Accounting and Tax Treatment for Annual Fee Imposed on Branded Prescription Drug Sales
A covered entity is any manufacturer or importer with gross receipts from branded prescription drug sales to specified government programs or pursuant to coverage under those programs. These programs are the Medicare Part B and Part D programs, Medicaid, any program under which branded prescription drugs are procured by the Department of Veterans Affairs, the Department of Defense, and the TRICARE retail pharmacy program. The fee is imposed for each calendar year beginning on or after Jan. 1, 2011. A covered entity’s portion of the annual fee is payable no later than Sept. 30 of the applicable fee year and is not tax deductible.
The amendments in the ASU are applicable to calendar years beginning after Dec. 31, 2010, when the fee initially becomes effective. The decisions in the ASU were based on the unique facts and circumstances of the fee to be paid by pharmaceutical manufacturers; accordingly, an entity should apply judgment when evaluating the facts and circumstances of other fee arrangements before analogizing to those decisions.
Affected taxpayers (covered entities) are to complete and submit Form 8947, Report of Branded Prescription Drug Information, by Feb. 11, 2011, to report 2009 calendar year sales of branded prescription drugs to specified government programs. The IRS will use the information submitted by covered entities on Form 8947 and sales data provided by the specified government programs to calculate the preliminary fee. The IRS will then send each covered entity notification of: 1) the covered entity’s preliminary fee; 2) the covered entity’s branded prescription drug sales, identified by National Drug Code (NDC) for each program; 3) the branded prescription drug sales for all programs reduced by a set statutory percentage; and 4) the aggregate branded prescription drug sales taken into account for all covered entities. The IRS will send each covered entity notification of its preliminary fee calculation by May 16, 2011. The IRS will send the final fee calculation to each covered entity by Aug. 15, 2011.
Form 8947 is used to report the following information for each covered entity:
Importantly, branded prescription drug sales do not include those of orphan drugs for which the covered entity claimed a section 45C credit, whether on an original or amended return. Pharmaceutical manufacturers who have not already done so should file amended returns before the filing of Form 8947 in order to claim the section 45C credit for any open prior year in which they could have claimed it, thereby reducing the amount of branded prescription drug sales subject to the annual fee.
As mentioned above, Form 8947 must be submitted to the IRS by Feb. 11, 2011 for 2009 calendar year sales information. Notice 2011-9 makes it clear that affected taxpayers will be required to provide substantial amounts of information to the government. As such, if you require any assistance with either the filing of Form 8947, information related to Notice 2011-9 or identification of section 45C credit opportunities, please contact McGladrey Managing Director John Lanza at 212.372.1307.
- Banking/Financial Institutions
- Consumer Products
- Financial Services
- Food and Beverage
- Government Contracting
- Government Entities
- Health Care
- Life Sciences
- Manufacturing and Distribution
- Private Clubs
- Private Equity
- Real Estate
- Specialized Industries