United States Tax Court

United States Tax Court

164 T.C. No. 10

ABBVIE INC. AND SUBSIDIARIES,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket No. 2597-23.

Filed June 17, 2025.

—————

In 2014, P, a domestic public corporation, and S, a

foreign public limited company, agreed to work toward a

proposed combination.

They entered into multiple

agreements to facilitate that work and to define the terms

of the proposed combination. Under a Co-operation

Agreement, P promised, among other things, to pay S a fee

of approximately $1.6 billion if P’s board ultimately failed

to recommend the combination to P’s shareholders.

After the Department of the Treasury released

adverse guidance concerning the tax treatment of

transactions like the potential combination, P’s board

chose not to recommend the combination to P’s

shareholders. Instead, P and S entered into a Termination

Agreement, which ended the Co-operation Agreement and

required P to pay S a fee of approximately $1.6 billion.

On its 2014 return, P reported the fee as an ordinary

deduction. R disallowed the deduction, reasoning that

I.R.C. § 1234A(1) required P to treat the payment as a

capital loss.

Now before us are Cross-Motions for

Summary Judgment regarding whether I.R.C. § 1234A(1)

applies to P’s payment to S under the Termination

Agreement.

Served 06/17/25

2

Held: P’s rights and obligations under the Cooperation Agreement were fundamentally in the nature of

services.

Held, further, I.R.C. § 1234A(1) does not require P to

treat its payment to S as a capital loss because, under the

Co-operation Agreement, P did not have a “right or

obligation . . . with respect to property” within the meaning

of I.R.C. § 1234A(1).

Held, further, P’s Motion for Summary Judgment

will be granted and R’s Motion for Summary Judgment will

be denied.

—————

Daniel A. Rosen, Robert H. Albaral, Brendan J. Sponheimer, Sonya C.

Bishop, Joy A. Williamson, and Don Crawford, for petitioner.

Steven N. Balahtsis, Khanh H. Tran, and Fang Y. McDermott, for

respondent.

OPINION

TORO, Judge: In July 2014, petitioner, AbbVie, Inc. (AbbVie), a

domestic public corporation, and Shire plc (Shire), a foreign public

limited company, announced that their boards had agreed on the terms

of a recommended combination of the two companies. AbbVie and Shire

then entered into contracts to facilitate the proposed combination and

outline its terms.

Among those contracts was a “Co-operation

Agreement” that defined the steps each party would take to work

towards the proposed combination.

Within the Co-operation

Agreement, AbbVie agreed to pay Shire a significant termination fee if

it failed in carrying out its agreed responsibilities and, as a result of that

failure, the combination did not occur.

Three months later, AbbVie scuttled the combination. The

Department of the Treasury (Treasury) had released new guidance that

threatened certain anticipated benefits of the combination, and so

AbbVie’s board chose not to recommend the combination to its

shareholders. Instead, AbbVie and Shire executed a “Termination

3

Agreement,” which terminated the Co-operation Agreement, and

AbbVie paid Shire a termination fee of a little more than $1.6 billion.

Now before the Court are competing Motions for Summary

Judgment addressing the proper treatment of the fee for federal income

tax purposes. For its part, AbbVie maintains that it correctly deducted

the fee as an ordinary expense. The Commissioner contends that

section 1234A, 1 a character-shifting provision, required AbbVie to treat

the fee as a capital loss. For the reasons we explain below, we will grant

AbbVie’s Motion and deny the Commissioner’s.

Background

The following facts are derived from the parties’ pleadings, their

Motion papers, and the First and Second Stipulations of Fact with

attached Exhibits. They are stated solely for the purpose of ruling on

the Motions before us and not as findings of fact in this case. See Rowen

v. Commissioner, 156 T.C. 101, 103 (2021) (reviewed).

I.

Proposed Combination

In July 2014, AbbVie and Shire announced that their boards had

agreed on the terms of a “recommended combination” of the companies. 2

Ex. 2-J, at 2. The terms of the proposed combination valued Shire at

nearly $55 billion. Under the terms of the proposed combination, both

AbbVie and Shire would come under the umbrella of New AbbVie, a

Jersey company formed by AbbVie. 3 Shareholders of AbbVie and Shire

would receive shares of New AbbVie in exchange for their existing

shares.

The proposed combination was planned to proceed in two phases.

In the first phase, Shire’s shareholders would exchange their shares for

shares of New AbbVie and cash pursuant to a court-sanctioned “scheme

1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C. (I.R.C. or Code), in effect at all relevant times, and Rule

references are to the Tax Court Rules of Practice and Procedure.

Some of the relevant documents refer to the proposed combination as a

“proposed merger.” For ease of reference, this Opinion uses the phrase “proposed

combination” when referring to the overall combination of AbbVie and Shire and the

phrase “proposed merger” when referring to certain component steps of the proposed

combination that are described in greater detail below.

2

3 The Bailiwick of Jersey, the largest of the Channel Islands, is a self-governing

dependency of the British Crown, located off the coast of France.

4

of arrangement” between Shire and the Shire shareholders under the

Jersey Companies Law of 1991. 4 In the second phase, AbbVie would

merge into a subsidiary of New AbbVie pursuant to an Agreement and

Plan of Merger (Delaware Merger Agreement) that had to be approved

by AbbVie’s shareholders.

AbbVie, Shire, and related entities produced multiple joint

documents to facilitate the proposed combination. AbbVie and Shire

issued a press announcement describing the terms of, and conditions

applicable to, the combination. AbbVie and Shire also executed the Cooperation Agreement, which “set out certain mutual commitments to

regulate the basis on which they are willing to implement the [m]erger.”

Ex. 3-J, at 4. And AbbVie entered into the Delaware Merger Agreement

with two affiliated entities which, subject to shareholder approval,

would cause AbbVie to become a subsidiary of New AbbVie. 5 For our

purposes, the Co-operation Agreement is central.

II.

Terms of the Co-operation Agreement

Through the Co-operation Agreement, AbbVie and Shire agreed

to take steps to implement the proposed combination. For its part,

AbbVie agreed, among other things, to (1) take the lead in securing

regulatory approval of the proposed combination and communicating

with Shire about regulatory approvals, (2) “co-operate with Shire and its

advisers to take all such steps as are reasonably necessary to implement

the [proposed combination],” (3) recommend the Delaware Merger

Agreement to its shareholders, call a shareholder meeting for purposes

of voting on the Delaware Merger Agreement, and use best efforts to

secure shareholder approval of the agreement, and (4) provide

information and documentation as required ahead of Shire’s

shareholder vote. Ex. 3-J, at 4–10. In turn, among other things, Shire

promised to (1) assist AbbVie in communicating with regulators,

(2) provide information to AbbVie as needed, and (3) notify AbbVie of

any matters that could influence regulatory compliance.

