TD 9544 Temp regulations

51245

Rules and Regulations

Federal Register
Vol. 76, No. 160
Thursday, August 18, 2011

This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents. Prices of
new books are listed in the first FEDERAL
REGISTER issue of each week.

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 51 and 602
[TD 9544]
RIN 1545–BK34

Branded Prescription Drug Fee
Internal Revenue Service (IRS),
Treasury.
ACTION: Temporary regulations.
AGENCY:

This document contains
temporary regulations that provide
guidance on the annual fee imposed on
covered entities engaged in the business
of manufacturing or importing branded
prescription drugs. This fee was enacted
by section 9008 of the Patient Protection
and Affordable Care Act, as amended by
section 1404 of the Health Care and
Education Reconciliation Act of 2010.
The regulations affect persons engaged
in the business of manufacturing or
importing certain branded prescription
drugs. The text of the temporary
regulations also serves as the text of the
proposed regulations set forth in the
notice of proposed rulemaking on this
subject in the Proposed Rules section of
this issue of the Federal Register.
DATES: Effective Date: These regulations
are effective on August 18, 2011.
Applicability Date: For dates of
applicability, see §§ 51.11T and
51.6302–1T(b).
FOR FURTHER INFORMATION CONTACT:
Celia Gabrysh, (202) 622–3130 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
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SUMMARY:

Paperwork Reduction Act
These temporary regulations are being
issued without prior notice and public
procedure pursuant to the
Administrative Procedure Act (5 U.S.C.
553). For this reason, the collection of
information contained in these

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regulations has been reviewed and
pending receipt and evaluation of
public comments, approved by the
Office of Management and Budget under
control number 1545–2209.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information
displays a valid control number.
For further information concerning
this collection of information, and
where to submit comments on the
collection of information and the
accuracy of the estimated burden, and
suggestions for reducing this burden,
please refer to the preamble to the crossreference notice of proposed rulemaking
on this subject in the Proposed Rules
section in this issue of the Federal
Register.
Books or records relating to a
collection of information must be
retained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.
Background
This document adds the Branded
Prescription Drug Fee Regulations to the
Code of Federal Regulations (26 CFR
Part 51) under section 9008 of the
Patient Protection and Affordable Care
Act (ACA), Public Law 111–148 (124
Stat. 119 (2010)), as amended by section
1404 of the Health Care and Education
Reconciliation Act of 2010 (HCERA),
Public Law 111–152 (124 Stat. 1029
(2010)). All references in this preamble
to section 9008 are references to section
9008 of ACA, as amended by section
1404 of HCERA. Section 9008 did not
amend the Internal Revenue Code
(Code) but cross-references to specified
Code sections.
Statutory Provisions
Section 9008(a) imposes an annual fee
on each covered entity engaged in the
business of manufacturing or importing
branded prescription drugs, to be paid
not later than the annual date specified
by the Secretary of the Treasury or his
delegate (Secretary), but in no event
later than September 30th of each
calendar year in which a fee must be
paid (fee year).
Section 9008(d)(1) defines a covered
entity as any manufacturer or importer
with gross receipts from branded

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prescription drug sales. Section
9008(d)(2) provides a controlled group
rule under which all persons treated as
a single employer under section 52(a),
52(b), 414(m), or 414(o) of the Code are
treated as a single covered entity. For
this purpose, a foreign entity subject to
tax under section 881 is included within
a controlled group under section 52(a)
or 52(b). Under section 9008(d)(3), all
persons treated as a single employer
under section 9008(d)(2) are jointly and
severally liable for the fee.
Section 9008(e)(2) defines branded
prescription drug as (i) any prescription
drug the application for which was
submitted under section 505(b) of the
Federal Food, Drug, and Cosmetic Act
(FFDCA) (21 U.S.C. 355(b)), or (ii) any
biological product the license for which
was submitted under section 351(a) of
the Public Health Service Act (42 U.S.C.
262(a)). For this purpose, a prescription
drug is any drug that is subject to
section 503(b) of the FFDCA (21 U.S.C.
353(b)).
Section 9008(b) provides rules for
determining the amount of the annual
fee for each covered entity. Under
section 9008(b)(4), the aggregate fee
amount each year for all covered entities
(referred to as the applicable amount) is
$2.5 billion for fee year 2011; $2.8
billion for fee years 2012 and 2013; $3
billion for fee years 2014 through 2016;
$4 billion for fee year 2017; $4.1 billion
for fee year 2018; and $2.8 billion for fee
year 2019 and thereafter. Section
9008(b)(1) requires the applicable
amount for each year to be allocated,
using a specified formula, among
covered entities with aggregate branded
prescription drug sales of over $5
million to specified government
programs or pursuant to coverage under
such programs. Section 9008(e)(4)
provides that the specified government
programs are the Medicare Part B
program, the Medicare Part D program,
the Medicaid program, any program
under which branded prescription drugs
are procured by the Department of
Veterans Affairs, any program under
which branded prescription drugs are
procured by the Department of Defense,
and the TRICARE retail pharmacy
program (collectively, the Programs).
Specifically, section 9008(b)(1)
provides that the annual fee for each
covered entity is calculated by
determining the ratio of (i) the covered
entity’s branded prescription drug sales

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taken into account during the preceding
calendar year to (ii) the aggregate
branded prescription drug sales taken
into account for all covered entities
during the same year, and applying this
ratio to the applicable amount. Sales
taken into account means branded
prescription drug sales after the
application of the percentage
adjustment table in section 9008(b)(2).
The sales data is generally to be
provided by the Centers for Medicare
and Medicaid Services of the
Department of Health and Human
Services (CMS), the Department of
Veterans Affairs (VA), and the
Department of Defense (DOD)
(collectively, the Agencies) pursuant to
section 9008(g).
Section 9008(b)(3) requires the
Secretary to determine the amount of
each covered entity’s fee and permits
the Secretary to rely on reports
submitted by the Agencies and any
other source of information available to
the Secretary in determining that
amount. Section 9008(i) also directs the
Secretary to publish guidance necessary
to carry out the purposes of the statute.
Section 9008(f) treats the fee as an
excise tax with respect to which only
civil actions for refunds under the
provisions of subtitle F of the Code will
apply. Thus, the fee may be assessed
and collected using the procedures in
subtitle F without regard to the
restrictions on assessment in section
6213 (relating to petitions to the Tax
Court). Section 9008(f) also
characterizes the fee as a nondeductible
tax under section 275 of the Code.
IRS Guidance
On November 29, 2010, the Internal
Revenue Service (IRS) released Notice
2010–71 (2010–50 IRB 822), which
proposed an approach to implementing
the section 9008 fee and requested
comments on the proposed approach.
The proposed approach included an
opportunity to report certain
information to the IRS relevant to the
fee calculation and provided that the
IRS would provide each covered entity
with notice of a preliminary fee
calculation. This notice was modified
and superseded by Notice 2011–9
(2011–6 IRB 459), which was released
on January 14, 2011.
On April 29, 2011, the IRS released
Rev. Proc. 2011–24 (2011–20 IRB 787),
which established a process for covered
entities to submit claimed errors in their
preliminary fee calculations for
consideration before final fee
calculations for 2011. On May 27, 2011,
the IRS released Notice 2011–46 (2011–
25 IRB 887) to defer the due date for
submission of error reports and the last

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possible date for sending final fee
calculations for 2011.
Explanation of Provisions
The temporary regulations describe
the rules related to the fee and the
actions to be taken before the September
30th due date of each year’s fee. The
temporary regulations first provide a
general overview of the rules and then
provide an explanation of terms used in
implementing the fee. Next, the
temporary regulations describe the
information requested from covered
entities and provided by the Agencies.
The temporary regulations then describe
how the fee is calculated and provide
for a subsequent adjustment. The
temporary regulations then provide for
a notice of the preliminary fee
calculation, a dispute resolution process
to allow covered entities to submit error
reports relating to the preliminary fee
calculation, and a notice of the final fee
calculation. The temporary regulations
also explain how to pay the fee, how the
fee is treated for tax purposes, and how
to make refund claims.
These temporary regulations are
generally consistent with the approach
proposed in previous IRS guidance.
Certain modifications and additions
were made in response to public
comments that were received in
response to the solicitation in Notice
2011–9. The changes and the public
comments are discussed in more detail
in this preamble.
I. Overview
The temporary regulations provide
guidance on the annual fee imposed on
covered entities engaged in the business
of manufacturing or importing branded
prescription drugs by section 9008.
Generally, each covered entity with
aggregate branded prescription drug
sales of over $5 million to the Programs
(or pursuant to the Programs) is liable
for an annual fee in each fee year that
is based on its sales of branded
prescription drugs in the sales year that
corresponds to the fee year in an
amount determined by the IRS under
these temporary regulations.
II. Explanation of Terms
The temporary regulations define
numerous key terms used in section
9008 and in these regulations, including
agencies, branded prescription drug,
covered entity, fee year, government
programs, sales taken into account, and
sales year. Explanations of several terms
are discussed in more detail in this
preamble.

