Abbott Laboratories has petitioned the Tax Court to redetermine deficiencies of almost $443 million, which the IRS assessed for the 2020 tax year (Abbott Laboratories v. Commissioner, No. 20193-24 (Dec. 26, 2024)). Abbott is asking the Tax Court to find for 2020 that the IRS erred in (1) adjusting some of Abbott's royalty income, (2) including stock-based compensation (SBC) in Abbott's cost-sharing arrangement and the cost base of controlled services transactions and (3) making various adjustments relating to non-transfer pricing issues. In addition, Abbott is asking for a capital loss carryback and a refund based on overpayments of its foreign tax credit redeterminations.

On similar grounds, Abbott Laboratories petitioned the Tax Court to redetermine deficiencies for 2017 and 2018 (Abbott Laboratories v. Commissioner, No. 15235-24 (September 19, 2024)) (see Tax Alert 2024-1960) and for 2019 (Abbott Laboratories v. Commissioner, No. 20227-23 (Dec. 22, 2023)) (see Tax Alert 2024-0221).

Royalty income

In the petition, Abbott disputes the IRS's adjustment of its royalty income from licenses for nutritional, diabetes care and vascular products, asserting that the payments it received from its affiliates were negotiated at arm's length.

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, it argues, the regulations are entitled to "no deference, respect or weight" under Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024).

Capital loss carryback

Abbott argued that it can claim a capital loss carryback deduction of $1.25 billion based on the liquidation of its Dutch entity and may carry back this loss to its 2017 tax year under IRC Section 1212.

Refund

Abbott seeks a refund of over $10 million for its 2020 tax year for foreign tax redeterminations under IRC Section 905.

Implications

Abbott has now filed three petitions in the past year covering two familiar transfer pricing issues: royalties for intellectual property licensing and SBC. While these issues may take years to work through the Tax Court, taxpayers should pay particular attention, as this may be one of first transfer pricing regulatory challenges decided under Loper Bright.