4 A scheme of arrangement (Scheme) is, in relevant part, a statutory process

under Jersey law by which an arrangement between a company and its members may,

if certain conditions are met, be sanctioned by an act (order) of the Royal Court of

Jersey that binds both the shareholders who approved the Scheme and those who did

not. A Scheme becomes effective when the court order is delivered to the Jersey

Companies Registrar.

5 The Delaware Merger Agreement essentially established the mechanics for

AbbVie’s side of the proposed combination.

5

If the proposed combination was approved, AbbVie agreed in the

Co-operation Agreement to be bound by the Scheme and to procure New

AbbVie’s adherence to the Scheme. AbbVie also was required to ensure

that the New AbbVie shares that were to be issued to Shire shareholders

pursuant to the Scheme ranked equally with the New AbbVie shares

that were to be issued to AbbVie shareholders pursuant to the Delaware

Merger Agreement. AbbVie further agreed to ensure that, as part of

AbbVie’s merger into New AbbVie’s subsidiary, AbbVie shareholders

would exchange one AbbVie share for one New AbbVie share. And

AbbVie was required to implement the merger of AbbVie and New

AbbVie’s subsidiary pursuant to the Delaware Merger Agreement

immediately following completion of the Scheme.

AbbVie’s promise to recommend the Delaware Merger Agreement

to its shareholders and seek their approval of the combination was

critical to the Co-operation Agreement. The Co-operation Agreement

provided:

In connection with the [required meeting of AbbVie

shareholders], the board of Directors of AbbVie shall . . .

(1) recommend the adoption of the Delaware Merger

Agreement by the holders of AbbVie Shares . . . and (2) use

its reasonable best efforts to obtain the AbbVie

Shareholder Approval . . . .

Ex. 3-J, at 8. AbbVie’s board of directors could refuse to recommend the

Delaware Merger Agreement, an eventuality described by the Cooperation Agreement as an “AbbVie Adverse Recommendation Change,”

but only if it “determine[d] in good faith by a majority vote, after

considering advice from outside legal counsel, that the failure to take

such action would be inconsistent with its fiduciary duties under

Delaware Law.” Ex. 3-J, at 9.

If AbbVie’s Board chose not to recommend the Delaware Merger

Agreement to the corporation’s shareholders, AbbVie would face a

penalty. Specifically, the Co-operation Agreement provided for AbbVie

to pay a “Break Fee” under certain conditions, as set out in relevant part

below: 6

6 Scholarly literature suggests that termination fees are common in the

mergers and acquisitions space. See generally Afra Afsharipour, Transforming the

Allocation of Deal Risk Through Reverse Termination Fees, 63 Vand. L. Rev. 1161,

6

7.

BREAK FEE

7.1

In consideration of Shire incurring substantial costs

and expenses in preparing and negotiating the

Acquisition and this Agreement, AbbVie undertakes

that on the occurrence of a Break Fee Payment

Event (as defined below) AbbVie will pay to Shire an

amount in cash in US Dollars equal to three per cent

of the product of the indicative value of the cash and

shares to be delivered per Shire Share multiplied by

the number of issued Shire Shares as set forth in

Annex A and converted pursuant to the exchange

rate set forth in Annex B (the “Break Fee”).

7.2.

A “Break Fee Payment Event” shall occur in the

event that at or prior to the termination of this

Agreement:

7.2.1 both (i) an AbbVie Adverse Recommendation

Change has occurred and (ii) either (a) the AbbVie

Shareholder Approval has not been obtained at the

AbbVie Shareholders Meeting, or any adjournment

or postponement thereof, at which a vote on the

adoption of the Delaware Merger Agreement is

taken (such event being an “Adverse Shareholder

Vote”) or (b) a meeting of AbbVie’s stockholders at

which a vote on the adoption of the Delaware Merger

Agreement is proposed has not occurred on or before

the date falling 60 days (such date being the

“Shareholder Long Stop Date”) after the date of

the AbbVie Adverse Recommendation Change or,

(c) on or prior to the Shareholder Long Stop Date

this Agreement terminates pursuant to clause 10.1.1

1163–65 (2010). They may be paid by the seller to the buyer or vice versa (as here)

depending on each party’s degree of interest in the deal and the risks the parties are

attempting to account for, among other considerations. See id.; see also Beck v.

Dobrowski, 559 F.3d 680, 683–84 (7th Cir. 2009) (discussing the propriety of

termination fees in bidding contests).

7

and, at the time of such termination, the AbbVie

Shareholder Approval has not been received[.] 7

Ex. 3-J, at 11–12. Shire was also protected if the combination did not go

through for other reasons. Specifically, the Break Fee was payable if

AbbVie invoked a regulatory condition to avoid proceeding with the

combination or if certain other regulatory issues developed. And if

AbbVie’s shareholders failed to approve the combination under

circumstances where the Break Fee was not payable, then AbbVie was

still liable under another section of the Co-operation Agreement to

reimburse Shire for expenses of $500 million or more that Shire incurred

to facilitate the combination. This second potential fee was dubbed the

“Cost Reimbursement Payment.” Ex. 3-J, at 15.

III.

Termination and Break Fee Payment

On September 22, 2014, before either AbbVie’s or Shire’s

shareholders had voted on the proposed combination, Treasury issued

I.R.S. Notice 2014-52, 2014-42 I.R.B. 712. The Notice stated Treasury’s

intention to issue new regulations concerning inversion transactions.

Those regulations would be retroactive to the date of the Notice—that

is, before the proposed combination was completed.

On October 15, 2014, having reviewed the Notice, AbbVie’s board

of directors withdrew its recommendation that shareholders approve the

proposed combination. In a Form 8–K, Current Report Pursuant to

Section 13 or 15(d) of the Securities Exchange Act of 1934, that AbbVie

filed with the Securities and Exchange Commission, it explained that

the proposed Treasury regulations “introduced an unacceptable level of

uncertainty to the transaction.” Ex. 9-J, at 3. AbbVie acknowledged

that the withdrawal, if accompanied by shareholder disapproval of the

combination, could cause AbbVie to pay approximately $1.635 billion to

Shire as a Break Fee.

Following the withdrawal of the AbbVie board’s recommendation,

AbbVie and Shire recognized that there was little prospect of AbbVie’s

shareholders approving the proposed combination. To tie up loose ends,

on October 20, 2014, AbbVie and Shire entered into an agreement that

7 The parties’ agreements provided precise definitions for capitalized (but

undefined) terms above, but the gist of the terms is sufficiently clear from the text, and

we therefore do not reproduce the definitions here.

