Drug companies seek billion-dollar tax deductions from opioid settlement

Pharmaceutical company Johnson & Johnson and the “big three” drug distributors — McKesson, AmerisourceBergen, and Cardinal Health — have agreed to collectively pay $26 billion to settle claims about their roles in the opioid crisis. These companies might now potentially deduct some of those costs from their taxes to recoup approximately $1 billion each. All four firms deny any wrongdoing or legal responsibility, asserting they manufactured government-approved prescription drugs, distributed them to registered pharmacies, and took steps to curb their misuse. Under U.S. tax laws, companies can deduct the cost of legal settlements from their taxes in the case of damages paid to victims as restitution for violations. Cardinal Health expects to pay $6.6 billion in the settlement. Furthermore, under the Cares Act, Cardinal was allowed to “carry back” losses related to the opioid litigation to previous years when the tax rate was higher. Francine J. Lipman, a tax professor at the University of Nevada at Las Vegas, points out that deductions must be made against business expenses that demonstrate an “economic effect,” which may preclude deductions against future, unpaid legal settlements.