[UPDATE 13] Jonathan Curry of Tax Notes wrote an interesting article on June 16 about why federal authorities would conduct a court-ordered raid of an established company like Alliantgroup, and he talked to law professors and a tax lawyer about the legal ramifications of that particular action by the Justice Department and IRS Criminal Investigation. It’s well worth your time to read the whole thing.
One law expert, Linda Galler of Hofstra University’s Maurice A. Deane School of Law, said seeing the feds conduct a search warrant of your offices would be Alliantgroup’s “worst nightmare” because that type of thing doesn’t happen too often at legitimate businesses. Aaron Esman, a tax controversy and litigation attorney at Moore Tax Law Group, called it “very rare” for IRS-CI to become involved if there wasn’t some kind of targeted information investigators were trying to get their hands on. The article states:
Although CI regularly investigates smaller entities, “a raid in and of itself … is rather rare for an entity of this size,” he said. “This is not exactly a common scenario.”
A search warrant was needed for the government to raid Alliantgroup’s Houston headquarters on May 20. If any charges result, it would be a criminal prosecution, Steve R. Johnson of Florida State University’s College of Law told Tax Notes. He added that the government has two primary ways of developing information in a criminal tax case: IRS-CI can build a case, interview witnesses, issue summonses, and so forth, or it can move the case forward via a grand jury, both to indict or to investigate. In complex cases, a grand jury is the preferred option, he said. In the Alliantgroup situation, the search warrant was most likely issued in support of a grand jury investigation, Johnson said. However, he told Tax Notes that it’s possible no indictments will result from the investigation.
A source who works at Alliantgroup told Going Concern recently that a grand jury hearing related to the raid could be held as early as tomorrow at the federal courthouse in downtown Houston. The Ag employee said multiple Alliantgroup clients have received subpoenas asking for their testimony.
The Tax Notes article goes on to explain the process for IRS-CI to obtain a search warrant, what criteria the Justice Department would need to consider before bringing criminal charges against a company and/or individual(s), and why employees who might be involved in the underlying issue being investigated should probably lawyer up.
One interesting part of the article looks at why a company like Alliantgroup would be on thinner ice with the government than, say, a Big 4 firm, especially after what happened with Arthur Andersen:
After the Enron Corp. scandal blew up in 2001, the government focused its attention on Arthur Andersen LLP — one of the Big Five accounting firms at the time — and the firm was eventually criminally charged and began winding down its business. “Once an accounting firm that does auditing work is publicly charged with a crime, you can’t go to them,” Galler said.
The Supreme Court reversed the firm’s conviction in 2005, but by that point, the damage to the firm’s reputation had already been done and it never recovered. In the aftermath, the rumor on the street was that the government was now reluctant to charge a public accounting firm with a crime because those firms serve an important function in the public markets. Bringing down another major public accounting firm by tarnishing the firm’s reputation via criminal charges could have economywide ripple effects and was thus frowned upon, Galler said.
But Alliantgroup is not a public accounting firm — it’s a private tax advisory firm, albeit a large one with offices nationwide, so it doesn’t have that same public interest defense in its favor, Galler continued. “So here, you could certainly have the firm charged, if it seems appropriate to those who are making decisions on this, or there could be individuals charged.”
We will continue to update this article as new information about IRS-CI’s raid of Alliantgroup emerges.
[UPDATE 12] Alliantgroup co-founder and CEO Dhaval Jadav, who apparently hasn’t been at work since the IRS and the FBI raided his business’s Houston headquarters last Friday morning, sent an email to all Ag employees at about 10:20 p.m. on May 25 with the subject line: To Our alliantgroup Family.
Several sources have sent us the email from Jadav, which said:
A BIG THANK YOU to all of you for continuing to serve our clients and creating Raving Fans – I appreciate all of you so much !
We’ve had a tough couple of days – but I love seeing our alliantgroup family pull together !
It remains vital that we serve our clients and provide quality work. I will not sleep until I know that our clients are being well taken care of … and most importantly, I will not sleep until I know that the lifeblood of our firm – ALL OF YOU, OUR WONDERFUL PROFESSIONALS – are being well taken care of ! If there is ANYTHING I can do for you, please don’t hesitate to ask ! I am forever at your service …
Please feel free to take a half day off this Friday and get an early start to your Memorial Day Weekend ! Everyone be safe and have a great long weekend!!
Dhaval R. Jadav
Chief Executive Officer
First, somebody please tell Dhaval that he doesn’t have to put a space in between the word and the exclamation point. And second, how can he be “forever at your service” when he hasn’t shown his face there since his company got raided by federal authorities? How leaderly of him.
Anyhoo, some of the responses to Jadav’s email are pretty cringey and put the “cult” in Alliantgroup’s culture.
I know many of you in public accounting work with colleagues who are just like these two Kool-Aid guzzlers at Alliantgroup.
[UPDATE 11] Alliantgroup employees in Houston returned to work on Tuesday morning after they were sent home early Friday following the court-ordered raid of their office on May 20. Thanks to a tipster, here is the email they received Sunday evening from Kim Allen, senior director of talent:
[UPDATE 10] Here is a statement Alliantgroup gave to the Houston Chronicle regarding the court-ordered raid by IRS-CI and the FBI of its Houston offices on Friday morning:
“We look forward to understanding the government’s queries and we are fully cooperating with them. We expect that when the complete facts are known, this matter will be amicably resolved.”