8

terminated the Co-operation Agreement. The Termination Agreement

included the following recitals:

(A)

The Parties [AbbVie and Shire] entered into a cooperation agreement on 18 July 2014 in respect of

the Proposed Merger (the “Co-operation

Agreement”).

(B)

The AbbVie Directors have withdrawn their

recommendation to AbbVie stockholders that they

vote in favour of the resolutions required to

implement the Proposed Merger.

(C)

The Proposed Merger is conditional upon, among

other things, the affirmative approval of AbbVie

stockholders. Following the withdrawal of the

recommendation by the AbbVie Directors, the

Parties consider that there is little prospect of the

Proposed Merger being consummated.

(D)

AbbVie and Shire have determined that it is in their

respective best interests to terminate the Cooperation Agreement, and to make certain other

arrangements relating to the termination of the

Proposed Merger, as provided in this Agreement.

Ex. 6-J, at 3. The Termination Agreement then terminated the Cooperation Agreement. As a condition of that termination, the agreement

required AbbVie to pay a Break Fee in the same amount that would have

been due under the Co-operation Agreement. 8 AbbVie made its

payment of $1,635,410,676 on October 21, 2014.

IV.

AbbVie’s Tax Return and the Notice of Deficiency

AbbVie timely filed Form 1120, U.S. Corporation Income Tax

Return, for its taxable year ending December 31, 2014. On the return,

AbbVie claimed the Break Fee payment as an ordinary deduction.

On December 6, 2022, after examining AbbVie’s 2014 return, the

Commissioner issued to AbbVie a Notice of Deficiency determining a

deficiency of approximately $572 million. As explained in the Notice,

8 Given the Break Fee’s genesis in the Co-operation Agreement, our analysis

below focuses mainly on the terms of that agreement.

9

the Commissioner determined that the Break Fee payment “is not

deductible as an expense under [section] 162 or as an ordinary loss

under [section] 165 because the payment of that amount and

termination of an agreement resulted in loss that is treated under

[section] 1234A as loss from the sale of a capital asset.” Ex. 1-J, at 11.

Accordingly, the Commissioner determined that the amount should be

“treated as [a] capital loss rather than [an] ordinary deduction.” Id. The

Commissioner also made other computational adjustments to AbbVie’s

return as a result of his determination concerning the Break Fee.

V.

Procedural History

Upon receiving the Notice of Deficiency, AbbVie timely filed the

Petition upon which this case is based. At the time, AbbVie’s principal

place of business was in Illinois.

The parties filed Cross-Motions for Summary Judgment on

whether section 1234A(1) applies here. AbbVie argues that the

provision does not apply to the Break Fee and that, as a result, it

correctly claimed an ordinary deduction for the Break Fee. The

Commissioner, for his part, argues that section 1234A(1) applies and

requires AbbVie to treat the Break Fee as a capital loss. For the reasons

described below, we agree with AbbVie.

Discussion

I.

Summary Judgment

The purpose of summary judgment is to expedite litigation and

avoid costly, time-consuming, and unnecessary trials. Fla. Peach Corp.

v. Commissioner, 90 T.C. 678, 681 (1988). The Court may grant

summary judgment when there is no genuine dispute as to any material

fact and a decision may be rendered as a matter of law. Rule 121(a)(2);

Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17

F.3d 965 (7th Cir. 1994). In deciding whether to grant summary

judgment, we construe factual materials and inferences drawn from

them in the light most favorable to the adverse party. Sundstrand

Corp., 98 T.C. at 520. The parties agree that summary disposition is

appropriate here.

10

II.

Deductions for Ordinary Business Expenses and Ordinary and

Capital Losses

Taxpayers generally may deduct all ordinary and necessary

business expenses paid or incurred during the taxable year. I.R.C.

§ 162(a). Additionally, as a general rule, taxpayers may deduct any

unreimbursed losses sustained during the taxable year. I.R.C. § 165(a).

In the normal course, section 165(a) allows a deduction for costs

related to abandoned capital transactions. A.E. Staley Mfg. Co. & Subs.

v. Commissioner, 119 F.3d 482, 490 (7th Cir. 1997), rev’g 105 T.C. 166

(1995); see also Sibley, Lindsay & Curr Co. v. Commissioner, 15 T.C. 106,

110 (1950). “[E]xpenses incurred in the development of plans involving

the organization or reorganization of corporations become deductible

when the plans are abandoned . . . .” El Paso Co. v. United States, 694

F.2d 703, 712 (Fed. Cir. 1982) (per curiam); see also A.E. Staley Mfg. Co.

& Subs. v. Commissioner, 119 F.3d at 490 (“[The taxpayer’s subsidiary]

contemplated numerous capital transactions that were later abandoned

. . . . The fees paid to the investment bankers in connection with those

abandoned transactions are therefore deductible as [an] abandonment

loss under § 165(a).”).

The general rule for losses is subject to multiple exceptions. E.g.,

I.R.C. § 165(c), (d), (f). In particular, sections 1211 and 1212 limit the

deductibility of “[l]osses from sales or exchanges of capital assets.”

I.R.C. § 165(f). Section 1211(a), which applies only to corporate

taxpayers, permits “losses from sales or exchanges of capital assets . . .

only to the extent of gains from such sales or exchanges.” In other words,

corporate taxpayers may deduct capital losses only to the extent those

losses offset capital gain. See Pilgrim’s Pride Corp. v. Commissioner,

779 F.3d 311, 314 n.5 (5th Cir. 2015), rev’g 141 T.C. 533 (2013). And

they may not deduct capital losses against ordinary income. See id.

Ordinary losses, on the other hand, are subject to no such

limitation. Cf. Vines v. Commissioner, 126 T.C. 279, 288 (2006)

(explaining that ordinary losses can offset ordinary income, while

capital losses are subject to the limits of section 1211). And taxpayers

may deduct ordinary losses against capital gain as well as ordinary

income. Thus, characterizing losses as ordinary often leads to more

favorable outcomes for taxpayers—the same favorable outcomes that

are available for ordinary and necessary business expenses.

11

III.

Section 1234A

Before Congress enacted section 1234A, courts had issued

decisions about the character of losses related to the cancellation or

termination of contracts. See, e.g., U.S. Freight Co. & Subs. v. United

States, 422 F.2d 887 (Ct. Cl. 1970). Some of these decisions permitted

taxpayers to treat contract cancellations as generating ordinary, rather

than capital, losses. See, e.g., Stoller v. Commissioner, 994 F.2d 855, 858

(D.C. Cir. 1993) (“We simply agree with the 97th Congress that prior to

[section 1234A] the prevailing rule was that the cancellation of a

contract resulted in an ordinary loss for tax purposes.”), aff’g in part,

rev’g in part T.C. Memo. 1990-659; see also, e.g., Wolff v. Commissioner,

148 F.3d 186, 190 (2d Cir. 1998) (“Whether the 97th Congress intended

to affect a change in the law or merely clarify it by enacting § 1234A, the

Senate Finance Committee at least recognized that authority had

developed which supports the taxpayers’ position [that such losses are

ordinary].”), rev’g and remanding T.C. Memo. 1994-196.