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A. Manufacturer or Importer
Section 9008(d)(1) provides that
covered entity means any manufacturer
or importer with gross receipts from
branded prescription drug sales.
Consistent with the proposal in
previous IRS guidance, the temporary
regulations define a manufacturer or
importer of a branded prescription drug
as the person identified in the Labeler
Code of the National Drug Code (NDC)
for such a drug. The NDC is an identifier
assigned by the FDA to a prescription
drug. The Labeler Code is the first five
numeric characters of the NDC or the
first six numeric characters when the
available five-character code
combinations are exhausted.
B. Designated Entity
Consistent with the proposal in
previous IRS guidance, the temporary
regulations provide that, in the case of
a controlled group that is treated as a
single covered entity under section
9008(d)(2), the controlled group may
identify a person as the designated
entity that acts for the controlled group
concerning the section 9008 fee.
However, the temporary regulations
further provide that if the controlled
group, without regard to foreign
corporations included under section
9008(d), is also an affiliated group that
filed a consolidated return for Federal
income tax purposes, the designated
entity is the common parent of the
affiliated group identified on the tax
return filed for the sales year. If the
controlled group is not an affiliated
group that filed a consolidated return
for Federal income tax purposes, it may
select a person as the designated entity
on Form 8947, ‘‘Report of Branded
Prescription Drug Information.’’ If the
controlled group does not select a
person as a designated entity on its
Form 8947, the IRS will select a person
as a designated entity for the controlled
group and advise the filer accordingly.
C. Orphan Drug Sales
Section 9008(e)(3) excludes orphan
drug sales from the definition of
branded prescription drug sales.
Consistent with the proposal in
previous IRS guidance, the temporary
regulations define orphan drug, subject
to certain exceptions, as any branded
prescription drug for which any person
claimed a section 45C credit and that
credit was allowed for any taxable year.
The temporary regulations further
provide that an orphan drug does not
include any drug for which there has
been a final assessment or court order
disallowing the full section 45C credit
taken for the drug. Additionally, an

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orphan drug does not include any drug
for any sales year after the calendar year
in which the FDA approved the drug for
marketing for any indication other than
the treatment of a rare disease or
condition for which a section 45C credit
was allowed, regardless of whether a
section 45C credit was allowed for the
drug either before, at the same time, or
after this FDA approval.
Several commentators suggested that
a drug should be considered an orphan
drug if the section 45C credit was
‘‘allowable’’; that is, the section 45C
credit could have been claimed, rather
than was claimed. Other commentators
suggested that orphan drug status
should be given to a drug for which a
section 45C credit was allowed even
though the drug had been approved by
the FDA for marketing for an indication
other than the treatment of a rare
disease or condition for which a section
45C credit was allowed.
The temporary regulations do not
adopt these suggestions. The plain
language of section 9008(e)(3) requires
the section 45C credit to have actually
been allowed rather than to have merely
been allowable. In addition, the
Treasury Department and the IRS
interpret section 9008(e)(3) to mean that
if a drug is ever approved for an
indication other than the treatment of a
rare disease or condition for which a
section 45C credit was allowed, whether
before, during, or after a section 45C
credit was allowed for the drug, sales of
that drug are not considered sales of an
orphan drug. However, a drug will
retain its orphan drug status if the drug
receives approval for a subsequent
indication for a rare disease or condition
for which a subsequent section 45C
credit was allowed.
III. Information Requested From
Covered Entities
Consistent with the proposal in
previous IRS guidance, the temporary
regulations give each covered entity the
opportunity to provide information
relevant to the determination of the
section 9008 fee by annually submitting
Form 8947, ‘‘Report of Branded
Prescription Drug Information,’’ and
providing the information specified by
the form and instructions, including the
NDCs for branded prescription drugs
that the covered entity sold to the
Programs (or pursuant to coverage under
the Programs), Medicare and Medicaid
rebate information, section 45C orphan
drug information, members of
controlled groups, and designated entity
information.
One commentator suggested that the
Treasury Department and the IRS
confirm that submission of Form 8947 is

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voluntary. Section 51.3T(a) of the
temporary regulations provides that a
covered entity may file a completed
Form 8947; thus, the submission of
Form 8947 is voluntary.
Commentators expressed a preference
for CMS to include all rebate data in
their reports to the IRS rather than
collecting rebate data from the covered
entities on Form 8947. The IRS and
CMS are continuing to work on this
issue. Until CMS can report all the
relevant rebate data, covered entities
will continue to have the opportunity to
submit rebate data as requested on
Forms 8947 and in the format
prescribed in the form instructions.
Several commentators suggested that
the Treasury Department and the IRS
provide guidance on how covered
entities may amend their Form 8947 to
correct errors or omissions in the
information reported. A number of
covered entities notified the IRS of
corrections to their Forms 8947 in the
error reports that they submitted as part
of the dispute resolution process
provided under Rev. Proc. 2011–24.
That proved to be an efficient and
effective way to relay corrections.
Accordingly, under the temporary
regulations, a covered entity may notify
the IRS of any changes or additions to
information it submitted on Form 8947
by submitting error reports in the
dispute resolution process, discussed
later in this preamble.
IV. Information Provided by the
Agencies
Consistent with the proposal in the
previous IRS guidance, the temporary
regulations provide that the IRS will
(1) compile a list of branded
prescription drugs by NDC using the
data submitted on Forms 8947; (2) apply
appropriate due diligence; and (3)
provide the Agencies with the list. The
temporary regulations describe the data
the Agencies are to provide the IRS
annually for each NDC on the list by
Program. The temporary regulations
further clarify that the IRS may revise
the list of NDCs as a result of
information received in the dispute
resolution process, and that the data the
IRS uses to produce the final fee
determination includes any revisions
provided by the Agencies at the
completion of the dispute resolution
process.
Commentators raised questions about
the descriptions in previous IRS
guidance of the methodology used by
the Agencies to report branded
prescription drug sales to the IRS and
asked that these descriptions be
clarified. In addition, some of the error
reports submitted as part of the dispute

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resolution process under Rev. Proc.
2011–24 identified the need for
clarification in describing Agency data.
In response to the comments and the
issues illuminated by the error reports,
the temporary regulations provide
revised descriptions of the data and
computations for some of the Programs.
Commentators raised questions about
the methodology proposed for
computing branded prescription drug
sales for Medicare Part B. Specifically,
they questioned the use of Medicareallowed charges to establish the sales
rather than a computation based on the
per-unit average sales price (ASP) and
the units paid for under Medicare Part
B as specified in section 9008(g)(2).
Commentators also asked whether CMS
would use ASP (that is, ASP plus 0%)
or ASP plus 6% (which reflects amounts
actually paid) in computing the sales
figures. After considering the comments,
CMS refined its calculation process.
Thus, the temporary regulations provide
that branded prescription drug sales for
Medicare Part B will be computed based
on ASP and units paid for under
Medicare Part B.
Commentators also requested
clarification about how sales will be
calculated for branded prescription
drugs that are not separately payable or
reported. In the unusual situation where
CMS is unable to establish a reliable
proportion of sales by NDC, for example
due to unavailable, inaccurate, or
incomplete manufacturer sales data, the
temporary regulations clarify that CMS
has a back-up method that will use
Medicare Part D utilization percentages
in lieu of manufacturer data. It should
be noted, however, that for the 2011 fee
calculations, this back-up method was
not required.
Commentators also expressed
concerns about whether Medicare Part B
is capturing complete data with respect
to non-separately payable drugs, that is,
drugs that are not directly correlated
with a specific HCPCS Code. CMS
recognizes the commentators’ concern
and has made extensive efforts to gather
as complete a data set as possible. CMS
will continue to work with the data
available to capture non-separately
payable drugs.
Some commentators asked whether
the sales data from Medicaid reflected
sales where Medicaid was the secondary
payer, resulting potentially in duplicate
reporting where another one of the
Programs (for example, Medicare Part
B), was the primary payer. In response,
CMS has revised the Medicaid
methodology to exclude non-Medicaid
payments, and the temporary
regulations include a description of this
aspect of the methodology.

