Is a pharmaceutical company entitled to deduct legal fees incurred while defending itself against patent infringement lawsuits as ordinary and necessary business expenses? In a recent case, the U.S. Tax Court said “yes,” but the IRS appealed. The IRS contended that the company should have treated the legal expenses as capital expenses because they were part of the process of seeking FDA approval to market the business’s products. But the company, which produces generic drugs, argued the costs weren’t related to FDA approval. A U.S. Appeals Court agreed with the company and affirmed the Tax Court’s ruling, allowing it to deduct the litigation costs. (Mylan Inc. & Subsidiaries, CA-3, 7/27/23)
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