Taxpayers recognized that they could take advantage of these

developments in the law. Specifically, taxpayers strategically canceled

contracts that would, if performed, have generated a capital loss,

thereby transforming a capital loss into an ordinary one. Cf. Kevin M.

Keyes, Federal Taxation of Financial Instruments & Transactions

¶ 17.06[1] (2024) (“Congress was concerned that some taxpayers and tax

shelter promoters were exploiting the extinguishment doctrine cases.”).

In other words, taxpayers could elect the loss character that suited

them.

Some taxpayers took things a step further by entering into

contractual arrangements, known as “tax straddles,” that used this

electivity to their benefit. Linda E. Carlisle & Sarah K. Ritchey, The

Schizophrenic World of Code Sec. 1234A, 12 J. Tax’n Fin. Prods. 11

(2015); Keyes, supra, ¶ 17.06[1]. Essentially, a taxpayer would execute

two offsetting contracts, one of which would increase in value while the

other decreased, or vice versa. When it came time to cash out, the

taxpayer would perform the appreciated contract—realizing a capital

gain—and cancel the depreciated contract for an ordinary loss. Even if

a taxpayer had zero economic gain or loss over the two contracts, the

taxpayer could receive a tax benefit from the differing treatment of

capital and ordinary gains and losses.

The legislative history to section 1234A contains a useful example

of a tax straddle:

12

[A] taxpayer may simultaneously enter into a contract to

buy German marks for future delivery and a contract to sell

German marks for future delivery with very little risk. If

the price of German marks thereafter declines, the

taxpayer will assign his contract to sell marks to a bank or

other institution for a gain equivalent to the excess of the

contract price over the lower market price and cancel his

obligation to buy marks by payment of an amount in

settlement of his obligation to the other party to the

contract. The taxpayer will treat the sale proceeds as

capital gain and will treat the amount paid to terminate

his obligation to buy as an ordinary loss.

S. Rep. No. 97-144, at 171 (1981), reprinted in 1981 U.S.C.C.A.N. 105,

267.

Concerned about the use of tax straddles and the power of

taxpayers to elect the treatment of certain losses, Congress enacted

section 1234A in 1981. See Pilgrim’s Pride Corp. v. Commissioner, 779

F.3d at 314 (“Congress passed Section 1234A to address tax straddles

. . . .”). The original provision generally required taxpayers with gains

or losses attributable to terminations of rights with respect to personal

property to treat those gains or losses as capital. Thus, applied to the

example above, it required the taxpayer to treat the amount paid to

terminate his obligation to buy German marks as a capital loss,

eliminating his tax advantage.

Since 1981, Congress has amended section 1234A multiple times,

most notably in 1997 to expand its scope from “personal property” to

“property” generally. See generally Taxpayer Relief Act of 1997, Pub. L.

No. 105-34, § 1003(a)(1), 111 Stat. 788, 910. For the year at issue here,

section 1234A read as follows:

Sec. 1234A. Gains or losses from certain terminations

Gain or loss attributable to the cancellation, lapse,

expiration, or other termination of—

(1) a right or obligation (other than a

securities futures contract, as defined in section

1234B) with respect to property which is (or on

acquisition would be) a capital asset in the hands of

the taxpayer, or

13

(2) a section 1256 contract (as defined in

section 1256) not described in paragraph (1) which

is a capital asset in the hands of the taxpayer,

shall be treated as gain or loss from the sale of a capital

asset. The preceding sentence shall not apply to the

retirement of any debt instrument (whether or not through

a trust or other participation arrangement).

The question before us now is whether this provision required

AbbVie to treat the Break Fee as giving rise to a capital loss on its 2014

return.

IV.

Application of Section 1234A(1) to AbbVie’s Break Fee Payment

Section 1234A(1) applies when four requirements are met. 9 First,

there must be a gain or loss. Second, that gain or loss must be

attributable to the cancellation, lapse, expiration, or other termination

of a right or obligation. Third, the terminated right or obligation must

be “with respect to” property. Cf. Pilgrim’s Pride Corp., 141 T.C. 533

(determining whether property rights inherent in ownership are “with

respect to” property). Fourth, the property underpinning the terminated

right or obligation must currently be (or would on acquisition be) a

capital asset in the hands of the taxpayer. Alderson v. United States,

686 F.3d 791, 798 (9th Cir. 2012) (“[Section 1234A] applies only to such

‘[g]ain or loss . . . with respect to property which is a capital asset in the

hands of the taxpayer.’”); CRI-Leslie, LLC v. Commissioner, 147 T.C.

217, 225–29 (2016) (discussing the meaning of section 1234A), aff’d, 882

F.3d 1026 (11th Cir. 2018); Patrick v. Commissioner, 142 T.C. 124, 129

n.6 (2014) (“[The taxpayers] have not demonstrated the existence of a

capital asset, and sec. 1234A does not apply.”), aff’d, 799 F.3d 885 (7th

Cir. 2015).

Because the third requirement is not satisfied here, we rule in

AbbVie’s favor. 10

9 This discussion focuses on section 1234A(1), the relevant provision for our

case, and does not relate to section 1234A(2).

10 The parties have made a number of other arguments regarding the

requirements of section 1234A(1), including whether the Break Fee was an ordinary

and necessary business expense deductible under section 162(a) or a loss under

section 165(a) and whether Shire stock would have been a capital asset in AbbVie’s

hands. Given our conclusion with respect to the third requirement noted above, we do

not address these arguments.

14

A.

A Right or Obligation with Respect to Property

The parties agree that AbbVie paid the Break Fee to terminate

the Co-operation Agreement. What we must determine, then, is

whether the Co-operation Agreement conferred upon AbbVie any

“right[s] or obligation[s] . . . with respect to property” within the meaning

of section 1234A(1).

As always, we begin with the statute’s ordinary meaning. See

Whistleblower 972-17W v. Commissioner, 159 T.C. 1, 13 (2022)

(reviewed) (citing Food Mktg. Inst. v. Argus Leader Media, 139 S. Ct.