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Commentators asked whether TRICARE
sales data would be net of refunds and
rebates associated with specific NDCs.
The temporary regulations make clear
that DOD will report for TRICARE the
sales data for each NDC based on retail
pharmacy claims submitted during the
sales year, net of any refunds or rebates.
Commentators questioned whether the
VA sales data excluded purchases made
at individual treatment facilities. The
VA includes most of its purchases made
at the individual medical treatment
facility level in its data because most of
these purchases are made via VA’s
Pharmaceutical Prime Vendor. The
description of VA sales data contained
in the temporary regulation is revised
from the description contained in earlier
guidance to eliminate language
suggesting that sales at the individual
medical treatment facility level are not
included and to clarify that the sales
data is net of refunds and rebates.
V. Fee Calculation Including
Adjustment
The temporary regulations clarify that
the IRS will compute the fee for a
covered entity based on the branded
prescription drug sales data for each
NDC reported by the Agencies and any
rebate data for each NDC reported by the
covered entities. For purposes of
computing the fee, each NDC will be
assigned to the covered entity that owns
the NDC as of the end of the day on
December 31st of the sales year. For a
covered entity that is a controlled group,
this includes all NDCs that a member of
the covered entity owns as of the end of
the day on December 31st of the sales
year.
The temporary regulations provide
that two years are relevant to the
calculation of the section 9008 fee: The
fee year, and the calendar year of the
branded prescription drug sales, which
will be used to determine the amount of
the fee (the sales year). As proposed in
previous IRS guidance, the temporary
regulations use the second calendar year
preceding the fee year as the sales year
for purposes of calculating the section
9008 fee. The Treasury Department and
the IRS have determined that, although
DOD and VA are expected to have
complete data on branded prescription
drug sales for the calendar year
immediately preceding the fee year
within the time frame necessary to
administer the fee, CMS is not expected
to have comparable data because it
cannot complete its data processing
within the necessary time frame.
Accordingly, the IRS will calculate the
fee based on the branded prescription
drug sales data provided by the
Agencies for the second calendar year

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preceding the fee year. Because the use
of the second preceding year as the sales
year, rather than the immediately
preceding year, may affect the amount
of the fee paid by a covered entity, the
annual fee due in every year after 2011
will include an adjustment amount.
This adjustment amount will be added
(or subtracted), as appropriate, to (or
from) the fee otherwise payable by the
covered entity in the fee year in which
the adjustment is calculated.
The proposal in previous guidance
was to compute the adjustment
separately for each NDC. Commentators
raised questions about the effect of the
adjustment where a drug is owned by
different covered entities in the second
preceding year and immediately
preceding year and asked whether the
adjustment could be computed at the
covered entity level rather than the NDC
level. The Treasury Department and the
IRS have considered these questions,
and have decided to calculate the
adjustment at the covered entity level.
The adjustment will reflect the
difference between the fee determined
for a covered entity in the immediately
preceding fee year, using data from the
second calendar year preceding that fee
year, and what the fee for the covered
entity would have been for the
immediately preceding fee year using
data from the calendar year immediately
preceding the prior fee year. For
example, for 2012, the adjustment
amount for a covered entity will be the
difference between the 2011 fee
computed using 2009 sales data, and
what the 2011 fee would have been
using 2010 sales data. Although the
adjustment reflects a revision of the
prior year’s fee based on data from the
sales year immediately preceding the
prior fee year, the adjustment is only
taken into account by adding it to or
subtracting it from the fee computed for
the current fee year.
VI. Notice of Preliminary Fee
Calculation
Consistent with the proposal in the
previous IRS guidance, the temporary
regulations provide that the IRS will
provide each covered entity with a
notice of preliminary fee calculation
each year that will include the covered
entity’s preliminary fee calculation; the
covered entity’s branded prescription
drug sales, by NDC, for each Program;
the covered entity’s branded
prescription drug sales taken into
account after application of section
9008(a)(2); the aggregate branded
prescription drug sales taken into
account for all covered entities; after the
2011 fee year, a preliminary adjustment
amount; and a reference to the fee

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dispute resolution process set forth in
guidance published in the Internal
Revenue Bulletin. The date by which
the IRS will send the preliminary fee
calculation notice will be specified for
future years in guidance published in
the Internal Revenue Bulletin. For 2011,
the IRS sent the notices by May 16,
2011. The Treasury Department and the
IRS anticipate sending these notices
earlier in future years.
VII. Dispute Resolution Process
Consistent with previous IRS
guidance, the temporary regulations
provide for a dispute resolution process
that allows a covered entity to submit
error reports in response to the
preliminary fee calculation for the IRS
to consider before performing a final fee
calculation. The temporary regulations
describe the information that covered
entities must submit. The IRS will
specify in guidance published in the
Internal Revenue Bulletin the format for
error report submissions and the date by
which a covered entity must submit an
error report(s). For 2011, a covered
entity’s error report was required to be
submitted no later than June 10, 2011.
The Treasury Department and the IRS
anticipate that covered entities will
have more time to prepare and send
their error reports to the IRS in future
years.
Several commentators requested the
ability to submit additional error reports
after the IRS sends notification of the
final fee determination. In the interest of
providing finality to the fee calculation
process, the temporary regulations do
not adopt this suggestion.
VIII. Notification and Payment of Fee
Section 9008(a) provides that the
annual fee must be paid not later than
the annual date specified by the
Secretary, but in no event later than
September 30th of each fee year. The
temporary regulations provide that the
IRS will send each covered entity its
final fee calculation for that year no
later than August 31st and that the
covered entity must pay the fee by
September 30th by electronic funds
transfer. For 2011, the IRS will send
covered entities notification of their
2011 final fee calculation by August
24th. This notification will include the
covered entity’s final fee; the covered
entity’s branded prescription drug sales
by NDC for each Program; the covered
entity’s branded prescription drug sales
taken into account after application of
section 9008(a)(2); the aggregate
branded prescription drug sales taken
into account for all covered entities;
after the 2011 fee year, an adjustment

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amount; and the final determination
with respect to error reports.
There is no tax return to be filed for
the section 9008 fee.
IX. Tax Treatment of Fee
Section 9008(f)(1) provides that the
branded prescription drug fee for
purposes of subtitle F of the Internal
Revenue Code shall be treated as an
excise tax with respect to which only
civil actions for refund under
procedures of subtitle F shall apply.
Thus, under the temporary regulations,
the section 9008 fee is treated as an
excise tax for purposes of subtitle F of
the Code (sections 6001–7874) to which
the deficiency procedures of sections
6211–6216 do not apply. The temporary
regulations provide that the IRS must
assess the amount of the section 9008
fee for any fee year within three years
of September 30th of that fee year.
X. Refund Claims
The temporary regulations provide
that any claim for refund must be filed
on Form 843, ‘‘Claim for Refund and
Request for Abatement.’’

