US accepts deductions for ANDA patent-defence costs

The acquiescence covers ANDA defence litigation

The IRS acquiesced in Actavis Laboratories, FL, Inc. v United States and Mylan, Inc. v Commissioner. Both announcements address legal expenses incurred to defend suits under 35 USC section 271(e)(2) while a generic manufacturer’s abbreviated new drug application was pending before the Food and Drug Administration. The Service accepts the courts’ holding that those defence expenses are not required to be capitalised under Internal Revenue Code section 263 and are instead deductible as ordinary and necessary business expenses under section 162.^[1]

Deduction and capitalisation remain separate statutory tests

Section 162(a) generally permits deductions for ordinary and necessary expenses paid or incurred in carrying on a trade or business. Section 263(a), by contrast, denies a current deduction for amounts paid for new buildings or permanent improvements or betterments that increase property value, subject to its statutory exceptions. The Actions on Decision resolve the treatment of the identified ANDA patent-suit defence costs; they do not convert every legal or regulatory cost associated with bringing a generic drug to market into a current deduction.^[1][2][3]

The procedural status matters

An Action on Decision is an internal announcement that the IRS will follow an adverse court holding in cases with the same controlling facts. The Bulletin says it is not an affirmative statement of the Service’s position, is not intended as public guidance and may not be cited as precedent. Both 2026-3 and 2026-4 are full acquiescences, rather than the narrower ‘acquiescence in result only’ used for the separate Siemens section 245A item in the same Bulletin.^[1]

Pharmaceutical groups should map each cost to its function

Generic-drug groups should distinguish legal fees for defending the specified patent litigation from application-preparation costs, asset-acquisition costs and other expenditure that may still require capitalisation. The practical change is reduced IRS controversy risk for returns using the Actavis and Mylan treatment where the controlling facts align. Groups considering claims or accounting-method consequences should preserve matter-level invoices and litigation records, because the acquiescence does not state that labels alone determine deductibility.^[1][2][3]