Deducting Legal Expenses : Unpacking the IRS's Appeal in Mylan

The Tax Court in Mylan v. Commissioner, 156 T.C. 137 (2021) rejected the IRS’s position that expenses incurred in litigating patent disputes under the relevant specialized IP regime were capital expenditures. The IRS now seeks to have the decision remanded with instructions to disallow the deductions. As we will show, the IRS’s position on appeal is aggressive. Our algorithms predict with over 95 percent confidence that the legal expenses at issue in Mylan would have been treated by the courts in the past as ordinary and necessary business expenses and, further, that the expenditures are unlikely to be treated as capital expenditures on appeal