LB&I Directive on the Centralized Risking of Research Issues under IRC §§ 41 & 174


March 10, 2020

Control Number: LB&I-04-0320-0006
Affected IRM: 4.46.3


FROM:                     Douglas W. O’Donnell /s/ Douglas W. O’Donnell
                                   Commissioner, Large Business & International Division
SUBJECT:              LB&I Directive on the Centralized Risking of Research Issues under IRC §§ 41 & 174


Research issues are examined on a substantial number of LB&I cases and consume significant LB&I resources. LB&I recognizes the need to manage research issues and resources in the most effective and efficient manner possible.

This Directive communicates the requirements and process for centralized risking of cases with potential research issues under IRC §§ 41 & 174. It applies to LB&I examinations of Industry Cases (IC), Large Corporate Compliance (LCC) cases, and all claims and amended returns. This Directive does not apply to Research Issues Campaign Inventory or Compliance Assurance Process (CAP) program cases. The Directive is effective for any new research issues, as discussed below, identified on or after April 1, 2020.

This Directive is not an official pronouncement of law, and cannot be used, cited, or relied on as such. In addition, nothing in this Directive should be construed as affecting the operation of any other provision of the Code, regulations, or guidance thereunder.


The Research Risk Review Team (RT) is a national strategy to improve the identification of the highest risk research issues under IRC §§ 41 & 174. The RT consists of subject matter experts, engineers, revenue agents and other specialists. The RT promotes compliance by focusing its efforts on helping identify high risk returns, including claims and engages in knowledge sharing through collaboration with field employees. Taxpayers and examination teams will benefit from a comprehensive risk analysis that provides a proper depth and scope of the exam which supports a consistent direction for the efficient examination of research issues. 

Planning and Examination Guidance

The RT is required to review and concur with the preliminary risk analysis for new examinations of research issues.

When applicable, the first step is the Issue Selection and Collaboration Process (ISCP) which involves the preliminary risk analysis where only issues with the highest compliance impact should be selected. Frontline managers will continue to use the Manager Initial Risk Assessment (MIRA) and Specialist Initial Risk Assessment (SIRA) tools per IRM

Research Risk Review Team Involvement

Once the case and specialist managers, in collaboration with the agent and specialist, complete the risk assessment process using the MIRA/SIRA tools, the possible outcomes are discussed below.

RT review and concurrence are required:

  • if the case and specialist managers agree to examine the research issue; or
  • if the case and specialist managers disagree on whether to examine the research issue.

RT review and concurrence are not required:

  • if the case and specialist managers agree not to examine the research issue.

In addition, the RT must also be contacted for review and concurrence when:

  • an IC return does not meet the MIRA/SIRA guidelines and the case and/or specialist manager wants to examine a research issue;
  • an LCC return is risk assessed and the case and/or specialist manager wants to examine a research issue;
  • any subsequent year and/or related return pickup has a research issue that will be examined;
  • research issue claims or amended returns are received during an examination, whether informal or formal, where the research issue will be examined;
  • the scope and depth of the research issue changes at any point during the examination; or
  • Pre-filing agreements are received and considered with a research issue.

The exam team will contact the RT by inputting a request on the Research Risk Review Team SharePoint site by clicking on the "Request for Review" icon.

Research Issues Definitions

Research issues relate to the research credit under IRC § 41 and research eligible expenditures under IRC §174.

Research issues under IRC § 41 refer to any regulatory requirements to claim the research credit for:

  • IRC § 41(d) issues of whether and to what extent qualified research activities were performed by the taxpayer to develop new or improved business components;
  • IRC § 41(b) issues of whether expenditures estimated and allocated to qualified research are allowable and credible; and
  • IRC § 41(c) issues of whether the taxpayer properly substantiated an increase in qualified research expenses over their base amount.

Research issues under IRC §174 and the regulations thereunder refer to:

  • whether research activities constitute research and development within the meaning of IRC §174; and
  • whether expenditures connected with the research credit are first eligible for treatment as research or experimental expenditures under IRC §174.


For further information regarding this Directive, please contact the RT via secure email at *LB&I RT Team and note in Subject Line "RT Directive Question".

cc: Division Counsel