The Internal Revenue Service Headquarters In Washington, D.C. (Photo by Kayla Bartkowski/Getty Images)
Getty Images
One of the core responsibilities of the IRS is to enforce the tax code fairly, not to weaponize it against U.S. businesses or undermine economic growth. Unfortunately, a recent high-profile case involving medical device maker AbbVie makes you wonder if the IRS has forgotten which team it’s on.
Earlier this year the U.S. Tax Court rightly sided with AbbVie in a dispute over a $1.6 billion breakup fee the company paid after its planned merger with Shire had collapsed. The IRS argued—wrongly—that the fee couldn’t be deducted as a standard business expense. The Court disagreed, stating the obvious: This was a routine cost of doing business and therefore deductible. That should’ve been the end of it.
But instead of accepting this commonsense decision, the IRS is appealing the ruling—wasting taxpayer dollars and sending the wrong message to every U.S. company trying to make smart, strategic business decisions in an unpredictable global economy.
Let’s step back. AbbVie’s deal with Shire was abandoned after the Treasury Department released a 2014 notice announcing future anti-inversion rules—rules that were retroactive and made the transaction financially unviable. The deal had to be scrapped. The breakup fee was the natural result of this collapse—not a capital loss, but a basic business expense.
The IRS claimed otherwise, citing a provision (Section 1234A) that simply doesn’t apply. AbbVie, rightly, pushed back, and the Tax Court agreed that the payment should be deductible under Section 162 as an “ordinary and necessary” business expense. There is solid precedent for this, and the ruling brings tax policy back in line with broader national goals: more investment, more growth and more jobs.
President Trump has made clear that his administration is focused on building a pro-growth, pro-investment economy. In July he signed the One Big Beautiful Bill Act (OBBB)—a sweeping law that makes permanent such key tax reforms as immediate expensing of R&D and investments in short-lived assets. These are the kinds of policies that give businesses the confidence to expand, hire and innovate.
But policies only work if every arm of government follows them. When the IRS takes positions like it did in the AbbVie case—positions that contradict precedent, defy logic and ignore administration policy—it sows uncertainty and damages business confidence. If companies can’t even be sure they can deduct a basic breakup fee, how can they plan major deals or long-term investments?
Look at the numbers: in Q1 2025, U.S. deal volume hit its lowest level in two decades. Business leaders are hesitating—not because of lack of opportunity, but because of uncertainty. When government agencies turn routine transactions into potential tax traps, you can’t blame CEOs for playing defense.
The IRS too often operates as a rogue regulator—applying vague standards, retroactive rules and costly enforcement actions that leave businesses guessing. That’s not tax policy; that’s bureaucratic overreach.
Tax law should be simple, predictable and pro-growth. The IRS’ crusade against AbbVie was none of these things. Thankfully, the Tax Court got it right. Now it’s time for the IRS to admit it and drop the appeal.
It’s high time the IRS stopped punishing businesses for acting rationally and started working with—not against—the goals of American prosperity.
Source: https://www.forbes.com/sites/steveforbes/2025/10/07/the-irs-should-boost-american-businesses-not-punish-them/
