Large Business and International (LB&I) Directive on the Centralized Risking of Research Issues under IRC §§ 41 & 174

Stephen Whiteaker, CPA
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February 18, 2021 – It will soon be a year since the Commissioner of LB&I issued this Directive on March 10, 2020. The stated purpose of its issuance was to manage research issues and resources in the most effective and efficient manner possible. After living research credit for a number of years at the Internal Revenue Service, I know the number of taxpayers claiming the credit was only growing and resources declining.

What Does the Directive Do and Why?

The Directive created a Research Risk Review Team (RT), which is a national strategy to improve the identification of the highest risk research issues under IRC §§ 41 & 174. The team is made up of subject matter experts, engineers, revenue agents and other specialists. This allows knowledge sharing through collaboration with the field. The goal is to have the highest risk research issues examined, with the proper depth and scope and bring consistency across the country. Since the RT has a big picture view, they can consider research issues across the country and avoid local managers and agents from expending resources on issues that do not have the highest risk.

How It Works

The Directive does not apply to research issues in campaign inventory or Compliance Assurance Process (CAP) cases.

With few exceptions, frontline managers try to select the highest risk issues based on his or her local and regional knowledge and will continue to use the existing tools at their disposal. Once the normal risking of a research issue is complete, the RT is required to review and concur with the risk analysis. One exception is when both the case manager and specialist manager agree not to examine the research issue, then no referral to the RT is required.

Other scenarios when the RT must review and concur are as follows:

  • An Industry Case (IC) return does not meet the guidelines of the normal review process and the case and/or specialist manager wants to examine the issue.
  • A Large Corporate Compliance (LCC) return is risk accessed and the case and/or specialist manager wants to examine a research issue.
  • Any subsequent year and/or related pickup that has a research issue that will be examined.
  • Any research claims, formal or informal, received during the examination that will be examined.
  • If during the examination the scope or depth changes from the originally approved concurrence.
  • Any Pre-Filing Agreements received with a research issue.


Is it Positive for Taxpayers?

I think the creation of the RT is a positive step in LB&I’s administration over the research issue. When issued, some questioned whether it is just the beginning of going back to the days of the Tier 1 Issue procedures that were suspended in 2012. I did not think so at the time and I believe the past year has proven that. The Tier 1 was often referred to as the “Man behind the curtain”, due to the fact taxpayers and practitioners felt someone was calling the shots and there was no opportunity to speak directly to he or she. This Directive is applied upfront and designed to bring consistency nationally to what research issues are examined and how best to allocate resources and foster the greatest compliance. As tax administrators, it makes sense for the IRS to allocate resources to the highest risk issues on a national basis. Even before COVID, more and more examination work was being conducted remotely and as a result it became increasingly less important whether personnel were on site.

So again, if it continues to be implemented correctly, I believe this is positive for both the IRS and taxpayers. IRS resources are focused on the high-risk material issues and assign the correct specialists to the issue. If a taxpayer has a well-documented issue it is always better to have examiners who understand the issue. I have found if the examiners are well versed in the issue and focused, the exam moves faster. The issue can either be accepted as filed, resolved or everyone can agree to disagree and move forward.

Learn more about the Research & Development Tax Credit (R&D).

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