United States Court of Appeals for the Fifth Circuit United States Court of Appeals Fifth Circuit

____________ FILED November 13, 2023 No. 22-30764 Lyle W. Cayce ____________ Clerk

United States of America,

Plaintiff—Appellee,

versus

Leonard L. Grigsby; Barbara F. Grigsby,

Defendants—Appellants. ______________________________

Appeal from the United States District Court for the Middle District of Louisiana USDC No. 3:19-CV-596 ______________________________

Before HIGGINBOTHAM, SMITH, and ELROD, Circuit Judges. PATRICK E. HIGGINBOTHAM, Circuit Judge: Today, we visit the classic congressional practice of using its taxing powers to achieve permissible policy goals; here, the lure of a tax credit to incentivize creative research. Leonard L. Grigsby and Barbara F. Grigsby ap- peal the judgment of the United States District Court for the Middle District of Louisiana which rejected research and development tax credits claimed by Cajun Industries LLC and upheld the resulting tax deficiency. We AFFIRM. Case: 22-30764 Document: 00516965151 Page: 2 Date Filed: 11/13/2023

No. 22-30764

I. Cajun Industries LLC (“Cajun”) claimed tax credits for the 2013 tax year pursuant to § 41 of the Internal Revenue Code, 26 U.S.C. § 41. First, the Code provision at issue in this case, § 41 offers a tax credit for “qualified research expenses” including wages and expenditures incurred in pursuit of qualified research.1 The Internal Revenue Code provides a tax credit for qualified research activities, as defined by the Code.2 To constitute “qualified research,” the research must satisfy the four tests laid out in § 41(d)(1): “(1) the expense must be of the type deductible under § 174 of the Code (i.e., R & D expenses that are reasonable under the circumstances), (2) the research must be undertaken for the purposes of discovering information that is ‘technological in nature,’ (3) the 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 activities [must] constitute elements of a process of experimentation.’”3 Relevant here, “business _____________________ 1 26 U.S.C. § 41(b). 2 See generally id. 3 Shami v. Comm’r, 741 F.3d 560, 563 (5th Cir. 2014) (citing 26 U.S.C. § 41(d)(1)). The full text of 26 U.S.C. § 41(d)(1) reads: (d) Qualified research defined.--For purposes of this section-- (1) In general.--The term “qualified research” means research-- (A) with respect to which expenditures may be treated as specified research or experimental expenditures under section 174, (B) which is undertaken for the purpose of discovering information-- (i) which is technological in nature, and (ii) the application of which is intended to be useful in the development of a new or improved business component of the taxpayer, and (C) substantially all of the activities of which constitute elements of a process of exp