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Availability of IRS Documents
IRS notices and the revenue
procedure cited in this preamble are
published in the Internal Revenue
Bulletin or Cumulative Bulletin and are
available at IRS.gov.
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in
Executive Order 12866, as
supplemented by Executive Order
13563. Therefore, a regulatory
assessment is not required. It also has
been determined that section 553(b) of
the Administrative Procedure Act (APA)
(5 U.S.C. chapter 5) does not apply to
these regulations. For applicability of
the Regulatory Flexibility Act (5 U.S.C.
chapter 6), please refer to the Special
Analysis section in the preamble to the
cross-referenced notice of proposed
rulemaking in the Proposed Rules
section in this issue of the Federal
Register. Pursuant to section 7805(f) of
the Code, these regulations have been
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on their
impact on small businesses.
Section 553(b) of the APA does not
apply to these regulations because they
are interpretative rules. Alternatively,
the Treasury Department and the IRS
have determined that good cause exists
under section 553(b)(B) of the APA.
That section provides that an agency is
not required to publish a notice of

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proposed rulemaking in the Federal
Register when the agency, for good
cause, finds that notice and public
comment thereon are impracticable,
unnecessary, or contrary to the public
interest. Due to the novel and complex
issues raised by the branded
prescription drug fee provision and the
required coordination with other
governmental agencies, the Treasury
Department and the IRS have concluded
that it would take significantly longer
than the time between enactment
(March 23, 2010) and the date of
collection of the first fee (no later than
September 30, 2011) to draft and issue
a proposed rule with a comment period,
review comments thoroughly, and then
draft and issue a final rule. Accordingly,
the Treasury Department and the IRS
have determined that the notice and
comment procedures are impracticable.
In the months following enactment of
section 9008, the Treasury Department
and the IRS, in coordination with other
governmental agencies, developed the
proposed methodologies and processes
to compute, verify, assess and collect
the annual fee amounts, and published
notices and a revenue procedure in the
Internal Revenue Bulletin describing the
proposed approach and soliciting public
comments. The Treasury Department
and the IRS provided an extended
comment period to give the covered
entities an opportunity to review their
preliminary fee calculations before
submitting comments on the proposed
approach. In addition, the Treasury
Department and the IRS engaged in
discussions with affected external
stakeholders and extensively
coordinated with other governmental
agencies. Consequently, the Treasury
Department and the IRS also have
determined that additional notice and
comment before implementation of the
process set forth in these regulations is
unnecessary.
Since Congress mandated that the IRS
collect the applicable fee amount for the
first fee year no later than September 30,
2011, it is necessary that these
regulations be issued immediately in
order to provide covered entities with
the rules governing the fee and payment
prior to issuance of final fee
determinations. However, comments are
being solicited in the cross-referenced
notice of proposed rulemaking that is in
the Proposed Rules section in this issue
of the Federal Register and will be
considered before final regulations are
issued regarding the branded
prescription drug fee.
Drafting Information
The principal author of these
regulations is Celia Gabrysh, Office of

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the Associate Chief Counsel
(Passthroughs and Special Industries).
However, other personnel from the
Treasury Department and the IRS
participated in their development.
List of Subjects
26 CFR Part 51
Drugs, Reporting and recordkeeping
requirements.
26 CFR Part 602
Reporting and recordkeeping
requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR chapter 1 is
amended by adding part 51 to
subchapter D and amending part 602 as
follows:
■ Paragraph 1. Part 51 is added to read
as follows:
PART 51—BRANDED PRESCRIPTION
DRUG FEE
Sec.
51.1T Overview (temporary).
51.2T Explanations of terms (temporary).
51.3T Information requested from covered
entities (temporary).
51.4T Information provided by the agencies
(temporary).
51.5T Fee calculation (temporary).
51.6T Notice of preliminary fee calculation
(temporary).
51.7T Dispute resolution process
(temporary).
51.8T Notification and payment of fee
(temporary).
51.9T Tax treatment of fee (temporary).
51.10T Refund claims (temporary).
51.11T Effective/applicability date
(temporary).
51.12T Expiration date (temporary).
51.6302–1T Method of paying the branded
prescription drug fee (temporary).
Authority: 26 U.S.C. 7805; sec. 9008,
Public Law 111–347 (124 Stat. 119).
Section 51.8 also issued under 26 U.S.C.
6302(a).
Section 51.6302–1 also issued under 26
U.S.C. 6302(a).
§ 51.1T

Overview (temporary).

(a) The regulations in this part 51 are
designated ‘‘Branded Prescription Drug
Fee Regulations.’’
(b) The regulations in this part 51
provide guidance on the annual fee
imposed on covered entities engaged in
the business of manufacturing or
importing branded prescription drugs
by section 9008 of the Patient Protection
and Affordable Care Act (ACA), Public
Law 111–148 (124 Stat. 119 (2010)), as
amended by section 1404 of the Health
Care and Education Reconciliation Act
of 2010 (HCERA), Public Law 111–152
(124 Stat. 1029 (2010)). All references in

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these regulations to section 9008 are
references to section 9008 of the ACA,
as amended by section 1404 of HCERA.
Unless otherwise indicated, all other
section references are to sections in the
Internal Revenue Code. All references to
‘‘fee’’ in these regulations are references
to the fee imposed by section 9008.
(c) Section 9008(b)(4) sets an
applicable fee amount for each year,
beginning with 2011, that will be
apportioned among covered entities
with aggregate branded prescription
drug sales of over $5 million to
government programs or pursuant to
coverage under such programs.
Generally, each covered entity is liable
for a fee in each fee year that is based
on its sales of branded prescription
drugs in the sales year that corresponds
to the fee year in an amount determined
by the Internal Revenue Service (IRS)
under the rules of this part.

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§ 51.2T

Explanation of terms (temporary).

(a) In general. This section explains
the terms used in this part for purposes
of the fee imposed by section 9008 on
branded prescription drugs.
(b) Agencies. The term agencies
means—
(1) The Centers for Medicare and
Medicaid Services of the Department of
Health and Human Services (CMS);
(2) The Department of Veterans
Affairs (VA); and
(3) The Department of Defense (DOD).
(c) Branded prescription drug—(1) In
general. The term branded prescription
drug means—
(i) Any prescription drug the
application for which was submitted
under section 505(b) of the Federal
Food, Drug, and Cosmetic Act (21 U.S.C.
355(b)); or
(ii) Any biological product the license
for which was submitted under section
351(a) of the Public Health Service Act
(42 U.S.C. 262(a)).
(2) Prescription drug. The term
prescription drug means any drug that is
subject to section 503(b) of the Federal
Food, Drug, and Cosmetic Act (21 U.S.C.
353(b)).
(d) Branded prescription drug sales.
The term branded prescription drug
sales means sales of branded
prescription drugs to any government
program or pursuant to coverage under
any such government program.
However, the term does not include
sales of orphan drugs.
(e) Covered entity—(1) In general. The
term covered entity means any
manufacturer or importer with gross
receipts from branded prescription drug
sales including—
(i) A single-person covered entity; or
(ii) A controlled group.

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(2) Single-person covered entity. The
term single-person covered entity means
a covered entity that is not affiliated
with any other covered entity.
(3) Controlled group. The term
controlled group means a group of at
least two covered entities that are
treated as a single employer under
section 52(a), 52(b), 414(m), or 414(o).
(4) Special rules for controlled groups.
For purposes of paragraph (e)(3) of this
section (related to controlled groups)—
(i) A foreign entity subject to tax
under section 881 is included within a
group under section 52(a) or 52(b); and
(ii) A covered entity is treated as
being a member of a controlled group if
it is a member of the group on the end
of the day on December 31st of the sales
year.
(f) Designated entity—(1) In general.
The term designated entity means the
person that acts for a controlled group
regarding the fee by—
(i) Filing Form 8947, ‘‘Report of
Branded Prescription Drug
Information’’;
(ii) Receiving IRS communications
about the fee for the group;
(iii) Filing an error report for the
group, if applicable, as described in
§ 51.7T; and
(iv) Paying the fee to the IRS.
(2) Selection of designated entity—(i)
Choice of controlled group. Unless the
controlled group is an affiliated group
that filed a consolidated return for
Federal income tax purposes, the
controlled group may select a person as
the designated entity by filing Form
8947 in accordance with the form
instructions. Among other requirements,
the designated entity must state that all
the manufacturers or importers of
branded prescription drugs that are
members of the group have consented to
the selection of the designated entity.
(ii) Requirement for affiliated groups;
common parent. If the controlled group,
without regard to foreign corporations
included under section 9008(d)(2)(B), is
also an affiliated group that filed a
consolidated return for Federal income
tax purposes, the designated entity is
the common parent of the affiliated
group as identified on the tax return
filed for the sales year. The covered
entities in an affiliated group must name
the common parent as the designated
entity on Form 8947.
(iii) IRS selection of a designated
entity. If a controlled group does not
select a designated entity, the IRS will
select a member of the controlled group
as the designated entity for the
controlled group.
(g) Fee year. The term fee year means
the calendar year in which the fee for a

