According to the iClone manual, LOD does change tessellation level of the object:

"LOD Effect: It can gradually decrease the number of the faces presenting objects for LOD (Level of Detail) feature, which avoids the sudden changes of objects in 3D scene when the camera zooms in or out."

After making some tests I did conclude that is does indeed gradually change the tessellation/smoothing level (for object with tessellation ON), when the camera is within 37 - 40 meters away from the object.

At the same time an object tessellation level also changed for the Iray Export. But this time it is only when the camera is in a range of 20 meters form the object. I am not sure if the difference between Real-time and Iray export LOD distance was intentional or not. But just FYI.

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Now the problem:

When you talked about camera zoom in the manual, you strictly meant *MOVING* camera To and Away from the object.
But you neglected to take into consideration the actual camera zoom, which is Focal Length.

With 40 meter distance and Focal Length of 200, the object appears to be close enough for us to see sharp edges caused by tessellation being turned OFF by LOD. (SLIDE 1)

And vice versa. With distance 12 meters between the Camera and the Object and Focal Length of 15, the object appears to be quite far. But LOD unnecessary keeps Tessellation ON. (SLIDE 2)

So please take Focal Length into calculation for the ON/OFF tessellation distance.

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User Justaviking proposed to solve the problem in more radical way. That is to calculate the amount of screen space occupied by the object and based on percentage apply a level of LOD.
If you can do it, then there would be no need to take the distance, focal length and the object size into consideration (or maybe you'd use those to calculate screen space).
In any case the objects which are not in the screen space (behind the camera), even if they are very close to the camera, should bare a lowest LOD

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Improvements in LOD (whichever way you go) would benefit in better management of the intense scenes and both - Real-Time and Iray export Rendering.

Forum thread: https://forum.reallusion.com/FindPost392202.aspx