AbbVie’s $1.6 Billion Break Fee Sidesteps Capital Loss Limit (1)

AbbVie Inc. need not treat a $1.6 billion fee payment to Shire plc as a capital loss for tax purposes after scuttling their merger, the US Tax Court ruled Tuesday.

Judge Emin Toro granted summary judgment to the global pharmaceutical business in a precedential decision, rejecting the IRS’s argument that the amount constituted a capital loss rather than a deductible ordinary expense.

AbbVie maintained that it correctly deducted the break fee, which it paid to Shire after AbbVie’s board of directors withdrew its recommendation to shareholders that they approve the merger.

The IRS determined an approximately $572 million tax deficiency ...