In Uncategorized on 03/10/2016 at 20:31

Mylan, Inc., and Subsidiaries, 2016 T. C. Memo. 45, filed 3/10/16, are looking at a $105 million deficiency from unloading their license to manufacture and flog some Belgian cure-all.

Mylan claims capital gain from sale or disposition. IRS claims advance royalties, hence ordinary.

Judge Laro confronts Danielson, an IRS golden oldie, which showed up yesterday in my blogpost “RTFC,” 3/9/16.

But that’s no problem here. Mylan claims they don’t want to change the contract to get a different result: they just want to read the contract for what it is, a sale. The contract, of course, is three different deals all put together.

IRS claims the contract is clear and unambiguous. It’s a sublicense, with royalties paid up front.

Mylan has five (count ‘em, five) lawyers who claim it’s ambiguous enough to avoid IRS’s summary J motion.

IRS claims Danielson rules, and Mylan’s objections are trying to skirt Danielson.

Judge Laro: “We do not see the inconsistency here. In Danielson, a taxpayer sought to change the tax consequences of a transaction by challenging the validity of the underlying contract’s terms, specifically, allocation of consideration between the sale of stock and the covenant not to compete, because the taxpayer believed these terms did not reflect the agreement of the parties. [Here] the taxpayers did not seek to alter or challenge the agreements in question. Instead, the taxpayers disagreed with the Commissioner’s interpretation of those contracts and characterization of the related payments for tax purposes.” 2016 T. C. Memo. 45, at p. 17.

Reviewing State law (here NY) , Judge Laro finds ambiguity, that lets in extrinsic evidence (evidence outside the words of the written agreements). First, custom and usage in the industry. Sales are often characterized as licenses or sublicenses, but if everything is sublicensed out, so that the overlicensor has nothing left, that’s a sale.

But there are, according to Judge Laro, who doesn’t catalogue them, many unanswered fact questions, so no summary J for IRS.

If it’s issue-finding in summary J, it might be nice to know what the issues are.


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