2256, 2364 (2019)); see also United States v. Melvin, 948 F.3d 848, 851–

52 (7th Cir. 2020). In this contractual context, the term “right” generally

means something to which a party has a claim as a legal matter. See

Right, The Random House College Dictionary (rev. ed. 1980) (“[A] just

claim or title, whether legal, prescriptive, or moral.”); Right, Black’s Law

Dictionary (5th ed. 1979) (“A legally enforceable claim of one person

against another, that the other shall do a given act, or shall not do a

given act.”); see also Dennis v. Higgins, 498 U.S. 439, 447 n.7 (1991)

(defining “right” in the context of 42 U.S.C. § 1983); Restatement (First)

of Prop. § 1 (Am. L. Inst. 1936). Similarly, “obligation” means a course

of action to which a person is bound—i.e., a duty or commitment. See

Obligation, The Random House College Dictionary (rev. ed. 1980)

(“Something by which a person is bound to do certain things and which

arises out of a sense of duty or results from custom, law, etc.”);

Obligation, Black’s Law Dictionary (5th ed. 1979) (“That which a person

is bound to do or forbear; any duty imposed by law, promise, contract,

relations of society, courtesy, kindness, etc.”).

Considering the Co-operation Agreement and the related

arrangements between the parties, there is no doubt that AbbVie had

rights and obligations related to its proposed combination with Shire.

AbbVie, for example, undertook to (1) take the lead in securing

regulatory approval of the proposed combination, (2) “co-operate with

Shire and its advisers to take all such steps as are reasonably necessary

to implement the [proposed combination],” (3) recommend the Delaware

Merger Agreement to its shareholders and use best efforts to secure

shareholder approval, and (4) provide information and documentation

as required ahead of Shire’s shareholder vote. Ex. 3-J, at 4–10. It also

was obligated to pay Shire the Break Fee if the combination failed to

occur following certain events and to pay the Cost-Reimbursement Fee

if the combination failed to occur following certain other events.

15

The key question, however, is whether any of AbbVie’s myriad

rights and obligations under the Co-operation Agreement were “with

respect to property.”

The ordinary meaning of the phrase “with respect to” is

“concerning” or “relating to.” See Respect, The Random House College

Dictionary (rev. ed. 1980) (“[R]elation or reference: inquiries with respect

to a route.”). That meaning has remained constant over time. See, e.g.,

Varian Med. Sys., Inc. & Subs v. Commissioner, 163 T.C. 76, 109 (2024)

(citing Respecting, The American Heritage Dictionary (5th ed. 2018)

(“With respect to; concerning.”)); see also Jennings v. Rodriguez, 138 S.

Ct. 830, 856 (2018) (Thomas, J., concurring in part and in the judgment)

(“The phrase ‘with respect to’ means ‘referring to,’ ‘concerning,’ or

‘relat[ing] to.’” (quoting Oxford American Dictionary & Language Guide

(1999 ed.))); Khan v. United States, 548 F.3d 549, 556 (7th Cir. 2008)

(“Synonyms for ‘with respect to’ include ‘pertaining to’ and ‘concerning.’”

(quoting Encarta World English Dictionary (2007))).

Courts have given this phrase and similar ones a broad meaning.

Varian, 163 T.C. at 110; see Cal. Tow Truck Ass’n v. City & Cnty. of S.F.,

807 F.3d 1008, 1021 (9th Cir. 2015); see also Dan’s City Used Cars, Inc.

v. Pelkey, 569 U.S. 251, 260 (2013) (defining the phrase “related to” as

embracing those things “having a connection with or reference to”

something else (quoting Rowe v. N.H. Motor Transp. Ass’n, 552 U.S. 364,

370 (2008))); Adams Challenge (UK) Ltd. v. Commissioner, 154 T.C. 37,

63 (2020) (analyzing relevant cases and finding “no appreciable

difference between the terms ‘related to,’ ‘connected with,’ and ‘in

connection with’”).

With that said, as decisions of the Supreme Court and this Court

have recognized, broad connecting phrases like “with respect to” and

“related to” are necessarily limited by the context in which Congress

uses them. See Whistleblower 972-17W, 159 T.C. at 15–16 & n.14 (“The

Supreme Court has ‘eschewed uncritical literalism leading to results

that no sensible person could have intended’ ‘when confronted with

capacious phrases’ like ‘in connection with,’ ‘related to,’ and ‘arising

from.’” (quoting Jennings, 138 S. Ct. at 840 (Alito, J.) (plurality

opinion))); see also FERC v. Elec. Power Supply Ass’n, 577 U.S. 260, 278

(2016, revised Jan. 28, 2016) (“As we have explained in addressing

similar terms like ‘relating to’ or ‘in connection with,’ a non-hyperliteral

reading is needed to prevent the statute from assuming near-infinite

breadth.” (first citing N.Y. State Conf. of Blue Cross & Blue Shield Plans

v. Travelers Ins. Co., 514 U.S. 645, 656 (1995); and then citing Maracich

16

v. Spears, 570 U.S. 48, 59 (2013))); Elec. Power Supply Ass’n, 577 U.S.

at 296 (Scalia, J., dissenting) (agreeing that the “so-called ‘affecting’

jurisdiction cannot be limitless”). Otherwise, these phrases could be

read as “essentially ‘indeterminat[e]’ because connections, like relations,

‘“stop nowhere.”’” Whistleblower 972-17W, 159 T.C. at 15 (quoting

Maracich, 570 U.S. at 59–60 (cleaned up)). In short, as the Supreme

Court said most recently, “phrases that govern conceptual

relationships—like ‘with respect to’”—have meanings that “inherently

depend on their surrounding context.” United States v. Miller, 145 S. Ct.

839, 853 (2025).

AbbVie offers a hypothetical that illustrates the need for context

to prescribe the meaning of “with respect to” in section 1234A. In the

hypothetical, a worker is hired to wash the windows on a commercial

skyscraper. See Pet’r’s Br. 40. The worker and the property manager

enter into a fixed-fee contract for the worker’s services, and the contract

provides for a termination fee in the event that the manager terminates

the contract. Neither the worker nor the manager owns any interest in

the skyscraper. Eventually, the manager decides to terminate the

agreement and pays the termination fee.

In this example, the fixed-fee contract is “with respect to

property” in the broad sense that the skyscraper is the subject matter of

the contract. But, as both parties agree, we would not apply

section 1234A to convert the worker’s services income from the contract

termination to capital gain where neither the worker nor the manager

had any interest in the skyscraper or would have acquired any such

interest in the skyscraper under the terms of the terminated contract.

Rather than capturing any interest that touches property, section 1234A

applies only to a smaller set of rights and obligations.