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particular sales year must be paid to the
government.
(h) Government programs. The term
government programs (collectively
‘‘Programs’’), means—
(1) The Medicare Part B program;
(2) The Medicare Part D program;
(3) The Medicaid program;
(4) Any program under which
branded prescription drugs are procured
by the Department of Veterans Affairs;
(5) Any program under which
branded prescription drugs are procured
by the Department of Defense; and
(6) The TRICARE retail pharmacy
program.
(i) Manufacturer or importer. The
term manufacturer or importer means
the person identified in the Labeler
Code of the National Drug Code (NDC)
for a branded prescription drug.
(j) NDC. The term NDC means the
National Drug Code. The NDC is an
identifier assigned by the Food and
Drug Administration (FDA) to a branded
prescription drug, as well as other
drugs. The Labeler Code is the first five
numeric characters of the NDC or the
first six numeric characters when the
available five-character code
combinations are exhausted.
(k) Orphan drugs—(1) In general.
Except as provided in paragraph (j)(2) of
this section, the term orphan drug
means any branded prescription drug
for which any person claimed a section
45C credit and that credit was allowed
for any taxable year.
(2) Exclusions. The term orphan drug
does not include—
(i) Any drug for which there has been
a final assessment or court order
disallowing the full section 45C credit
taken for the drug; or
(ii) Any drug for any sales year after
the calendar year in which the FDA
approved the drug for marketing for any
indication other than the treatment of a
rare disease or condition for which a
section 45C credit was allowed,
regardless of whether a section 45C
credit was allowed for the drug either
before, in the same year as, or after this
FDA designation.
(3) FDA marketing approval for
treatment of another rare disease or
condition. If a drug has prior FDA
marketing approval for the treatment of
a rare disease or condition for which a
section 45C credit was allowed, and the
FDA subsequently gives the drug
marketing approval for the treatment of
another rare disease or condition for
which another section 45C credit was
also allowed, the drug retains its status
as an orphan drug provided the FDA has
never approved the drug for marketing
for any indication other than the
treatment of a rare disease or condition

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for which a section 45C credit was
allowed.
(4) Examples. The following examples
illustrate the rules of this paragraph (k):

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Example 1: Allowance of section 45C credit
and later FDA marketing approval of drug for
an indication other than the treatment of a
rare disease or condition. (i) Facts. Drug A is
a branded prescription drug that was not on
the market before 2008. In 2008, a covered
entity claimed a section 45C credit for its
qualified clinical testing expenses related to
Drug A. There was no final IRS assessment
or court order that disallowed the full credit
for Drug A. In 2009, the FDA approved Drug
A for marketing for an indication other than
the treatment of the rare disease or condition
for which the section 45C credit was allowed
and this indication was not for another rare
disease or condition for which a section 45C
was allowed.
(ii) Analysis. In 2008 and 2009, Drug A is
an orphan drug because: first, it was a
branded prescription drug for which a person
claimed a section 45C credit and for which
that credit was allowed for a taxable year;
second, there was not a final assessment or
court order disallowing the full credit taken
for the drug; and third, before 2009, the FDA
did not approve the drug for marketing for
any indication other than the treatment of a
rare disease or condition for which a section
45C credit was allowed. However, Drug A is
not an orphan drug for the 2010 sales year
or later sales years because in 2009 the FDA
approved Drug A for marketing for an
indication other than the treatment of the
rare disease or condition for which the
section 45C credit was allowed and this
indication was not for treatment of another
rare disease or condition for which a section
45C credit was allowed.
Example 2: FDA marketing approval of
drug for an indication other than the
treatment of a rare disease or condition and
later allowance of section 45C credit. (i)
Facts. Drug B is a branded prescription drug
that was not on the market before 2008. In
2008, FDA approved Drug B for marketing for
an indication other than the treatment of a
rare disease or condition for which a section
45C credit was allowed. In 2009, a covered
entity claimed a section 45C credit for its
qualified clinical testing expenses related to
Drug B. There was no final IRS assessment
or court order that disallowed the full credit
for Drug B.
(ii) Analysis. In 2008, Drug B is not an
orphan drug because no section 45C credit
was allowed. In 2009, although the covered
entity was allowed a section 45C credit for
its qualified clinical testing expenses related
to Drug B and there was no final IRS
assessment or court order that disallowed the
full credit, Drug B still is not an orphan drug
because the FDA had approved the drug in
2008 for marketing for an indication other
than the treatment of a rare disease or
condition for which a section 45C credit was
allowed in 2009. Thus, Drug B is not an
orphan drug for the 2009 sales year or later
sales years.
Example 3: Allowance of section 45C credit
and subsequent allowance of section 45C

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credit with no intervening FDA marketing
approval of drug for an indication other than
the treatment of a rare disease or condition
for which a section 45C credit was allowed.
(i) Facts. Drug C is a branded prescription
drug that was not on the market before 2007.
In 2007, a covered entity claimed a section
45C credit for its qualified clinical testing
expenses related to Drug C. In 2009, a
covered entity claimed an additional section
45C credit for its qualified clinical testing
expenses related to Drug C for marketing for
the treatment of a rare disease or condition
different than the one for which the section
45C credit was claimed in 2007. There was
no final IRS assessment or court order that
disallowed the full credit for Drug C in 2007
or 2009. The FDA has not approved Drug C
for an indication other than the treatment of
a rare disease or condition for which a
section 45C was allowed.
(ii) Analysis. In 2007 and 2008, Drug C is
an orphan drug because: first, it was a
branded prescription drug for which a person
claimed a section 45C credit and for which
that credit was allowed for a taxable year;
second, there was not a final assessment or
court order disallowing the full credit taken
for the drug; and third, FDA had not
approved the drug for marketing for any
indication other than the treatment of a rare
disease or condition for which a section 45C
credit was allowed. In 2009, Drug C retains
its orphan drug status because another
section 45C credit was allowed and the FDA
did not approve Drug C for marketing for any
indication other than the treatment of
another rare disease or condition for which
a section 45C credit was allowed. Thus, Drug
C is an orphan drug for the 2010 sales year.

(l) Sales taken into account. The term
sales taken into account means branded
prescription drug sales after application
of the percentage adjustment table in
section 9008(b)(2) (relating to annual
sales less than $400,000,001). See
§ 51.5T(a)(3).
(m) Sales year. The term sales year
means the second calendar year
preceding the fee year. Thus, for
example, for the fee year of 2011, the
sales year is 2009.
§ 51.3T Information requested from
covered entities (temporary).

(a) In general. Annually, each covered
entity may submit a completed Form
8947, ‘‘Report of Branded Prescription
Drug Information,’’ in accordance with
the instructions for the form. Generally,
the form solicits information from
covered entities on NDCs, orphan drugs,
designated entities, rebates, and other
information specified by the form or its
instructions.
(b) Due date. Form 8947 must be filed
by the date prescribed in guidance in
the Internal Revenue Bulletin.
§ 51.4T Information provided by the
agencies (temporary).

(a) In general. For each sales year, the
IRS will compile a list of branded

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51251

prescription drugs by NDC using the
data submitted on Forms 8947 and in
error reports submitted as part of the
dispute resolution process (described in
§ 51.7T) and, after applying appropriate
due diligence, will provide this list to
the Agencies. The Agencies will provide
data to the IRS on branded prescription
drug sales during the sales year by
Program and NDC. The Agencies will
provide data for use in preparing the
preliminary fee calculation (described
in §§ 51.5T and 51.6T) and may revise
or supplement that data following
review of error reports submitted as part
of the dispute resolution process. The
calculation methodology for calculating
the sales amounts for each Program,
including any reasonable estimation
techniques and assumptions that the
Agencies expect to use, is described in
this section.
(b) Medicare Part D. CMS will
aggregate the ingredient cost reported in
the ‘‘Ingredient Cost Paid’’ field and the
units reported in the ‘‘Quantity
Dispensed’’ field of the Prescription
Drug Event (PDE) records at the NDC
level for each sales year. Only PDE data
that Part D sponsors have submitted by
the PDE submission deadline (within 6
months after the end of the sales year)
and have been approved for inclusion in
the Part D payment reconciliation will
be included.
(c) Medicare Part B—(1) In general.
CMS will determine branded
prescription drug sales under Medicare
Part B using the following two data
sources:
(i) CMS will use data reported by
manufacturers pursuant to section
1847A(c) of the Social Security Act to
calculate the annual weighted average
sales price (ASP) for each Healthcare
Common Procedure Coding System
(HCPCS) code for the sales year.
(ii) CMS will use the Medicare Part B
National Summary Data File located at
http://www.cms.gov/
NonIdentifiableDataFiles/
03_PartBNationalSummaryDataFile.asp
to obtain the number of allowed billing
units per HCPCS code for claims
incurred during the sales year.
(2) Calculation. Using the data
described in paragraph (c)(1) of this
section, CMS will determine branded
prescription drugs sales under Medicare
Part B as described in paragraphs (c)(3),
(4), and (5) of this section.
(3) HCPCS code; single entity. For
each HCPCS code consisting solely and
exclusively of branded prescription
drugs (as identified by their respective
NDCs) manufactured by a single entity,
CMS will multiply the annual weighted
ASP by the total number of allowed
billing units paid during the sales year

