Insights

In a significant decision for generic drug manufacturers, the Federal Circuit recently affirmed that litigation expenses incurred in defending Hatch-Waxman patent lawsuits are deductible as ordinary and necessary business expenses under the Internal Revenue Code (IRC). The ruling in Actavis Laboratories FL, Inc. v. United States, No. 23-1320 (Fed. Cir. Mar. 21, 2025), resolves a key tax dispute, allowing tax deductions for these expenses in the year they are incurred rather than capitalizing them over time. This outcome provides clarity and potential tax benefits for qualifying businesses navigating the interplay of patent litigation and FDA drug approvals.

On October 24, 2024, Crowell & Moring LLP hosted its 38th Annual Managing Tax Audits and Appeals Seminar. The seminar featured several prominent IRS speakers and lively discussion among clients, including conversations about the following hot topics:

On Friday, June 28, 2024, the U.S. Supreme Court overruled Chevron U.S.A. v. Natural Resources Defense Council (“Chevron”)[1] in Loper Bright Enterprises v. Raimondo (No. 22-451) and Relentless v. Dep’t of Commerce (No. 22–1219)[2] (the two cases collectively referred to as “Loper Bright”), bringing an official end to the decades-old and eponymously named “Chevron deference” doctrine. Not content to stop there, the Court returned fresh to work Monday, July 1, to, in Corner Post, Inc. v. Board of Governors of the Federal Reserve System (No. 22-451)[3] (“Corner Post”), effectively extend the limitations period to challenge final agency actions under the Administrative Procedure Act (“APA”).

Tax partner and co-chair Starling Marshall and tax partner Carina Federico discuss where they predict tax disputes may arise with the IRS related to the IRA clean energy provisions. 

Last week, the IRS announced plans to begin a campaign to audit personal use of business aircraft. The audits will focus on whether large corporations, partnerships and high-and ultra-high net worth aircraft owners have properly reported their business and personal aircraft usage for tax purposes, with a particular focus on ensuring that owners are only taking deductions to which they are entitled. Given the value of an aircraft, the amount of a deduction for aircraft related expenditures on a given taxpayer’s return can be in the tens of millions of dollars, and with more than 10,000 corporate jets operating in the U.S., IRS Commissioner Daniel Werfel recognized that much is at stake with this campaign.  The audit campaign is expected to focus initially on multinational and domestic corporations and complex partnerships but is expected to expand from there.

This week, IRS Commissioner Daniel Werfel informed a crowd at a conference that the IRS was looking to reset its approach to ERC claims after implementing a moratorium on processing claims in September. Mr. Werfel communicated that the IRS is focused on changing the way it processes these claims and on communicating the eligibility criteria to taxpayers. He also indicated a willingness to work with employers who received the credit, but were not actually entitled to it, allowing taxpayers to pay back the funds to the IRS in a way that works for their businesses.

This week, the IRS announced a new withdrawal process to allow certain employers who filed an Employee Retention Credit (ERC) claim, but have not yet received a refund, to withdraw their submission. As discussed in our previous alert, the IRS recently announced a pause in processing new ERC claims, at least through the end of 2023, due to concerns that many recently filed claims are invalid.

The IRS recently announced that it will stop processing any new claims for the Employee Retention Credit (ERC) through at least the end of the year due to concerns that a large number of recent claims are invalid. The ERC, enacted as part of the CARES Act in 2020, provides a refundable tax credit for eligible employers impacted by the pandemic from March 13, 2020 through September 30, 2021.

On June 14, 2023, the Treasury Department and the Internal Revenue Service (IRS) released proposed regulations regarding the clean energy tax credits eligible for direct pay and transferability under the Inflation Reduction Act (IRA). The IRS also released FAQs for both direct pay and transferability, which provides further guidance to interested taxpayers.

On March 23rd, the Treasury Department and the IRS published a notice of proposed rulemaking for the Section 48D Advanced Manufacturing Investment Credit (“Section 48D credit”) established by the CHIPS Act of 2022. Over the last few years, the market for semiconductors has been volatile, causing supply chain shortages. The Section 48D credit aims to incentivize investments in facilities that manufacture semiconductors or semiconductor manufacturing equipment in the United States, with the goal of creating American jobs and strengthening the U.S. economy and national security.

In 2021, two Circuit Court of Appeals, held diametric positions regarding penalties for taxpayers who non-willfully failed to file a Report of Bank and Financial Accounts (FBAR): The Ninth Circuit concluded that the penalty was $10,000 per untimely filed FBAR, while the Fifth Circuit concluded that the penalty was $10,000 per account on each untimely filed FBAR. On February 28, 2023, the Supreme Court resolved this conflict, ruling that the penalty is calculated on a per-form basis, rather than a per-account basis.