Our task, then, is to employ the tools of statutory interpretation

to discern the meaning of the phrase “with respect to property.” In

undertaking this task, “we must as always consider ‘the structure of the

statute and its other provisions.’” Whistleblower 972-17W, 159 T.C.

at 15–16 (quoting Maracich, 570 U.S. at 60). The statute’s scope

excludes any rights and obligations that have only a “remote relation to”

property. See Maracich, 570 U.S. at 59; see also id. at 89 (Ginsburg, J.,

dissenting) (“[W]hen the Court has sought a limiting principle for

similar statutory language, it has done so to prevent the application of

a statute to matters with ‘only a tenuous, remote, or peripheral

connection’ to the statute’s core purpose.” (quoting N.Y. State Conf. of

Blue Cross & Blue Shield Plans, 514 U.S. at 661)). And, in all events,

17

context will be critical to our inquiry. See Miller, 145 S. Ct. at 853

(explaining that the contextual canon “carries particular force when

construing phrases . . . like ‘with respect to’”); Dubin v. United States,

143 S. Ct. 1557, 1566 (2023) (“That the phrase [‘in relation to’] refers to

a relationship or nexus of some kind is clear. . . . Yet the kind of

relationship required, its nature and strength, will be informed by

context.”).

Close consideration of the context here tells us that a right or

obligation “with respect to property” within the meaning of

section 1234A is a right or obligation to exchange (i.e., to buy, sell, or

otherwise transfer or receive) an interest in property. We explain below.

1.

The Provision’s Operation and Neighboring Text

First, the role that section 1234A plays in the Code is instructive.

Essentially, it is a character-shifting provision designed to capture gains

and losses from transactions that, if completed, would have resulted in

sales, potentially generating capital gain or loss. (Recall the example of

an individual who enters into separate contracts to buy and sell German

marks. See supra pp. 11–12.) Congress was concerned that taxpayers

who enter such arrangements could, under previous law, elect the most

advantageous tax treatment available to them by selling any “winners”

(i.e., contracts that increased in value) and canceling or otherwise

terminating any “losers” (i.e., contracts that decreased in value). This

allowed taxpayers to realize capital gains when they came out ahead

and ordinary losses when they fell behind, avoiding altogether the less

advantageous categories of ordinary gains and capital losses.

Section 1234A was Congress’s solution, and it accomplishes

Congress’s objective by providing that “gain or loss” from terminations,

etc. of “a right or obligation . . . with respect to property . . . shall be

treated as gain or loss from the sale of a capital asset.” We have been

focused on the “with respect to property” portion, but the surrounding

text is also instructive. Namely, the consequence of being caught by the

provision is being treated as selling a capital asset. This tells us

something about the kinds of rights or obligations likely targeted by the

provision—i.e., rights and obligations that, if not canceled or otherwise

terminated, would have resulted in a capital transaction. 11 Or, in other

11 “For those who consider legislative history relevant,” Warger v. Shauers, 574

U.S. 40, 48 (2014), we note that both the Senate Finance Committee and the House

Committee on Ways and Means took this view when describing the proposed provision

18

words, transactions where an interest in property would have changed

hands.

Further supporting this reading, section 1234A(1) applies only to

rights and obligations “with respect to property which is (or on

acquisition would be) a capital asset in the hands of the taxpayer.”

(Emphasis added.) AbbVie reads the emphasized text to mean that the

taxpayer must either directly own the property at issue or have

“anticipatory possessory rights” in the property. To resolve this case, we

need not decide (and therefore we do not decide) whether the taxpayer

directly must have future rights in the property. 12 But we do agree that

the statutory reference suggests that, at a minimum, the underlying

transaction must have included (had the transaction in fact occurred) a

direct or indirect transfer of a property interest to or from the taxpayer.

2.

The Text of Related Provisions

Additional statutory text supports this reading. Specifically,

when section 1234A was enacted in 1981, the enacting statute included

an effective date provision.

That provision stated that new

section 1234A (among other provisions) would apply “to property

acquired and positions established by the taxpayer after June 23, 1981,

in taxable years ending after such date.” Economic Recovery Tax Act of

1981 (ERTA), Pub. L. No. 97-34, § 508(a), 95 Stat. 172, 333. It further

provided taxpayers with an election to apply the new rule to “futures

contracts or positions held by the taxpayer on June 23, 1981 . . . effective

for periods after such date in taxable years ending after such date.”

ERTA § 508(c), 95 Stat. at 333.

in 1981, see H.R. Rep. No. 97-201, at 213 (1981) (“In order to insure [sic] that gains and

losses from transactions economically equivalent to the sale or exchange of a capital

asset obtain similar treatment, the bill adds a new section 1234A to the Code.”);

S. Rep. No. 97-144, at 170 (“The committee believes that the change . . . is necessary

to prevent tax-avoidance transactions designed to create fully-deductible ordinary

losses on certain dispositions of capital assets, which if sold at a gain, would produce

capital gains. . . . The committee considers this ordinary loss treatment inappropriate

if the transaction . . . is economically equivalent to a sale or exchange.”), 1981

U.S.C.C.A.N. at 266–67.

12 In particular, we do not address the parties’ disagreement over whether

section 1234A applies if a taxpayer terminates an obligation to cause another party,

such as a subsidiary, to buy or sell property.

19

The references to “positions established” and “positions held” by

the taxpayer are telling. 13 Section 1234A does not define the term

“position,” but another provision, also enacted by ERTA, does.

Specifically, section 1092(d)(2) says that “[t]he term ‘position’ means an

interest (including a futures or forward contract or option) in personal

property.” See also ERTA § 501(a), 95 Stat. at 323, 325. (Recall that,

when it was originally enacted, section 1234A also applied to rights and

obligations with respect to only “personal property.”) 14 So we infer that

the rights and obligations with respect to property referred to in

section 1234A(1) must take the form of property interests, consistent

with our prior discussion.

3.

Prior Caselaw

Finally, our interpretation is consistent with how various courts

have characterized section 1234A(1), although no court has considered

the precise issue before us. For example, the U.S. Court of Appeals for

the Eleventh Circuit said the following when discussing the provision:

Stated simply, Section 1234A says that any gain or loss

that results from the termination of an agreement to buy or

sell property that is properly classified as a “capital asset”

will, notwithstanding the termination, be treated as a gain

or loss from a consummated sale. Section 1234A thereby

ensures capital-gains treatment of income resulting from

canceled property sales by relaxing the “sale or exchange”

element of the Code’s general definition of “[l]ong-term

capital gain”—i.e., “gain from the sale or exchange of a

capital asset held for more than 1 year . . . .” I.R.C.

§ 1222(3).

CRI-Leslie, LLC v. Commissioner, 882 F.3d at 1029 (emphasis added).

