AbbVie Frees Taxpayers from M&A Capital Loss Limitations

Tax attorneys Mark Melton, Mark Miller and Brad Seltzer co-authored a Law360 article analyzing the U.S. Tax Court's decision in AbbVie Inc. v. Commissioner that a $1.6 billion break fee paid by the company qualifies as an ordinary and necessary business expense under Section 162 of the Internal Revenue Code. In doing so, the court rejected the IRS' argument that the payment should instead be treated as a capital loss under Section 1234A. Calling the ruling a significant win for taxpayers, the authors explain how the case could affect corporate tax planning and the approach to similar breakup fees in future mergers and acquisitions (M&A) transactions. Their article summarizes the circumstances that led to the termination fee, traces how the dispute between AbbVie and the IRS arose and breaks down how the court ultimately reached its conclusion. It also shares tips for business owners and tax counsel in wake of the decision.

The attorneys also published a Holland & Knight alert on this topic. Attorney Michelle DeVos additionally contributed to the article.

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