America is a country that has thrived on businesses taking risks to innovate and grow through strategic mergers. Our nation’s most iconic partnerships have been powerful drivers of undeniable economic growth and global competitiveness. Consider Exxon and Mobil’s reunion at the end of the 20th century, when two industry leaders joined forces to operate at unprecedented levels of productivity. Disney’s merger with Pixar sparked great innovation in animation and redefined filmmaking. When J.P. Morgan & Co. and Chase Manhattan Bank merged in 2000, they combined complementary strengths to build a remarkable financial institution. Time after time, industry after industry, these combinations have strengthened American companies and propelled our economy further.
Businesses pursuing mergers and acquisition activities require tax and regulatory certainty. Clear, enforceable rules are critical so that businesses can make informed decisions when considering a deal. For decades, company leaders have been able to plan ahead and take risks, confident that tax policy surrounding deals was predictable and fair. That foundation is now being disrupted. In a recent case involving leading pharmaceutical company AbbVie, the Internal Revenue Service (IRS) has taken a position that breaks with long-standing practice and injects uncertainty into how mergers are treated after they are completed, threatening future investment and economic growth.
The dispute started when AbbVie’s planned merger with Shire fell through, an outcome that is not uncommon in high-stakes business deals. AbbVie paid the more than $1.6 billion breakup fee required under the agreement and deducted it as a business expense, conforming to settled interpretations of tax law and IRS precedent governing ordinary costs of doing business. That should have settled this issue. Instead, the IRS decided to challenge the deduction, arguing that a routine cost of a failed transaction should be treated as something entirely different – a capital loss. Under that interpretation, the IRS asserted a tax deficiency of roughly $572 million.
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In June 2025, the U.S. Tax Court fortunately took action to restore this sound policy and recognized the obvious: breakup fees are an ordinary cost of doing business and treating them as such is smart policy and faithful to the text of the law. Breakup fees exist for a reason. They allocate risk and make it possible for companies to pursue complex transactions that can move capital and skill into better hands and more productive uses. This is how healthy M&A markets function.
The danger lies in the IRS’s unfounded theory. Despite the Tax Court’s commonsense ruling, the IRS filed a notice of appeal in September 2025, with its opening brief due in February 2026. The IRS’s decision to continue pressing this harmful case spreads uncertainty when businesses need clarity.
The Trump administration understands how critical a thriving M&A market is to economic growth and competitiveness. The One Big Beautiful Bill Act, signed into law on July 4, 2025, is Exhibit A. By consolidating tax and regulatory reforms and reinforcing pro-growth incentives, President Trump has made clear that restoring confidence and encouraging investment are central to strengthening American companies.
The IRS’s position in the AbbVie case cuts directly against the administration’s pro-growth agenda and risks weakening the impact of the OBBB that are only just beginning to be implemented. When presidents set priorities, bureaucracies are supposed to follow them. The IRS should take note.
With major mergers currently moving forward across industries, businesses look to regulators for certainty. Recent deals taking shape, like those involving Union Pacific and Norfolk Southern, and Kimberly-Clark and Kenvue, reflect a broader reality: U.S. businesses want to grow, evolve, and position themselves to compete – and win – globally. Merger activity is accelerating, and companies are looking for the IRS to provide tax policy clarity, not rogue interpretations that will harm business investment.
America will thrive under President Trump’s leadership if IRS tax policies provide certainty and reward risk taking. The Tax Court’s decision in AbbVie honored those principles. The IRS should follow suit and drop its appeal to allow settled law to stand. If America wants to remain the best country in the world to invest, innovate, and compete, it must continue to be a place where smart business decisions are encouraged.
Mr. Landrith has served as the President of the Frontiers of Freedom Institute since 1998. He is a graduate of the University of Virginia School of Law, where he was Business Editor of the Virginia Journal of Law and Politics. He had a successful law practice in business and litigation. In 1994 and 1996, Mr. Landrith was a candidate for the U.S. House of Representatives from Virginia's Fifth Congressional District. He served on the Albemarle County School Board. Mr. Landrith is an adjunct professor at the George Mason School of Law. He is recognized as an authority on constitutional law and jurisprudence, federalism, global warming, and property rights. He has appeared on C-SPAN and most recently FOXNews' Your World with Neil Cavuto.
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