IRS Will Let Stand Tax Deduction Verdict

The Internal Revenue Service said it won’t challenge a $10.4-million court victory by Rite Aid Corp. in July, opening the door for companies that want to claim a tax deduction for selling affiliates at a loss.

The agency said it won’t pursue the Rite Aid case to the U.S. Supreme Court on the advice of the U.S. solicitor general. That keeps intact an appeals court ruling that the agency overstepped its bounds in drafting rules prohibiting companies from deducting losses when a subsidiary is sold.

In deciding against pursuing the case against Rite Aid, the third-largest U.S. drugstore chain, the IRS in effect accepted a federal appeals court’s ruling that the tax agency went too far in drafting regulations mandated by Congress in the 1990s. Those regulations were intended to prevent tax shelters in which companies tried to create artificial losses.