Other courts, including this Court, have used similar wording. See, e.g.,

Pilgrim’s Pride Corp. v. Commissioner, 779 F.3d at 315 (“By its plain

terms, § 1234A(1) applies to the termination of rights or obligations with

respect to capital assets (e.g. derivative or contractual rights to buy or

13 The reference to “property acquired” in the effective date provision more

naturally relates to portions of the enacting statute other than the provision that

enacted section 1234A. See, e.g., ERTA § 502, 95 Stat. at 327. But in any event we do

not view it as inconsistent with our reading.

14 Additionally, we note that the enacting statute included section 1234A in

“TITLE V—Tax Straddles” of the Act. See ERTA tit. V, 95 Stat. at 323.

20

sell capital assets). It does not apply to the termination of ownership of

the capital asset itself.” (Emphasis added.)); Estate of McKelvey v.

Commissioner, 161 T.C. 130, 143 (2023) (“Thus, by its terms,

section 1234A(1) applies to the termination of obligations with respect

to capital assets, which include derivative or contractual rights to buy

or sell such assets.”). In reading section 1234A(1), these courts focused

on rights to buy and sell capital assets. Our approach does the same.

4.

Summary

To summarize, in the context of section 1234A(1), a “right or

obligation . . . with respect to property” is a right or obligation to transfer

(for example, to buy, sell, or otherwise transfer) property or a property

interest. By contrast, a right or obligation to perform services related to

property or to otherwise act without such a transfer is not a “right or

obligation . . . with respect to property” within the meaning of

section 1234A(1).

B.

Rights and Obligations Under the Co-operation Agreement

1.

The Crux of the Agreement

Applying this standard to the case before us is not

straightforward, because AbbVie’s rights and obligations under the Cooperation Agreement are many and multifaceted. But, when we

consider the essence of the agreement taken as a whole, we find the

required connection lacking.

At its core, the Co-operation Agreement is not an agreement to

buy, sell, or otherwise transfer property. See A.E. Staley Mfg. Co. &

Subs. v. Commissioner, 119 F.3d at 487 (“[D]istinguishing between

ordinary and capital costs often requires a rather pragmatic approach.”).

In fact, it could not be such an agreement, because the parties to the

agreement (AbbVie and Shire) did not own the valuable property (their

own shares) that would have been exchanged in the proposed

combination. In other words, none of the Co-operation Agreement’s

terms could have conferred “rights or obligations with respect to [AbbVie

or Shire shares]” because the power to confer such rights rested with the

companies’ public shareholders. Although AbbVie’s board of directors

could exert some influence over the choices of AbbVie’s shareholders—

for example, by placing the Delaware Merger Agreement for a vote and

recommending the proposed combination—it could not, under the terms

of the proposed combination, effect any exchange of property rights on

its own.

21

As a result, the best AbbVie and Shire could do was an

aspirational arrangement, with each party agreeing to do everything it

could to facilitate a potential combination. But neither side could

commit to the combination, because that decision was in the hands of

the companies’ shareholders and, to some extent, regulators and the

Jersey court.

Consistent with this reality, AbbVie’s core obligations under the

Co-operation Agreement were in the nature of services to increase the

likelihood that a combination would occur. For example, the Cooperation Agreement required AbbVie, among other things, to pursue

necessary regulatory approvals for the combination and use best efforts

to secure those approvals, to recommend the combination to its

shareholders, and to host a shareholder meeting for a vote on the

combination before a specified date. These are important obligations to

be sure, but they are not obligations with respect to property within the

meaning of section 1234A(1). Rather, they are simply promises to

provide services to clear the way for a desired exchange of stock.

Based on our careful review of the record, we find that these

facilitative services were the crux of the Co-operation Agreement.

Critically, it was the withdrawal of the AbbVie board’s recommendation

in support of the combination that triggered AbbVie’s obligation to pay

the Break Fee under section 7 of the Co-operation Agreement, the

parties’ termination of the Co-operation Agreement, and AbbVie’s

ultimate payment of the Break Fee. In other words, it was not AbbVie’s

failure to complete the combination that triggered the liability; instead,

it was the failure of the AbbVie board to recommend the combination to

AbbVie’s shareholders. Considering this point in the broader context of

the Co-operation Agreement, we conclude that the Break Fee was not

paid to terminate rights and obligations with respect to property within

the meaning of section 1234A(1).

2.

AbbVie’s Obligation to Implement the Combination,

Once Approved

It does not change our view that, under the Co-operation

Agreement, AbbVie also had obligations to implement the proposed

combination if it was approved. These obligations included causing New

AbbVie to comply with the Scheme (i.e., by acquiring Shire), as well as

ensuring that the New AbbVie shares that were to be issued to Shire

shareholders ranked equally with the New AbbVie shares that were to

be issued to AbbVie shareholders pursuant to the Delaware Merger

22

Agreement. (Recall that the Scheme was the first half of the proposed

combination, through which Shire was to become a subsidiary of New

AbbVie.) AbbVie also was required to ensure that, as part of AbbVie’s

merger into New AbbVie’s subsidiary, AbbVie shareholders would

exchange one AbbVie share for one New AbbVie share. And AbbVie was

required to implement the proposed merger of AbbVie and New AbbVie’s

subsidiary pursuant to the Delaware Merger Agreement immediately

following completion of the Scheme.

These obligations were the mechanics by which AbbVie was to

effect the wishes of the AbbVie and Shire shareholders had the

combination been approved. But they were not the crux of the Cooperation Agreement, which, as we have discussed, primarily required

AbbVie and Shire to clear the way for the proposed combination and to

secure their shareholders’ approval of the combination. Failure to

perform these “combination implementation” obligations was not a

ground that could have triggered AbbVie’s liability for the Break Fee

under section 7 of the Co-operation Agreement. In fact, the remedy for

any failure to implement the combination following its approval, as

described in the Delaware Merger Agreement, was specific

performance—not the payment of a fee. 15

The Commissioner does not appear to argue otherwise, as his

arguments focus on AbbVie’s rights and obligations with respect to the

Shire shares (i.e., the shares that Shire shareholders would have

exchanged for New AbbVie shares pursuant to the Scheme). By

contrast, AbbVie’s postapproval obligations to implement the

combination under the Co-operation Agreement generally were

connected with shares of New AbbVie or its own shares. Again, these

obligations were not the essence of the Co-operation Agreement, and

failure to satisfy them could not have triggered AbbVie’s liability to pay

the Break Fee.

3.

The Question of Contingent Rights and Obligations

Turning our attention to AbbVie’s purported rights and

obligations with respect to the Shire shares, the Commissioner asserts

that “AbbVie had the right and the obligation to cause New AbbVie to

15 It makes sense that the parties provided for the remedy of specific

performance in this context, because once the Scheme was implemented and the Shire

shareholders had exchanged their shares for New AbbVie shares, the only way for

those shareholders to receive the benefit of their bargain would be completion of the

combination under terms the parties had already agreed on.