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to determine the total sales for all NDCs
associated with the HCPCS code
attributed to Medicare Part B.
(4) HCPCS code; multiple
manufacturers and/or multiple drugs—
(i) Step one. For each HCPCS code
consisting of a mixture of branded
prescription drugs made by different
manufacturers and/or a mixture of
branded prescription and generic drugs,
CMS will determine—
(A) The annual weighted ASP for the
HCPCS code;
(B) The total number of allowed
billing units paid by Medicare Part B for
each HCPCS code during the sales year;
(C) The names of the entities engaged
in manufacturing each NDC assigned to
the HCPCS code; and
(D) Those entities (if any) identified in
paragraph (c)(4)(C) of this section that
are manufacturing branded prescription
drugs assigned to the HCPCS code.
(ii) Step two. Using the information
from paragraph (c)(4)(i) of this section,
CMS will then do the following:
(A) Calculate the proportion of sales,
expressed as a percentage, attributed to
each NDC assigned to the HCPCS code
by determining the percentage of total
sales reported to CMS by each
manufacturer of NDC(s) that are
assigned to the HCPCS code. For
example, if HCPCS code JXXXX
contains three drugs with a total of
$310,000 sales reported by
manufacturers to CMS for the sales year,
and $100,000 was reported for Drug A,
$200,000 was reported for Drug B, and
$10,000 was reported for Drug C, the
proportion of sales attributed to each
NDC will be 32.26 percent for Drug A,
64.52 percent for Drug B, and 3.22
percent for Drug C; and
(B) For each NDC, multiply the
product of the annual weighted ASP
and the total allowed billing units paid
by Medicare Part B for the HCPCS code
by the proportion of sales calculated in
paragraph (c)(4)(ii)(A) of this section to
determine the sales reportable to the IRS
(that is, percentage × (annual weighted
ASP × allowed units) = total sales
reported to IRS for the NDC). The sales
for each manufacturer’s NDCs assigned
to a HCPCS code are summed and the
total sales for each manufacturer’s NDCs
in a HCPCS code will be reported to the
IRS.
(5) HCPCS code; unable to establish a
reliable proportion of sales. If CMS is
unable to establish a reliable proportion
of sales attributable to each NDC
assigned to the HCPCS code using the
method described in paragraph
(c)(4)(ii)(A) of this section, CMS will use

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Medicare Part D utilization percentages
in lieu of the proportion of sales
determined under paragraph (c)(4)(ii)(A)
of this section to perform the calculation
described in paragraph (c)(4)(ii)(B) of
this section.
(d) Medicaid. (1) CMS will determine
the branded prescription drug sales for
Medicaid as the per-unit Average
Manufacturer Price (AMP) less the Unit
Rebate Amounts (URA) that CMS
calculates based on manufacturerreported pricing data multiplied by the
number of units reported billed by states
to manufacturers. This data will be
based on the data reported to CMS
during the sales year by covered entities
and the states for drugs paid for by the
states in the Medicaid drug rebate
program during the sales year.
(2) For any covered entity identified
in the first five (or six) digits of an NDC
during any of the four quarters of a sales
year, CMS will use the following
methodology to derive the sales figures
that account for third-party payers, such
as Medicare Part B:
(i) Report total dollars per NDC for
AMP–URA multiplied by the units
reported by a state or states.
(ii) Determine the percentage of the
total amount reimbursed that is the
Medicaid amount of that
reimbursement. For example, if the total
amount reimbursed is $100,000, and the
Medicaid amount reimbursed is
$20,000, then the percentage is 20
percent.
(iii) Multiply the percentage of the
Medicaid amount of that reimbursement
(in the example in paragraph (d)(2)(ii) of
this section, 20 percent) by the dollar
figure derived from paragraph (d)(2)(i)
of this section (AMP minus URA
multiplied by units) to get the new
adjusted sales dollar totals.
(e) Department of Veterans Affairs.
VA will provide, by NDC, the total
amount paid (net of refunds and rebates,
when they are associated with a specific
NDC) for each branded prescription
drug procured by the VA for its
beneficiaries during the sales year. For
this purpose, a drug is procured on the
invoice (billing) date. The basis of this
information will be national
procurement data reported during the
sales year by VA’s Pharmaceutical
Prime Vendor to the VA Pharmacy
Benefits Management Service and
National Acquisition Center.
(f) Department of Defense. The DOD
will provide, by Labeler Code, the
manufacturer’s name, the NDC, brand
name, and the amount paid (net of
rebates and or refunds) for each branded

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prescription drug procured by DOD (for
DOD programs other than the TRICARE
retail pharmacy program) during the
sales year. For DOD programs other than
the TRICARE retail pharmacy program,
a drug is procured based upon the date
it was ordered. DOD will provide, by
Labeler Code, the manufacturer’s name,
the NDC, brand name, and the amount
paid (net of rebates or refunds) for each
branded prescription drug procured by
DOD through the TRICARE Retail
Pharmacy Program during the sales
year. For the TRICARE retail pharmacy
program, a drug is procured based upon
the date it was dispensed. The amount
paid is based on the submitted
ingredient cost paid, aggregated by NDC,
for eligible TRICARE retail pharmacy
claims submitted during the program
year, minus any refunds or rebates for
the corresponding claims.
§ 51.5T

Fee calculation (temporary).

(a) Fee components—(1) In general.
For every fee year, the IRS will calculate
a covered entity’s total fee as described
in this section. For each fee year after
2011, the IRS will determine a covered
entity’s total fee by applying, if
applicable, the adjustment amount
described in paragraph (e) of this
section to the entity’s allocated fee
described in paragraph (d) of this
section.
(2) Calculation of branded
prescription drug sales. Each covered
entity’s allocated fee for any fee year is
equal to an amount that bears the same
ratio to the applicable amount as the
covered entity’s branded prescription
drug sales taken into account during the
sales year bears to the aggregate branded
prescription drug sales of all covered
entities taken into account during the
sales year.
(3) Applicable amount. The
applicable amounts for fee years are—
Fee year
2011
2012
2013
2014
2015
2016
2017
2018
2019

..............................
..............................
..............................
..............................
..............................
..............................
..............................
..............................
and thereafter ......

Applicable amount
$2,500,000,000
2,800,000,000
2,800,000,000
3,000,000,000
3,000,000,000
3,000,000,000
4,000,000,000
4,100,000,000
2,800,000,000

(3) Sales taken into account. A
covered entity’s branded prescription
drug sales taken into account during any
calendar year are as follows:

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Percentage of
branded prescription drug sales
taken into account
is

Covered entity’s branded prescription drug sales during the calendar year that are:

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Not more than $5,000,000 ...........................................................................................................................................................
More than $5,000,000 but not more than $125,000,000 ............................................................................................................
More than $125,000,000 but not more than $225,000,000 ........................................................................................................
More than $225,000,000 but not more than $400,000,000 ........................................................................................................
More than $400,000,000 .............................................................................................................................................................

