Washington Post: Congress questions drug companies on opioid settlement tax deductions

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 B. 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.

In an emailed statement, AmerisourceBergen spokesman Gabriel Weissman said the company "has no plans to use the CARES Act tax provision with regards to any opioid settlement costs."

Cardinal Health, which previously said its tax deductions are permissible under federal law, declined to comment on the letter from Congress. Johnson & Johnson and McKesson did not respond to a request for comment.

Note: Tax benefits reflect most recent company estimates. Companies said the amounts may change if courts or regulators determine some or all of the settlement payments are not tax deductible.

At the beginning of the pandemic, Congress expanded the ability for companies to receive tax refunds on losses 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 percent.

Cardinal, a company with a $15 billion market capitalization and $4 billion in available cash, surpassed Wall Street expectations for its most recent earnings period. Last month, CEO Mike Kaufmann told investors a rebound in medical treatments and procedures had revived demand for Cardinal's health devices and drugs. He said the company was boosting its investment in sophisticated supply-chain technology.

Cardinal Health estimated the Cares Act tax provision would boost its opioid settlement deduction by $500 million.

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. Still, Congress has placed stricter limits on such deductions in recent years, and some tax experts say the Internal Revenue Service could challenge the companies' attempts to deduct opioid settlement costs.

A group of 120 Democrats in Congress have pushed for restricting the ability of businesses to carry back losses to years with a higher tax rate, arguing that provision has been abused by companies that have seen little or no negative impact from the coronavirus. In a joint statement last month, Rep. Lloyd Doggett (D-Tex.) and Sen. Sheldon Whitehouse (D-R.I.) said measures they have proposed for future pandemic relief bills would prevent companies like Cardinal Health from claiming such large tax refunds.

"Many of the same Americans who were victimized by opioid hucksters are now being asked, as taxpayers, to finance almost $1 billion of the belated settlement for Cardinal Health through a special interest tax provision buried in pandemic relief legislation," Doggett and Whitehouse said in the statement.

In their letters to the drug companies on Thursday, members of the House Oversight Committee said they also wanted a broader accounting of the role these companies played in the opioid crisis.

They asked all four firms to provide "a complete list of current and former employees who have been disciplined" for their roles in opioid sales and compliance programs and urged them to publicly share all the documents they have produced in the course of the opioid litigation.