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Drug companies seek billion-dollar tax deductions from opioid settlement

Claire Pascocello Feb 12, 2021

The opioid epidemic kills tens of thousands of Americans each year. Four companies,  Johnson & Johnson, McKesson, AmerisourceBergen and Cardinal Health, have agreed to pay $26 billion to settle claims that they helped to push highly addictive pills to the public and especially towards those who were more likely to abuse them. But is 26 billion dollars really enough to pay for this devastation? To make matters even more complicated, these companies are planning to deduct the settlement costs from their taxes which would lead to a recoup of around 1 billion dollars per company. 

Deducting the costs of legal settlements from company taxes are usually restricted by U.S. tax laws, but there is one exception. The only settlement costs that are deductible are the restitutions paid to victims for misdeeds. Some tax experts believe that the IRS could challenge this deduction. Cardinal Health is trying to take advantage of the tax provision in the coronavirus bailout by saying that its opioid-related legal costs can be claimed as “net operating loss carryback”, even though the bailout package was intended to help struggling companies during the pandemic. 

The actions of these companies have caused public dismay and outcry, particularly by those personally affected by the opioid crisis. As noted in the Washington Post, Greg McNeil, whose son died from an opioid overdose, and others have said “$26 billion is only a small fraction of the epidemic’s financial toll and argue the proposal doesn’t include what many family members of opioid victims want the most: an admission of guilt.” 

While these loss claims are technically legal, they raise very important questions about corporate ethics. In my opinion, the social responsibility of these companies are not being upheld. Corporate ethics are being violated on multiple levels, from applying for tax breaks for a problem that your company helped create to not taking any responsibility for a health crisis when there is clear evidence the company played a major role.

Citation:  MacMillan, D., & Schaul, K. (2012, February 12). Drug companies seek billion-dollar tax deductions from opioid settlement. The Washington Post. https://www.washingtonpost.com/business/2021/02/12/opioid-settlement-tax-refund/?arc404=true

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