23

directly or indirectly acquire the shares of Shire stock.” Resp’t’s Mem.

in Supp. of Mot. for Summ. J. 38. But this line of argument

misapprehends the structure of section 1234A(1).

Absent approval from Shire’s shareholders or the Jersey court,

neither AbbVie nor New AbbVie had any right or obligation to acquire

the Shire shares. The Co-operation Agreement did not commit either

party to make such a purchase. It could not have done so, as we have

said, because Shire, AbbVie’s counterparty under the agreement, did not

own the shares and had no authority to agree to such a sale. For that

reason, the Co-operation Agreement was fundamentally a services

agreement, not an agreement to buy, sell, or otherwise transfer capital

assets.

This is not to say that rights and obligations must be absolute to

be subject to section 1234A(1). The Commissioner points out, and in

principle we agree, that the provision encompasses certain contingent

rights and obligations.

But that principle does not help the

Commissioner here.

The Commissioner views this case as covered by section 1234A(1)

because, in his view, the Co-operation Agreement obligated New AbbVie

to acquire Shire’s shares, subject to the condition that, among other

things, the AbbVie and Shire shareholders needed to approve the

transaction.

The problem with the Commissioner’s position is that, while

provisions of the Co-operation Agreement may be styled as conditions,

they really reflect AbbVie’s and Shire’s lack of authority to agree firmly

to an actual combination. In other words, this was not a situation in

which parties with complete authority to buy and sell property agreed

to do so subject to certain conditions, as would generally be within their

power to do. Here, AbbVie and Shire did not own their own shares and

lacked legal authority to agree to transactions with respect to those

shares. Nor is there any indication in the record that they had control

over the outcome by other means. The most they could do, therefore,

was to agree to convince their shareholders to buy and sell (i.e., in

essence to perform services). 16

16 For this reason, failure to execute the proposed combination was not a

violation of the Co-operation Agreement. Instead, the agreement recognized that the

proposed combination might not occur for any number of reasons, including the Shire

24

In these circumstances, considering all the provisions of the Cooperation Agreement, we conclude that any rights and obligations

AbbVie had related to Shire’s shares were not obligations “with respect

to property” within the meaning of section 1234A(1).

4.

Legislative History

The Commissioner also relies on legislative history to argue that

AbbVie’s Break Fee should be treated as a capital loss. Of course,

legislative history cannot displace the statute’s unambiguous text. See

Food Mktg. Inst., 588 U.S. at 436 (“Even [members of the Supreme

Court] who sometimes consult legislative history will never allow it to

be used to ‘muddy’ the meaning of ‘clear statutory language.’” (quoting

Milner v. Dep’t of Navy, 562 U.S. 562, 572 (2011))). The text of

section 1234A(1) is sufficiently clear to convince us that it does not apply

to the Break Fee.

But even if we were to consider the legislative history of

section 1234A, it cuts strongly against the application of the provision

to the Break Fee. Reports from the House Ways and Means Committee,

the Senate Finance Committee, and the House-Senate Conference

Committee in 1981 all state that Congress enacted section 1234A to

make certain “that gains and losses from transactions economically

equivalent to the sale or exchange of a capital asset obtain similar

treatment.” H.R. Rep. No. 97-201, at 213 (emphasis added); S. Rep. No.

97-144, at 171 (using identical terms), 1981 U.S.C.C.A.N. at 267; H.R.

Rep. No. 97-215, at 260 (1981) (Conf. Rep.) (“The conference agreement

follows the House bill and Senate amendment.”), reprinted in 1981

U.S.C.C.A.N. 285, 349. And while Congress amended section 1234A in

1997, the amendment extended the section to other types of property,

not to more tenuously related contracts. See H.R. Rep. No. 105-148,

at 454 (1997) (“The bill extends to all types of property the rule . . . .”

(emphasis added)), as reprinted in 1997 U.S.C.C.A.N. 678, 848; S. Rep.

No. 105-33, at 135 (1997) (same), reprinted in 1997-4 C.B. (Vol. 2)

1067, 1215. 17 The Co-operation Agreement was essentially a contract

shareholders’ failure to approve the deal, the AbbVie shareholders’ failure to approve

the deal, and the failure of a regulatory approval, among others.

17 Highlighting this point, the 1981 Report of the House Ways and Means

Committee specifically noted: “The new rule does not apply to dispositions of property,

which is neither personal property within the definition in section 263A(e)(1) nor

commodity-related property described in section 1092(d)(4). Thus, the tax treatment

of such transactions as abandonment losses on trademarks, now treated as ordinary

25

for services, and its termination does not resemble, let alone equal, the

sale or exchange of a capital asset. Cf. Property, Black’s Law Dictionary

(12th ed. 2024) (“The law of property is the law of proprietary rights in

rem, the law of proprietary rights in personam being distinguished from

it as the law of obligations.” (quoting John Salmond, Jurisprudence

423–24 (Glanville L. Williams ed., 10th ed. 1947))). Consistent with the

provision’s text, the history of section 1234A supports that the Break

Fee should not be treated as a capital loss.

V.

Conclusion

In sum, because the Break Fee is not attributable to the

“termination of . . . a right or obligation . . . with respect to property” but

is instead attributable to the termination of an Agreement that “set out

certain mutual commitments to regulate the basis on which [AbbVie and

Shire] [were] willing to implement the [proposed combination],”

section 1234A(1) does not apply to it. Accordingly, AbbVie need not, on

account of section 1234A(1), treat the Break Fee as a capital loss.

To reflect the foregoing,

An appropriate order and decision will be entered.

losses, is not changed.” H.R. Rep. No. 97-201, at 213. In 1997, the Senate Finance

Committee Report similarly observed:

By definition, the extension of the ‘‘sale or exchange rule’’ of

present law section 1234A to all property will only affect property that

is not personal property which is actively traded on an established

exchange. Thus, the committee bill will apply to (1) interests in real

property and (2) non-actively traded personal property. An example of

the first type of property interest that will be affected by the committee

bill is the tax treatment of amounts received to release a lessee from a

requirement that the premise be restored on termination of the lease.

An example of the second type of property interest that is affected by

the committee bill is the forfeiture of a down payment under a contract

to purchase stock. The committee bill does not affect whether a right

is ‘‘property’’ or whether property is a ‘‘capital asset.’’

S. Rep. No. 105-33, at 135–36 (footnotes omitted), 1997-4 C.B. (Vol. 2) at 1215–16.