(b) Determination of branded
prescription drug sales. The IRS will
compile each covered entity’s branded
prescription drug sales for each Program
by NDC. Each NDC will be attributed to
the covered entity that owns the NDC as
of the end of the day on December 31st
of the sales year. For a covered entity
that is a controlled group, this includes
all NDCs that a member of the covered
entity owns as of the end of the day on
December 31st of the sales year. For this
purpose, the IRS may revise the list of
NDCs as a result of information received
in the dispute resolution process, and
the data the IRS uses to produce the
final fee calculation will include any
revisions provided by the Agencies at
the completion of the dispute resolution
process. Each covered entity’s branded
prescription drug sales will be reduced
by its Medicare Part D rebates and
Medicaid state supplemental rebate
amounts in the following manner. If
CMS has the rebate information for
these Programs for a sales year, CMS
will report to the IRS branded
prescription drug sales net of rebates. If
CMS does not have the rebate
information for these programs for a
sales year, the IRS will reduce the
branded prescription drug sales
reported for these Programs by rebates
reported by the covered entities on
Forms 8947.
(c) Determination of sales taken into
account. (1) For each sales year and for
each covered entity, the IRS will
calculate sales taken into account. The
resulting number is the numerator of the
ratio described in paragraph (d)(1) of
this section.
(2) For each sales year, the IRS will
calculate the aggregate branded
prescription drug sales taken into
account for all covered entities. The
resulting number is the denominator of
the ratio described in paragraph (d)(2) of
this section.
(d) Allocated fee calculation. For each
covered entity for each fee year, the IRS
will calculate the entity’s allocated fee
by multiplying the applicable amount
from paragraph (a)(2) of this section by
a fraction—
(1) The numerator of which is the
covered entity’s branded prescription

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drug sales taken into account during the
sales year (described in paragraph (c)(1)
of this section); and
(2) The denominator of which is the
aggregate branded prescription drug
sales taken into account for all covered
entities during the same year (described
in paragraph (c)(2) of this section).
(e) Adjustment amount. For each fee
year after 2011, in addition to the
allocated fee computed under paragraph
(d) of this section, the IRS will also
calculate an adjustment amount that
reflects the difference between the
allocated fee determined for the covered
entity in the immediately preceding fee
year, using data from the second
calendar year preceding that fee year,
and what the allocated fee would have
been for that entity for the immediately
preceding fee year using data from the
calendar year immediately preceding
that fee year. For example, for 2012, the
adjustment amount for a covered entity
will be the difference between the
entity’s 2011 allocated fee, using 2009
data, and what the 2011 allocated fee
would have been using 2010 data.
Although the adjustment reflects a
revision of the prior year’s fee based on
data from the year immediately
preceding the prior fee year, the
adjustment is only taken into account by
adding it to or subtracting it from the
allocated fee computed under paragraph
(d) of this section for the current fee
year to arrive at the total fee for the
current fee year.
§ 51.6T Notice of preliminary fee
calculation (temporary).

(a) Content of notice. For each sales
year, the IRS will make a preliminary
calculation of the fee for each covered
entity as described in § 51.5T. The IRS
will notify each covered entity of its
preliminary fee calculation for that sales
year. The notification to a covered entity
of its preliminary fee calculation will
include—
(1) The covered entity’s allocated fee;
(2) The covered entity’s branded
prescription drug sales, by NDC, by
Program;
(3) The covered entity’s branded
prescription drug sales taken into

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0
10
40
75
100

account after application of
§ 51.5T(a)(3);
(4) The aggregate branded
prescription drug sales taken into
account for all covered entities;
(5) After the 2011 fee year, the
covered entity’s adjustment amount
calculated as described in § 51.5T(e);
and
(6) A reference to the fee dispute
resolution procedures set forth in
guidance published in the Internal
Revenue Bulletin.
(b) Time of notice. The IRS will send
each covered entity notice of its
preliminary fee calculation by the date
prescribed in guidance published in the
Internal Revenue Bulletin.
§ 51.7T Dispute resolution process
(temporary).

(a) In general. Upon receipt of its
preliminary fee calculation, each
covered entity will have an opportunity
to dispute this calculation by submitting
to the IRS an error report as described
in this section. The IRS will provide its
final determination with respect to error
reports no later than the time the IRS
provides a covered entity with a final
fee calculation.
(b) Program errors. To assert that there
has been one or more errors in drug
sales data, a covered entity must submit
a separate error report for each Program
with the asserted errors. Each report
must include the following
information—
(1) Entity name, entity number (if
applicable, from Part I (a) of the Form
8947), address, and Employer
Identification Number (EIN) as
previously reported on the Form 8947;
(2) The name, telephone number, and
e-mail address (if available) of one or
more employees or representatives of
the entity with whom the Agencies may
discuss the claimed errors. A Form
2848, ‘‘Power of Attorney and
Declaration of Representative,’’ must be
filed with the error report; and
(3) The name of the Program that
reported the data, the NDC, the specific
amount of sales data disputed, the
proposed corrected amount, an
explanation of why the Agency should
use the proposed corrected data instead,

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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations

and documentation of any Program drug
sales data or other information used to
establish the existence of any errors.
(c) Errors other than Program drug
sales errors. To assert that there has
been one or more errors in the
mathematical calculation of the fee, the
rebate data, the listing of an NDC for an
orphan drug, or any other error (other
than Program drug sales data errors), a
covered entity must submit one error
report, separated into sections by type of
error, and must include the following
information—
(1) Entity name, entity number (if
applicable, from Part I (a) of the Form
8947), address, and EIN as previously
reported on the Form 8947;
(2) The name, telephone number, and
e-mail address (if available) of one or
more employees or representatives of
the entity with whom the IRS and/or the
Agencies may discuss the claimed
errors. If the representative is not an
employee of the entity, a Form 2848
must be filed with the error report;
(3) For a mathematical calculation
error, the specific calculation element(s)
that the entity disputes and its proposed
corrected calculation;
(4) For a rebate data error, the NDC for
the drug to which it relates; a discussion
of whether the data used in the
preliminary fee calculation matches
previously reported Form 8947 data on
rebates; and, if the data used in the
preliminary fee calculation does match
the Form 8947 data, an explanation of
why the Form 8947 data was erroneous
and why the IRS should use the
proposed corrected data instead;
(5) For the listing of an NDC for an
orphan drug, the name and NDC of the
orphan drug; a discussion of whether
the data used in the preliminary fee
calculation matches previously reported
Form 8947 data on orphan drugs; and,
if the data used in the preliminary fee
calculation does match the Form 8947
data, an explanation of why the Form
8947 data was erroneous and why the
IRS should use the proposed corrected
data instead;
(6) For any other asserted error, an
explanation of the nature of the error,
how the error affects the fee calculation,
an explanation of how the entity
established that an error occurred, the
proposed correction to the error, and an
explanation of why the IRS or Agency
should use the proposed corrected data
instead;
(7) If an entity is using data to
establish the existence of an error and
that data was not reported on Form 8947
or contained in the notification of the
preliminary fee calculation, a
description of what the data is, how the

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entity acquired the data, and who
maintains it; and
(8) Documentation of any rebate and
orphan drug data, or other information
used to establish the existence of any
errors.
(d) Form, manner, and timing of
submission. Each covered entity must
submit its error report(s) in the form and
manner that is prescribed in guidance
published in the Internal Revenue
Bulletin. This guidance will also
prescribe the date by which each
covered entity must submit its report(s).
§ 51.8T Notification and payment of fee
(temporary).

(a) Notification of final fee
calculation. No later than August 31st of
each fee year, the IRS will send each
covered entity its final fee calculation
for that year. In any fee year, the IRS
will base its final fee calculation on data
provided to it by the Agencies as
adjusted pursuant to the dispute
resolution process. The notification to a
covered entity of its final fee calculation
will include—
(1) The covered entity’s allocated fee;
(2) After the 2011 fee year, an
adjustment amount calculated as
described in § 51.5T;
(3) The covered entity’s branded
prescription drug sales, by NDC, by
Program;
(4) The covered entity’s branded
prescription drug sales taken into
account after application of
§ 51.5T(a)(3);
(5) The aggregate branded
prescription drug sales taken into
account for all covered entities; and
(6) The final determination with
respect to error reports.
(b) Differences in preliminary fee
calculation and final fee calculation. A
covered entity’s final fee calculation
may differ from the covered entity’s
preliminary fee calculation because of
changes made pursuant to the dispute
resolution process described in § 51.7T.
Even if a covered entity did not file an
error report described in § 51.7T, a
covered entity’s final fee may differ
from a covered entity’s preliminary fee
because of a change in data reported by
the Agencies after resolution of error
reports, including a change in the
aggregate prescription drug sales figure.
A change in aggregate prescription drug
sales data can affect each covered
entity’s fee because each covered
entity’s fee is a fraction of the aggregate
fee collected from all covered entities. A
covered entity’s final fee may also differ
from its preliminary fee calculation
because the data used in the preliminary
fee calculation may have contained
inaccurate branded prescription drug

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sales information that was corrected or
updated at the conclusion of the dispute
resolution process.
(c) Payment of final fee. Each covered
entity must pay its final fee by
September 30th of the fee year. For a
controlled group, the payment must be
made using the designated entity’s EIN
as reported on Form 8947. The fee must
be paid by electronic funds transfer as
required by § 51.6302–1T. There is no
tax return to be filed for the fee.
(d) Joint and several liability. In the
case of a controlled group that is liable
for the fee, all covered entities within
the controlled group are jointly and
severally liable for the fee. Accordingly,
if a covered entity’s fee is not paid, the
IRS will separately assess each covered
entity in the group for the full amount
of the controlled group’s fee.
§ 51.9T

Tax treatment of fee (temporary).

