“Strong Island Hawk” is an Iowa Democrat and political researcher based in Des Moines. Prior to moving to Iowa, he lived in Washington, DC where he worked for one of the nation’s top public interest groups. In Iowa, has worked and volunteered on U.S. Representative Cindy Axne’s 2018 campaign and Senator Elizabeth Warren’s 2020 caucus team.
Agents from the Internal Revenue Service Criminal Investigation division took the rare step in May of raiding Alliantgroup, a Houston-based firm specializing in energy tax credits Senator Chuck Grassley helped enact. Alliantgroup and its executives are frequent donors to Grassley; its National Managing Director, Dean Zerbe, is a former high-ranking Grassley staffer.
Months later, little is known about the raid, which followed IRS subpoenas and requests for documents. Some have speculated that the investigation is focused on Alliantgroup’s use of tax credits, including one provision Grassley and Zerbe had a big role in adding to the tax code.
A TAX CREDIT DESIGNED TO PROMOTE ENERGY EFFICIENCY
The Energy Efficient Commercial Buildings Tax Deduction, known as 179D, incentivizes the use of green, environmentally friendly features in new or retrofitted construction projects. Zerbe was the primary author of the rule in 2005 when he was the top lawyer on the Senate Finance Committee when Grassley was chair.
After leaving Grassley’s office and Capitol Hill, Zerbe joined Alliantgroup and went to work developing the firm’s energy tax practice.
The purpose of the 179D credit is to encourage construction companies to build these features into new or renovated buildings to make them more energy efficient. The credit can make costly adaptations more appealing to American firms planning large building projects.
Here’s where it gets a little tricky, so, bear with me. Public entities—such as state and federal agencies, military installations, utilities, courts and prison systems, or K-12 schools and universities—do not pay taxes. So, a tax break like this does not necessarily help them.
However, 179D allows these entities to transfer their tax break to contractors and construction companies if they install the necessary energy-efficient features into the buildings and renovations. In exchange, the companies must pay cash, known as the “rebate,” to the public entity.
So, let’s say a school puts in a new high tech new green feature that will save energy and money in the future. They can sign over their tax credit to the company that built it, and the company throws a few bucks the school district’s way. Everybody wins.
That’s how it is supposed to work. But that’s not how it has worked when Alliantgroup is involved.
ALLIANTGROUP’S QUESTIONABLE BUSINESS MODEL
The 179D scheme has been a bonanza for Alliantgroup. The firm touts itself as the leading source on 179D issues and markets its expertise on the subject to potential clients.
But the firm soon became known for aggressively promoting the use of the 179D credit, even in cases where their client was not eligible. The 179D deduction is not just for making a few light repairs or maintenance. The company has to build the energy efficient feature.
Think of it this way: to qualify, you would have to create the new electrical or HVAC system, rather than just flipping the light switch or adjusting the thermostat. But Alliantgroup pressured many entities to sign over the tax break to their clients regardless of whether the work they performed qualified or not.
Even worse, Alliantgroup often pushed public entities to sign over the tax credit without ever providing the cash payment in return, according to a multi-part Des Moines Register investigation by Jason Clayworth and Jason Noble. Published in 2017, that series showed that Alliantgroup sometimes pressured unauthorized personnel to approve the transfer of the 179D credit to their clients.
The Des Moines Register highlighted Zerbe’s role in creating the energy efficiency tax break and uncovered a few projects in the Des Moines metro area that had fallen victim to Alliantgroup’s scheme. For example, a $4.9 million Polk County project at the Iowa Events Center ended in a $1.1 million tax deduction for the Waldinger Corporation after the county signed over its 179D break to the company. However, Polk County received nothing in return.
In all, the Register “documented 37 cases where [Iowa] governments gained little or nothing for authorizing the deduction on taxpayer-funded construction.” We can only wonder how many other projects in the state fell victim to Alliantgroup in the years since.
Alliantgroup has made similar deals all over the country. In 2017 the University of Texas and University of Houston systems sued the firm, alleging that it fraudulently transferred tax credits “the universities should have benefited from to its own clients.”
Until the IRS’s investigation is complete, we won’t know which business practices may have violated federal laws. In July, Adrienne Gonzalez reported for the accounting blog Going Concern that some CPA firms that referred clients to Alliantgroup have received federal grand jury subpoenas—an unusual development. “The government’s demand references R&D [research and development] tax credits, cost segregation, and IRC Sec 179D and any related information from January 1, 2011 to present.”
FIRM’S TIES TO GRASSLEY
Since Zerbe joined Alliantgroup, the firm and its executives have repeatedly contributed to Grassley’s re-election campaigns. Alliantgroup employees have donated $35,200 to the Grassley Committee since 2014.
While the bulk of that has come from Zerbe himself, including $4,800 so far this cycle, Grassley has also received thousands from the firm’s CEO Dhaval Jadav as well as Chief Risk Officer Shane Frank and Chief Quality Officer Jeremy Fingeret, who are also partners in Zerbe’s law firm. Jadav is a controversial figure; a former employee accused him of sexual harassment in 2017, the same year he donated $5,000 to Grassley’s campaign. In accounting circles, he’s known for presiding over a toxic corporate culture; Alliantgroup has a reputation for raucous parties and unprofessional conduct.
Alliantgroup has also hosted Grassley (twice) for its Economic, Legislative & Policy Summit, where he was honored as the keynote speaker. In 2015, Grassley specifically mentioned the benefits of 179D, saying he had met with several Iowans, including the chairman of a Des Moines-based engineering company who sang the praises of 179D.
More than a hundred business leaders attended those summits, so the events may have had a “bundling” effect on Grassley’s campaign fundraising. For example, many contributions from Alliantgroup executives came around the time of the 2017 summit. Similarly, during the 2015 summit, Grassley’s campaign committee and Hawkeye PAC received large amounts from Alliantgroup executives. While it is difficult to determine whether the donations were connected to the summit, several construction companies, as well as DC lobbying and law firms, also donated to Grassley during the dates surrounding the 2015 event.
Zerbe also donated to the senator’s grandson in late 2019, soon after Iowa House Republicans selected Pat Grassley to be the next speaker.
While Zerbe probably understands 179D better than anyone else, his accounting firm has been abusing the rule for years. Some of the victims have been small public entities in Iowa and elsewhere, which are not exactly flush with cash.
It is disappointing to know Chuck Grassley has such close ties to a firm that has ripped off Iowa taxpayers to the tune of millions of dollars.
Editor’s note from Laura Belin: Senator Grassley’s office did not respond to Bleeding Heartland’s request for comment on the IRS investigation of Alliantgroup, the firm’s connections to the senator, or abuse of the 179D deduction generally.