Drug companies quizzed on opioid tax deductions

Companies plan to deduct settlement costs from taxes.

WASHINGTON — Congress is questioning four large drug companies about their plans to deduct some of the costs of a landmark opioid settlement from their taxes, disclosures first revealed in an analysis last month by The Washington Post.

On Thursday, the House Committee on Oversight and Reform sent letters asking Johnson & Johnson, Mckesson, Amerisourcebergen and Cardinal Health to provide details about the tax deductions, which would lower the cost of a legal settlement in which they have proposed to pay a combined $26 billion to compensate communities impacted by the opioid crisis.

In particular, the House members expressed concern about the companies potentially misusing a tax provision Congress included in last year’s Cares Act bailout package to help companies struggling during the pandemic. Cardinal Health, which agreed to pay $6.6 billion in the settlement, said last month it plans to use the Cares Act tax provision to collect a $974 million cash refund on the losses it incurs in the legal settlement.

Members of the House committee led by Chairwoman Carolyn Maloney, D-N.Y., said in a letter to Cardinal Health that its plan to put taxpayers on the hook for its settlement was “reprehensible” and said the action suggests the company has no remorse for its role in the opioid crisis.

“Your attempt to reduce your settlement costs by taking advantage of a tax provision intended for businesses suffering coronavirus-related losses is insulting to every community suffering from the opioid crisis and the pandemic,” the committee said.

Johnson & Johnson, Mckesson and Amerisourcebergen have each disclosed plans to recoup over $1 billion in tax deductions from the opioid settlement, but have not disclosed any plans to use the Cares Act tax provision. Members of Congress asked these companies to commit to not using the tax provision.

The companies could not immediately be reached for comment on the committee’s letters Thursday.

At the beginning of the pandemic, Congress expanded the ability for companies to receive tax refunds on losses in order to quickly get cash to businesses facing economic peril. Because there were few restrictions, billions of dollars in tax breaks have gone to companies unaffected by the pandemic and firms that have laid off thousands of workers. There is little sign the tax relief has trickled down into the pockets of struggling families.

The “carryback” tax break permits any company that lost money in 2018, 2019 or 2020 to apply those losses to previous, more profitable years. Because the corporate tax rate was higher before 2018, companies with recent losses can increase tax refunds they received before that year by up to 67%.

U.S. tax laws generally restrict companies from deducting the cost of legal settlements from their taxes, with one major exception: damages paid to victims as restitution for misdeeds.