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1 1 (June 10, 2022)

handle is hein.crs/govefwa0001 and id is 1 raw text is: Congressional ____ C a Research Service Proposals to Deny a Federal Tax Deduction for Prescription Drug Advertising Expenses June 10, 2022 High and rising prescription drug prices have long been a source of concern. For most years between 2000 and 2020, retail drug price inflation exceeded overall U.S. consumer price inflation. Finding agreement on effective ways to contain U.S. drug price increases has been a continuing challenge for lawmakers. Some lawmakers have proposed using the federal income tax to encourage prescription drug companies to reduce prices. Since the 113th Congress, at least nine bills have been introduced that would bar companies from deducting the cost of prescription drug advertising, including two bills in the 117th Congress: S. 141 and H.R. 6392. All but one of the nine bills would have denied a deduction for direct-to-consumer (DTC) prescription drug ads. This Insight discusses how advertising costs are treated for tax purposes; the rationale for proposed deduction bans for DTC prescription drug advertising; and some of the policy issues raised by this legislation. It does not discuss the impact on commercial free speech of such a ban. Federal Tax Treatment of Advertising Costs Internal Revenue Code (IRC) 162(a) allows companies to deduct all ordinary and necessary expenses in determining their taxable income. An ordinary expense is defined as an expense that commonly occurs and is broadly accepted in an industry (e.g., the cost of business computer systems). A necessary expense is defined as an expense that is regarded as helpful and appropriate in an industry, but not necessarily indispensable (e.g., the cost of creating and maintaining a business website). The Internal Revenue Service (IRS) considers advertising to be an ordinary and necessary expense that is generally deductible under the following conditions: the expenses should be intended to promote a taxpayer's business, reasonable in amount, and verifiable. This includes expenses associated with institutional or goodwill advertising intended to keep a company's name among the general public, perhaps with the aim of increasing its future customer base. Companies in all trades and businesses may deduct qualified advertising expenses. A perennial issue in the federal tax treatment of advertising has been whether it is always appropriate to deduct such expenses in full (or expense them) in the year when they are incurred or paid. Expensing is Congressional Research Service https://crsreports.congress.gov IN11951 CRS INSIGHT Prepared for Members and Committees of Congress

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