🏛️ AbbVie Inc. v. Commissioner, 164 TC No. 10 (2025)
📖 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.
🧱 Background: When Mergers Break Up…
🔗 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.
📃 That agreement included a clause: if AbbVie’s board failed to recommend the merger, AbbVie would owe Shire a hefty termination (breakup) fee.
💣 October 2014
The U.S. Treasury released Notice 2014-52, targeting tax benefits from inversion deals like AbbVie’s. AbbVie’s board responded by withdrawing its merger recommendation.
💸 As a result, AbbVie paid Shire $1.6 billion to terminate the deal.
🧾 Tax Filing & IRS Pushback
AbbVie claimed the $1.6B fee as an ordinary and necessary business expense under IRC §162.
The IRS disagreed, arguing it was a capital loss under IRC §1234A(1) (termination of a right or obligation “with respect to property”).
⚖️ What the Law Says – Section 1234A(1)
IRC §1234A(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
💡 Key Focus: Was the terminated co-operation agreement a “right or obligation with respect to property”?
🧑⚖️ Tax Court Analysis: What Counts as “With Respect to Property”?
The court made a clear distinction:
✅ Rights to buy, sell, or transfer property = subject to §1234A
❌ Agreements to perform services = not subject to §1234A
🧾 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 wasn’t triggered by failing to complete the merger, but by AbbVie’s board not recommending it.
🔍 Therefore, no property interest was involved.
✅ 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 §162
📊 Takeaways for Businesses & Tax Professionals
| ✅ Key Insight | 📌 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 “right with respect to property” must involve actual property interest |
📎 Cited Authorities
🧾 IRC §1234A(1) – Capital treatment of property-related rights
📚 IRC §162 – Business expense deduction
📝 IRS Notice 2014-52 – Anti-inversion guidance
🏛️ Tax Court Opinion, AbbVie Inc., 164 TC No. 10 (2025)