On February 15th, Daniel Werfel, the nominee for IRS Commissioner, testified before the Senate Finance Committee during his nomination hearing. As expected, Werfel faced tough questioning about how he would oversee the use of $80 billion in new funding coming to the IRS over the next decade. The Inflation Reduction Act, which passed late last year, appropriated the additional funding for the IRS to increase compliance and provide better customer service to taxpayers. 

On January 9, 2023, the U.S. Supreme Court heard oral arguments in In re Grand Jury. In this case, the Court is asked to decide the appropriate test for determining whether documents that include legal advice, but also discuss other non-privileged issues, are protected by the attorney-client privilege. The question before the Court is whether a “dual purpose” communication is privileged only if its “primary purpose” was obtaining legal advice, or if the privilege extends to documents that have only a “significant purpose” of obtaining legal advice. While the case arose in a criminal context and relates to tax advice, the Court’s decision could have broad implications across the legal profession. The case has drawn an enormous amount of attention, as evidenced by the thirteen amici briefs filed in the case.

Crowell & Moring held its Transportation & Logistics workshop on Thursday, March 10, 2022 in Dana Point, California. The conference featured key developments and trends in the transportation sector and legal strategies to support supply chain resiliency in the midst of industry uncertainty, evolving regulatory regimes, and unprecedented workforce challenges. Conference participants included transportation leaders and decision-makers across retail, food & beverage, hospitality, telecommunications, healthcare, rail, automotive, aviation, surface, maritime, mobility, shipping, logistics, and beyond. Topics included:

Unless Congress acts, two recent developments will profoundly affect how businesses receive tax benefits for money spent on research and development (“R&D”). First, TCJA changed how businesses account for these expenditures beginning in 2022. Second, the IRS has changed the information required to make and support a R&D claim, as well as the process the IRS uses to review claims. We discuss both changes in more detail as follows.

On May 17, the Supreme Court ruled that a pre-enforcement challenge to an IRS reporting requirement may proceed despite the IRS’s assertion that the Anti-Injunction Act prohibited the lawsuit. Typically, the Tax Court is the sole venue for a pre-collection litigation on the merits of an IRS assessment. Absent a Tax Court petition, under the Anti-Injunction Act, taxpayers cannot sue in the district courts to stop the IRS from assessing and collecting taxes. Instead, the taxpayer must pay the tax (or the IRS tells the taxpayer it owes tax) and then file a lawsuit challenging the legality of the tax. The government has long used the Anti-Injunction Act as a tool to stop pre-enforcement challenges to any tax-related guidance. However, the Supreme Court made clear in CIC Services, LLC v. IRS et al. that this tool is limited.

The Biden Administration is expected to request $80 billion over 10 years for IRS enforcement as part of its American Families Plan. The Treasury Department released a statement that insufficient tax agency resources were expected to result in the U.S. government collecting $7 trillion less than it’s owed over the next decade. If the IRS’s enforcement abilities are strengthened, the Biden Administration estimates it can collect an additional $700 billion over 10 years in otherwise lost tax revenue. If the Biden Administration succeeds in getting the funding changes it proposes, taxpayers should expect to see an increase in audit activity, particularly focused on high net-worth individuals and corporations. Coupled with its investment in improving its IT capabilities and use of data analytics, the IRS is poised to make up for lost time in the enforcement arena.

After 100 days in office, President Joe Biden has made it clear that he is not afraid to go it alone to pursue policy to match his campaign rhetoric and promises. The first 100 days of the administration were marked by a significant number of executive orders, a historic economic stimulus package passed with only Democratic support in Congress, and sweeping proposals that – if enacted – could transform everyday life for a significant number of Americans.

In good news for generic drug manufacturers, the U.S. Tax Court recently ruled that they can deduct legal fees associated with patent infringement lawsuits, even when the legal fees are triggered by an FDA application, which will reduce their federal tax liabilities in the year in which those fees are incurred. In addition to deducting these fees going forward on their federal tax returns, drug manufacturers should consider whether this Tax Court decision entitles them to tax refund for prior years. Moreover, any companies that incur legal fees associated with creating intangibles (e.g., patents, rights to sell generic drugs, trademarks) will want to consider whether this ruling impacts them.  

The Internal Revenue Service (IRS) announced on April 19th the launch of the new Office of Promoter Investigations (OPI) aimed at enforcement against promoters of abusive tax transactions, such as syndicated conservation easements and micro-captive insurance schemes, and expanding on the work the promoter investigations coordinator has been pursuing for the past year. The new office is part of the IRS’s Small Business and Self-Employed Division (SB/SE) and will be led by acting director Lois Deitrich, an IRS exam official with over 20 years of experience. Although the office is housed within SB/SE, it will coordinate promoter investigations throughout all IRS business units, including Criminal Investigation and the Office of Fraud Enforcement.