๐๏ธ AbbVie Inc. v. Commissioner, 164 TC No. 10 (2025)
๐ Case in Brief
In a major win for businesses navigating M&A deals, the Tax Court ruled in favor of AbbVie, holding that its $1.6 billion breakup fee paid to Shire after a failed merger was not a capital loss, but rather a deductible business expense.
๐งฑ Background: When Mergers Break Up…
๐ July 2014
AbbVie, a U.S.-based pharmaceutical company, and Shire plc, a foreign firm, entered into a co-operation agreement to pursue a merger.
๐ That agreement included a clause: if AbbVieโs board failed to recommend the merger, AbbVie would owe Shire a hefty termination (breakup) fee.
๐ฃ October 2014
The U.S. Treasury released Notice 2014-52, targeting tax benefits from inversion deals like AbbVieโs. AbbVieโs board responded by withdrawing its merger recommendation.
๐ธ As a result, AbbVie paid Shire $1.6 billion to terminate the deal.
๐งพ Tax Filing & IRS Pushback
AbbVie claimed the $1.6B fee as an ordinary and necessary business expense under IRC ยง162.
The IRS disagreed, arguing it was a capital loss under IRC ยง1234A(1) (termination of a right or obligation โwith respect to propertyโ).
โ๏ธ What the Law Says โ Section 1234A(1)
IRC ยง1234A(1) converts certain payments into capital gains or losses if they stem from:
- A gain or loss
- From the termination of a
- Right or obligation
- That is with respect to property that would be a capital asset
๐ก Key Focus: Was the terminated co-operation agreement a โright or obligation with respect to propertyโ?
๐งโโ๏ธ Tax Court Analysis: What Counts as โWith Respect to Propertyโ?
The court made a clear distinction:
โ Rights to buy, sell, or transfer property = subject to ยง1234A
โ Agreements to perform services = not subject to ยง1234A
๐งพ The Court Found:
- The co-operation agreement was not about transferring property.
- It was about performing services (e.g., prepping for the merger, compliance).
- The breakup fee wasnโt triggered by failing to complete the merger, but by AbbVieโs board not recommending it.
๐ Therefore, no property interest was involved.
โ Conclusion: Ordinary Deduction Allowed
The Tax Court ruled that the $1.6 billion fee was:
- Not a capital loss
- But a legitimate business expense, deductible under IRC ยง162
๐ Takeaways for Businesses & Tax Professionals
| โ Key Insight | ๐ Implication |
| Not all breakup fees are capital losses | Review whether the agreement involves property transfer |
| Business service agreements tied to M&A may qualify as ordinary expenses | Valuable in structuring deals to preserve deductions |
| IRS scrutiny is still intense | Ensure agreements are clearly drafted to reflect services vs. property rights |
| Section 1234A is narrower than it seems | A โright with respect to propertyโ must involve actual property interest |
๐ Cited Authorities
๐งพ IRC ยง1234A(1) โ Capital treatment of property-related rights
๐ IRC ยง162 โ Business expense deduction
๐ IRS Notice 2014-52 โ Anti-inversion guidance
๐๏ธ Tax Court Opinion, AbbVie Inc., 164 TC No. 10 (2025)