[UPDATE 9] An attorney who worked for a competitor of Alliantgroup for more than a decade sent us a document of court cases in Harris County, TX—the county Houston is in—involving Ag from 2005 to March 2022. Let’s just say the consulting firm has kept its lawyers busy for a LONG time. The attorney who contacted us said:
They have a reputation for poorly defending their shoddy work on audit which resulted in a lot of unhappy clients over the years. The clients claiming credits generated by Alliantgroup would end up owing penalties and interest on top of having to repay the credits – because the IRS often denied the credits in full. From the attached publicly available information, it’s somewhat easy to infer that many clients refused to pay Alliantgroup and ended up in a lawsuit because of it.
You will notice that the majority of these cases were from pre-2012. After 2012, Alliantgroup evidently chose to change their tactics a bit after this list was used in marketing material by an Alliantgroup competitor and word got out that they had a habit of suing their clients.
You will note that the majority of cases initiated by them are Breach of Contract (against former clients) or tortious interference (against former employees).
[UPDATE 8] A tipster made us aware of a photo posted on Instagram Friday evening by Alliantgroup co-founder and CEO Dhaval Jadav who wined and dined some of his troops at Songkran Thai Kitchen in Houston. But Jadav is not in the photo, for whatever that’s worth. Even though his business was raided by federal authorities earlier in the day, Jadav “apparently does not have a care in the world,” our tipster commented. [Jadav has since deleted this photo from his Instagram, and Alliantgroup has taken down its Instagram page.]
[UPDATE 7] As of 8:35 p.m. CT, still no word from the FBI and IRS on why they raided Alliantgroup’s Houston offices this morning. But we do know Alliantgroup isn’t a fan of our reporting:
[UPDATE 6] After seeing the last update we posted, we got a call a little after 4:40 p.m. CT from a CPA who used to work for a firm that partnered with Alliantgroup in terms of a referral relationship and this person said Alliantgroup “is so f’n dirty.”
They get these huge credit numbers for clients so as an advisor you like that part. But they fee cap anywhere between 25% and 35%, is what I’ve seen. It does depend; you can negotiate. But when you get a client that gets pissed off about the bill and they ask for hours detail, the hourly rates you’ll see on some of these people will blow your mind in how they get to the fee cap. They never have missed a fee cap. They’ll work with a client for a decade, and eventually you’ll build efficiencies on things like this. Not them. And I get it, it’s the game. I wish as a CPA I could bill based on refunds.
The CPA ended his call by saying, “They fucking suck.”
[UPDATE 5] Not sure if this is pertinent as to why the FBI and IRS raided Alliantgroup’s offices in Houston this morning, but one Alliantgroup employee who contacted us earlier today said the firm’s billing practices are unfair to its clients:
For most clients there is a 35% fee cap for our services. Employees are incentivized to use this entire amount up. There is a company-wide culture of overbilling clients.
The culture is awful, I’m sure you have read Glassdoor reviews, the ones I’ve read are all true.
For the employee retention credit department of the company, things are a mess.
Turnover is extremely high (in every other department as well), and employees are promoted to being project managers very quickly despite not having much experience.
Hmmm, that last part about turnover sounds familiar to what is happening in public accounting these days. Anyway, back to our tipster:
They also offer generous referral bonuses to entice people to join this department. I believe $15,000 if the employee you refer stays 6 months, maybe a year. For my department it’s $500 for staying 6 months.
The employee then sent us this screenshot of the amounts offered in Alliantgroup’s referral bonus program:
And it just so happens that two former IRS commissioners serve on Alliantgroup’s Strategic Advisory Board: Mark Everson and Steven Miller. Also, two former commissioners of the IRS Small Business/Self-Employed Division, Eric Hylton and Kathy Petronchak, sit on the board.
[UPDATE 4] The ABC affiliate in Houston reported just before 2 p.m. CT that Houston field office FBI agents at the scene confirmed the IRS field investigations team was conducting a court-ordered criminal investigation at the building that houses Alliantgroup’s offices. No arrests have been made as of now.
[UPDATE 3] We heard from another Alliantgroup employee at about 1:40 p.m. CT who sent us photos and told us about what he/she saw as the IRS raid was going down this morning:
We were all escorted out 10 at a time and told our servers were being confiscated.
We were asked not to discuss the matter because we could be deemed as witnesses.
When we asked for a search warrant, I was told by a fed “it’s in my pocket.” No it wasn’t. I saw his pocket. It looked flat and empty.
Another employee asked about allegations and they changed the subject.
[UPDATE 2] We have not been able to confirm this, but a lawyer in Texas who is a former Alliantgroup employee speculated on Twitter that the IRS raid at the firm this morning has to do with a lawsuit filed against it in 2019 regarding 179D tax deductions:
I’m hearing that the IRS Criminal Investigation raid on alliantgroup allegedly has to do with the 179D racketeering lawsuits filed years ago. Pending confirmation. /14 https://t.co/wTqKwk9JSa
— Leann (@LAFinTexas) May 20, 2022
And here is a video someone posted to Twitter of IRS-CI agents seizing laptops:
— Michelle (@michellesezzz) May 20, 2022
[UPDATE 1] We heard from an Alliantgroup employee who told us this at about 12:30 p.m. CT:
Employees on my floor were put into a conference room and told to wait while they looked through the floor. They said they had a warrant for floors 15 through 20 which is all but one of the floors we work on (the only other floor is used for storage mostly). They allowed us to grab whatever we wanted and go back into the conference room, then we were escorted out of the building. They said we cannot use the company server in any way, including Outlook or teams. We did grab our work laptops before going home. It was very surreal.
Here’s the original tip we received a little after 11:34 a.m. CT:
The Houston headquarters of the R&D tax credit consulting firm Alliantgroup is getting raided by the IRS.
Not the first time these guys have been in hot water.
This is all we know right now. We’ll update this post once we get more information about what’s going down over there.