IIT Research Institute v. United States

IIT Research Institute (IIT) (plaintiff) was a nonprofit research institution organized to provide multidisciplinary scientific research for government and industry. Some of IIT’s research was conducted pursuant to contracts with financial sponsors that were unaffiliated with IIT, including government agencies and industrial organizations. Some of the contracts allowed the research sponsors to prevent publication of proprietary information involved in their projects for short periods of time. Nevertheless, IIT encouraged its scientists and engineers to publish their work, and in practice, substantially all the information derived from IIT research was either published or made available to the public through presentations at conferences and symposia. IIT had been granted tax-exempt status under § 501(c)(3) of the Internal Revenue Code, but for the 1976 tax year, the Internal Revenue Service (IRS) (defendant) challenged 24 of IIT’s contracts as being unrelated to IIT’s exempt scientific activity. The contracts involved work that could be performed only by qualified engineers and scientists, and there were no material differences in terms of the nature or sophistication of the research involved between the 24 contracts the IRS challenged and 34 other contracts the IRS reviewed but did not challenge. The IRS also challenged 13 of the contracts on the ground that the research was not done in the public interest and, therefore, did not qualify for tax exemption. IIT paid taxes the IRS claimed were owed and then filed suit for a refund.