Abbott Laboratories has petitioned the Tax Court to redetermine deficiencies for 2017 and 2018 (Abbott Laboratories v. Commissioner, No. 15235-24 (September 19, 2024)). In December 2023, Abbott Laboratories petitioned the Tax Court to redetermine deficiencies of almost $417 million assessed for 2019 (see Tax Alert 2024-0221). Abbott is asking the Tax Court to find for 2017 and 2018, as it did for 2019, that the IRS erred in (1) adjusting certain of Abbott's royalty income and (2) including stock-based compensation (SBC) in the taxpayer's cost-sharing arrangement and the cost base of controlled services transactions. In addition, Abbott is asking for a capital loss carryback and a refund based on overpayments of its foreign tax credit redeterminations, SBC adjustments and other taxes.

Royalty income

In the petition, Abbott disputes the IRS's adjustment of its royalty income for 2017 and 2018 from licenses for nutritional and diabetes care products, asserting that the payments it received from its affiliates were negotiated at arm's length. The arguments for these tax years are the same as for the petition for the 2019 tax year.

Stock-based compensation

Abbott also disputes the IRS adjusting its income by adding SBC to (1) intercompany service fees that Abbott and certain US affiliates charged to certain foreign affiliates, and (2) a shared cost pool under a qualified cost-sharing arrangement between two group entities. Abbott asserts that the intercompany service fees were arm's length. Abbott argues that requiring the inclusion of SBC in the cost base for services under Treas. Reg. Section 1.482-9, and in the cost pool for a cost-sharing arrangement under Treas. Reg. Section 1.482-7(d)(1) and (3), are inconsistent with IRC Section 482. Thus, the regulations are entitled to "no deference, respect or weight" under Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024). Abbott paid the SBC-related tax assessed for 2017 and 2018 and is requesting a refund based on the arguments it made in the petition for the 2019 tax year.

Capital loss carryback

Abbott argued that it can claim a capital loss carryback deduction based on (1) the liquidation of its Dutch entity and (2) stock that became worthless in 2020.

Refund

Abbott is seeking a refund of up to $125 million. The refunds are for (1) foreign tax redeterminations under IRC Section 905, (2) taxes paid because of the mandatory repatriation tax and (3) taxes paid related to the SBC adjustment for 2017 and 2018.

Implications

The Supreme Court held in Loper Bright, in the interim between Abbott's petitions for tax years 2019 and 2017-18, that courts must "exercise their independent judgment in deciding whether an agency has acted within its statutory authority." This may be the first SBC case decided through the lens of Loper Bright and it remains to be seen how courts will apply this new standard.