Poultry Processor Scores Partial Win on Research Credits in Tax Court

(Parker Tax Publishing February 2026)

The Tax Court held that a poultry processing company was entitled to claim research credits under Code Sec. 41 for some of the research activities it conducted related to disease resistance in broiler chickens, but disallowed other research credits that the court found merely to be post hoc distortions of routine data. The court also found the taxpayer not liable for accuracy-related penalties because they relied in good faith on professional tax advice. George v. Comm'r, T.C. Memo. 2026-10.

Background

George's of Missouri, Inc. (GOMI) is an S corporation owned by Gary George. GOMI is one of the largest fully integrated poultry processing companies in the United States. GOMI reported research credits for research activities related to broiler chickens between 2012 and 2014 (the research years). These credits flowed through to George and his wife, who reported research credits on their tax returns and attempted to apply them for tax years 2011, 2012, 2014, and 2016.

During the research years, one of the most difficult parasites for GOMI and the poultry processing industry to manage was coccidiosis, a parasite that lives in the gut of broilers. Each year, the coccidiosis parasite evolves and causes new side effects in the infected broilers. Drugs that treat coccidiosis are called coccidiostats. Generally, GOMI rotated coccidiostats in cycles throughout the year because after a couple months of use, the parasite would become resistant to a specific treatment. In addition, GOMI dealt with various infectious diseases. During the research years, GOMI conducted a series of research trials to create an "improved poultry product." The research trials included testing various feed additives to treat coccidiosis and related infections.

In 2014, GOMI hired alliantgroup, a tax consulting firm, to determine whether GOMI was eligible for research credits under Code Sec. 41. GOMI's accounting firm, Frost PLLC, recommended alliantgroup. alliantgroup assigned Associate Director Jeremy Troutman as the lead consultant on the study. Troutman has completed around 300 research credit studies, focusing on the agriculture industry. After interviewing GOMI employees and gathering documents, Troutman determined that several of GOMI's trial projects were eligible for research credits. alliantgroup provided GOMI with pro forma Forms 6765, Credit for Increasing Research Activities, that they could file to report the research credits. The Forms 6765 GOMI filed with the IRS were identical to the pro forma forms contained in the final research credit reports.

After auditing GOMI's returns, the IRS disallowed the claimed research credits and determined accuracy-related penalties. GOMI took its case to the Tax Court. The issues for the court to decide were: (1) whether any of GOMI's research trials constituted qualified research; (2) the amounts of research credits, if any, GOMI was entitled to; and (3) whether accuracy-related penalties should be applied. The primary dispute was whether GOMI conducted research trials during the research years or whether the alleged research trials were merely, as the IRS argued, "post hoc distortions" of routine data collection into the model of Code Sec. 41 qualified research.

Code Sec. 41 provides a credit for increasing research activities. Code Sec. 41 provides several alternative approaches to calculate the credit. GOMI used the alternative simplified method of Code Sec. 41(c)(5). Under the alternative simplified method, the research credit equals 14 percent of the excess of the taxpayer's qualified research expenses (QREs) in the credit year over 50 percent of the average of the taxpayer's QREs from the three preceding years. If the taxpayer has no qualified research in each of the three preceding years, the credit is reduced to 6 percent of the taxpayer's QREs in the credit year.

To constitute qualified research, the research must satisfy a four-part statutory test under Code Sec. 41(d). The four parts of the test are: (1) the business component test, (2) the technological information test, (3) the Code Sec. 174 test, and (4) the process of experimentation test. As part of the process of experimentation test, research activities must be for a qualified purpose as defined in Code Sec. 41(d)(3). Under Code Sec. 41(d)(4), certain research activities are specifically excluded from the definition of qualified research. Two exclusions relevant to this case are: (1) adaptation of an existing business component and (2) routine data collection and quality control testing.

Under Code Sec. 6001 and Reg. Sec. 1.6001-1(a), a taxpayer claiming the research credit is required to substantiate the credit by retaining records "in sufficiently usable form and detail to substantiate that the expenditures claimed are eligible for the credit." When a taxpayer fails to introduce contemporaneous records of qualified research expenses, the Tax Court may estimate expenses if the taxpayer provides a reasonable estimate of the qualified expenses. However, the court will not estimate expenses paid or incurred if the taxpayer provides no evidence at all that would permit an informed estimate of the deduction, basis, or other tax advantage.

Analysis

The Tax Court held that GOMI was entitled to some of the research credits it claimed, but the court disallowed others due to GOMI's failure to substantiate the expenses. The court found that, although GOMI is a highly data-driven business that collects substantial data as part of its standard production process, the court could not identify sufficient evidence that certain research trials occurred or the information necessary to apply the four-part statutory test in Code Sec. 41(d). For example, the court disallowed the credit for the expenses related to the trial of Salinomycin, a coccidiosis treatment; the court found that, despite GOMI's allegation that it was uncertain as to whether higher dosages would increase Salinomycin's efficacy, GOMI continued to add the same dosage of Salinomycin to the feed before and during the research trials. Thus, the court found that there was no uncertainty at the time that this dosage would work. The court said that GOMI's alleged trials of Salinomycin were a clear example of "the chicken (research credit study) coming before the egg (research)."

In addition, with respect to tax years 2009, 2010, and 2011, the court found that GOMI failed to create a sufficient record for the court to make an informed estimate of the qualified research expenses and therefore, the court concluded that GOMI had no qualified research expenses for those years. The lack of QREs for those years triggered the limitation in Code Sec. 41(c)(5)(B). Thus, the court determined that GOMI's research credits were 6 percent of the QREs for each tax year.

The court also held that accuracy-related penalties under Code Sec. 6662 did not apply because GOMI acted with reasonable cause and in good faith under Code Sec. 6664(c)(1). The court noted that GOMI sought the advice of alliantgroup to determine whether any of its activities qualified for research credits. At the time the research study was contracted, alliantgroup had over 12 years of experience conducting tax credit and incentive studies for clients. The court noted that the firm's ranks are filled with people who are knowledgeable on the intricacies of the tax code, including Troutman, who specialized in research credit studies for the agriculture industry. The court also found that alliantgroup diligently requested and reviewed documents and met with employees to determine GOMI's eligibility for the research credits. In addition, the court found that GOMI acted in good faith in relying on alliantgroup given that the Forms 6765 GOMI filed were identical to the Forms 6765 provided by alliantgroup. Therefore, the court thought it was reasonable to conclude that GOMI in fact relied alliantgroup's advice.

For a discussion of the credit for qualified research expenses, see Parker Tax ¶104,905. For a discussion of abatement of penalties due to reasonable cause, see Parker Tax ¶262,127.

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.