improbable side. It seems likely though that IRS is gunning for alliantgroup. In July, Adrienne Gonzalez reported on Going Concern that CPA firms that referred clients to alliantgroup are receiving subpoenas to turn over client records in conjunction with a grand jury investigation.

Going Concern has reviewed a letter from one CPA firm to clients that received services from Alliantgroup advising these clients that the firm has received a federal grand jury subpoena seeking information relating to Alliantgroup. The government’s demand for information is “broad” and includes tax returns and related information in the firm’s possession for clients who received services from Alliantgroup. The government’s demand references R&D tax credits, cost segregation, and IRC Sec 179D and any related information from January 1, 2011 to present.

Accoding to the story, the firm advised its clients that they didn’t think there was anything to worry about on their returns.


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