(a) Treatment as an excise tax. The fee
imposed by section 9008 is treated as an
excise tax for purposes of subtitle F of
the Code (sections 6001–7874). Thus,
references in subtitle F to ‘‘taxes
imposed by this title,’’ ‘‘internal revenue
tax,’’ and similar references, are also
references to the fee imposed by section
9008. For example, the fee imposed by
section 9008 is assessed (section 6201),
collected (sections 6301, 6321, and
6331), enforced (section 7602), subject
to examination and summons (section
7602), and subject to confidentiality
rules (section 6103), in the same manner
as taxes imposed by the Code.
(b) Deficiency procedures. The
deficiency procedures of sections 6211–
6216 do not apply to the fee imposed by
section 9008.
(c) Limitation on assessment. The IRS
must assess the amount of the fee for
any fee year within three years of
September 30th of that fee year.
(d) Application of section 275. The fee
is treated as a tax described in section
275(a)(6) (relating to taxes for which no
deduction is allowed).
§ 51.10T

Refund claims (temporary).

Any claim for a refund of the fee must
be made by the person that paid the fee
to the government and must be made on
Form 843, ‘‘Claim for Refund and
Request for Abatement,’’ in accordance
with the instructions for that form.
§ 51.11T Effective/applicability date
(temporary).

Sections 51.1T through 51.10T apply
to any fee on branded prescription drug
sales that is due on or after September
30, 2011.
§ 51.12T

Expiration date (temporary).

The applicability of §§ 51.1T through
51.10T expires August 15, 2014.

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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
§ 51.6302–1T Method of paying the
branded prescription drug fee (temporary).

(a) Fee to be paid by electronic funds
transfer. Under the authority of section
6302(a), the fee imposed on branded
prescription drug sales by section 9008
and § 51.5T must be paid by electronic
funds transfer as defined in § 31.6302–
1(h)(4)(i), as if the fee were a depository
tax. For the time for paying the fee, see
§ 51.8T.
(b) Effective/applicability date. This
section applies on and after August 18,
2011.
(c) Expiration date. The applicability
of this section expires August 15, 2014.
PART 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
Par. 2. The authority citation for part
602 continues to read as follows:

■

Authority: 26 U.S.C. 7805.

Par. 3. In § 602.101, paragraph (b) is
amended by adding the following entry
in numerical order to the table to read
as follows:

■

§ 602.101

*

OMB Control numbers.

*
*
(b) * * *

*

*

CFR part or section
where indentified and
described

Current OMB
Control No.

*
*
*
51.8T .............................
*

*

*

*

*
1545–2209

*

*

Sarah Hall Ingram,
Deputy Commissioner for Services and
Enforcement.
Approved: August 12, 2011.
Emily S. McMahon,
Acting Assistant Secretary of the Treasury
(Tax Policy).
[FR Doc. 2011–21011 Filed 8–15–11; 11:15 am]
BILLING CODE 4830–01–P

DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 165
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[Docket No. USCG–2011–0760]
RIN 1625–AA87

Security Zone; Potomac River,
Georgetown Channel, Washington, DC
Coast Guard, DHS.
Temporary final rule.

AGENCY:
ACTION:

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The Coast Guard is
establishing a temporary security zone
encompassing certain waters of the
Potomac River, Georgetown Channel, in
Washington, DC, in order to safeguard
high-ranking public officials from
terrorist acts and incidents. This action
is necessary to ensure the safety of
persons and property, and prevent
terrorist acts or incidents. This rule
prohibits vessels and people from
entering the security zone and requires
vessels and persons in the security zone
to depart the security zone, unless
specifically exempt under the
provisions in this rule or granted
specific permission from the Coast
Guard Captain of the Port Baltimore.
DATES: This rule is effective from 6 a.m.
until 6 p.m. on August 28, 2011.
ADDRESSES: Documents indicated in this
preamble as being available in the
docket are part of docket USCG–2011–
0760 and are available online by going
to http://www.regulations.gov, inserting
USCG–2011–0760 in the ‘‘Keyword’’
box, and then clicking ‘‘Search.’’ They
are also available for inspection or
copying at the Docket Management
Facility (M–30), U.S. Department of
Transportation, West Building Ground
Floor, Room W12–140, 1200 New Jersey
Avenue, SE., Washington, DC 20590,
between 9 a.m. and 5 p.m., Monday
through Friday, except Federal holidays.
FOR FURTHER INFORMATION CONTACT: If
you have questions on this temporary
rule, call or e-mail Mr. Ronald L. Houck,
at Sector Baltimore Waterways
Management Division, Coast Guard;
telephone 410–576–2674, e-mail
[email protected]. If you have
questions on viewing the docket, call
Renee V. Wright, Program Manager,
Docket Operations, telephone 202–366–
9826.
SUPPLEMENTARY INFORMATION:
SUMMARY:

Regulatory Information
The Coast Guard is issuing this
temporary final rule without prior
notice and opportunity to comment
pursuant to authority under section 4(a)
of the Administrative Procedure Act
(APA) (5 U.S.C. 553(b)). This provision
authorizes an agency to issue a rule
without prior notice and opportunity to
comment when the agency for good
cause finds that those procedures are
‘‘impracticable, unnecessary, or contrary
to the public interest.’’ Under 5 U.S.C.
553(b)(B), the Coast Guard finds that
good cause exists for not publishing a
notice of proposed rulemaking (NPRM)
with respect to this rule because it is
contrary to public interest to delay the
effective date of this rule. The Coast
Guard is establishing the security zone

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51255

to protect high-ranking government
officials, mitigate potential terrorist acts,
and enhance public and maritime safety
and security. The Coast Guard was
unable to publish a NPRM due to the
short time period between event
planners notifying the Coast Guard of
the event and publication of the security
zone. Furthermore, delaying the
effective date would be contrary to the
security zone’s intended objectives of
protecting high-ranking government
officials, mitigating potential terrorist
acts and enhancing public and maritime
safety security.
Under 5 U.S.C. 553(d)(3), the Coast
Guard finds that good cause exists for
making this rule effective less than 30
days after publication in the Federal
Register. Due to the need for immediate
action, the restriction of vessel traffic is
necessary to protect life, property and
the environment, therefore, a 30-day
notice period is impracticable. Delaying
the effective date would be contrary to
the security zone’s intended objectives
of protecting high-ranking government
officials, mitigating potential terrorist
acts and enhancing public and maritime
safety and security.
Background and Purpose
The President of the United States
will be attending the Martin Luther
King, Jr. National Memorial in
Washington, DC dedication ceremony
on August 28, 2011. The ceremony is
located along the waterfront in
Washington, DC, in close proximity to
navigable waterways within the Captain
of the Port’s Area of Responsibility.
The Coast Guard has given each Coast
Guard Captain of the Port the ability to
implement comprehensive port security
regimes designed to safeguard human
life, vessels, and waterfront facilities
while still sustaining the flow of
commerce. The Captain of the Port
Baltimore is establishing this security
zone to protect high-ranking
government officials, mitigate potential
terrorist acts, and enhance public and
maritime safety and security in order to
safeguard life, property, and the
environment on or near the navigable
waters.
Discussion of Rule
Through this regulation, the Coast
Guard will establish a security zone.
The security zone will be in effect from
6 a.m. until 6 p.m. on August 28, 2011.
The security zone will include all
navigable waters of the Potomac River,
Georgetown Channel, within 75 yards
from eastern shore measured
perpendicularly to the shore between
the Theodore Roosevelt Memorial
Bridge and the Arlington Memorial

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