## Facts

- IIT Research Institute (IIT) was a § 501(c)(3) scientific organization conducting multidisciplinary research for government and industry on a contract basis.
- For tax year 1976, the IRS asserted that income from certain research contracts constituted unrelated business taxable income (UBTI) under I.R.C. §§ 511–513.
- The parties used 58 representative contracts: the government conceded 34 were substantially related to IIT’s exempt purposes and challenged 24.
- The government challenged 11 contracts as not “scientific research” for purposes of the I.R.C. § 512(b)(7) research exclusion (applicable to qualifying governmental research).
- The government challenged 13 contracts as not conducted “in the public interest,” largely due to sponsor rights to delay or restrict publication of results.
- IIT encouraged publication and, in practice, substantially all research information was published or otherwise made available through presentations at professional meetings.
- IIT paid the assessed tax and filed a refund suit in the United States Claims Court.

## Issues

1. Whether the 11 challenged projects qualified as “scientific research” within the meaning of I.R.C. § 512(b)(7), rather than commercial services producing UBTI.
2. Whether sponsor-imposed publication limits on 13 contracts prevented the work from being “in the public interest” and substantially related to IIT’s exempt scientific purposes, causing UBTI.

## Decision

- The court held the 11 challenged contracts constituted “scientific research” within I.R.C. § 512(b)(7).
- The court rejected the government’s position that publication delays or limited disclosure restrictions, standing alone, made the 13 contracts not “in the public interest.”
- The court treated the challenged contract research as substantially related to IIT’s exempt scientific purposes and not an unrelated trade or business as asserted.
- The disposition favored IIT, supporting refund relief based on the contract-by-contract determinations.

## Legal Principles

- “Scientific research” for UBTI and research-exclusion purposes is determined by the substantive nature of the work, using functional criteria (including experimental/observational method, need for advanced technical expertise, and contribution to scientific knowledge).
- Contract research, including applied research performed for governmental or private sponsors, may qualify as “scientific research” and be treated as related to exempt scientific purposes when it meets substantive research criteria.
- Limited sponsor rights to delay publication or restrict disclosure (e.g., to protect proprietary information) do not automatically negate “public interest” or relatedness when the organization’s operations show meaningful dissemination of research results.
- UBTI analysis focuses on what the organization does in fact and whether the activity substantially furthers exempt purposes, rather than formal labels, sponsor identity, or isolated contractual terms.

## Conclusion

The Claims Court concluded that IIT’s challenged contract research qualified as scientific research and remained connected to its exempt scientific purposes; limited publication restrictions did not, by themselves, convert the activity into an unrelated trade or business producing UBTI for 1976.


IIT Research Inst. v. United States, 9 Cl. Ct. 13 (1985)