Rev. Proc. 2011-24

As is the case whenever significant
legislation is enacted, the Treasury Department and the Service have continued
to dedicate substantial resources during
the current plan year to published guidance projects necessary to implement the
provisions of the multitude of tax Acts
that have been enacted over the past several years including, but not limited to,
the American Recovery and Reinvestment
Tax Act of 2009, Pub. L. No. 111–5,
123 Stat. 115, which was enacted on
February 17, 2009; the Hiring Incentives
to Restore Employment Act, Pub. L.
No. 111–147, 124 Stat. 71, which was
enacted on March 18, 2010; the Patient
Protection and Affordable Care Act, Pub.
L. No. 111–148, 124 Stat. 119, which was
enacted on March 23, 2010; the Health
Care and Education Reconciliation Act,
Pub. L. 111–152, 124 Stat. 1029, which
was enacted on March 30, 2010; and
the Tax Relief, Unemployment Insurance
Reauthorization, and Job Creation Act of
2010, Pub. L. No. 111–312, 124 Stat.
3296, which was enacted on December 17,
2010.
The Treasury Department and
the Service will continue to evaluate the
priority of each guidance project in light
of the above-mentioned tax legislation and
other developments occurring during the
2011–2012 plan year.
In reviewing recommendations and selecting projects for inclusion on the 20112012 Guidance Priority List, the Treasury
Department and the Service will consider
the following:
1.

2.
3.

4.

5.

Whether the recommended guidance
resolves significant issues relevant to
many taxpayers;
Whether the recommended guidance
promotes sound tax administration;
Whether the recommended guidance
can be drafted in a manner that will
enable taxpayers to easily understand
and apply the guidance;
Whether the recommended guidance involves regulations that are
outmoded, ineffective, insufficient,
or excessively burdensome and that
should be modified, streamlined, expanded, or repealed;
Whether the Service can administer
the recommended guidance on a uniform basis; and

6.

Whether the recommended guidance
reduces controversy and lessens the
burden on taxpayers or the Service.
Taxpayers may submit recommendations for guidance at any time during the
year. Please submit recommendations by
June 1, 2011, for possible inclusion on
the original 2011–2012 Guidance Priority
List. The Treasury Department and the
Service may update the 2011–2012 Guidance Priority List periodically to reflect
additional guidance that the Treasury Department and the Service intend to publish
during the plan year. The periodic updates
allow the Treasury Department and the
Service to respond to the need for additional guidance that may arise during the
plan year. Recommendations for guidance
received after June 1, 2011, will be reviewed for inclusion in the next periodic
update.
Taxpayers are not required to submit
recommendations for guidance in any particular format. Taxpayers should, however, briefly describe the recommended
guidance and explain the need for the guidance. In addition, taxpayers may include
an analysis of how the issue should be resolved. It would be helpful if taxpayers
suggesting more than one guidance project
prioritize the projects by order of importance. If a large number of projects are being suggested, it also would be helpful if
the projects were grouped in terms of high,
medium or low priority.
Taxpayers should send written comments to:
Internal Revenue Service
Attn: CC:PA:LPD:PR
(Notice 2011–39)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044
or hand deliver comments Monday
through Friday between the hours of
8 a.m. and 4 p.m. to:
Courier’s Desk
Internal Revenue Service
Attn: CC:PA:LPD:PR
(Notice 2011–39)
1111 Constitution Avenue, N.W.
Washington, D.C. 20224
Alternatively, taxpayers may submit
comments
electronically
via

May 16, 2011

787

e-mail to the following address:
[email protected].
Taxpayers should include “Notice
2011–39” in the subject line.
All
comments submitted by the public will
be available for public inspection and
copying in their entirety.
For further information regarding this
notice, contact Henry Schneiderman of
the Office of Associate Chief Counsel
(Procedure and Administration) at (202)
622–3400 (not a toll-free call).

26 CFR 601.105: Examination of returns and claims
for refund, credit, or abatement; determination of
correct tax liability.

Rev. Proc. 2011–24
SECTION 1. PURPOSE
This revenue procedure establishes a
dispute resolution process for the preliminary fee calculation for the 2011 annual
fee imposed on covered entities engaged
in the business of manufacturing or importing branded prescription drugs. The
fee was enacted 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 this revenue procedure to
section 9008 are references to section 9008
of the ACA, as amended by section 1404
of HCERA.
SECTION 2. BACKGROUND
.01 Section 9008 imposes an annual
fee on each covered entity with gross receipts of over $5 million from branded prescription drug sales to any specified government program or pursuant to coverage
under such program (branded prescription
drug sales). A covered entity is generally any manufacturer or importer with
gross receipts from branded prescription
drug sales. Multiple related manufacturers or importers may be treated as a single covered entity under certain circumstances. See §9008(d)(2) and Part 1 of Notice 2011–9, 2011–6 I.R.B. 459. The specified government programs are the Medicare Part D program, the Medicare Part B

2011–20 I.R.B.

program, the Medicaid program, and any
program under which branded prescription
drugs are procured by the Department of
Veterans Affairs (VA), Department of Defense (DOD), and DOD’s TRICARE retail
pharmacy program (the Programs). Fees
collected under section 9008 are credited
to the Medicare Part B trust fund.
.02 Section 9008 sets the aggregate annual fee for all covered entities. For 2011,
the aggregate fee is $2.5 billion. This
aggregate fee is apportioned among the
covered entities for each year based on
each covered entity’s proportionate share
of branded prescription drug sales that are
taken into account during the previous calendar year. The Secretary of the Treasury
is to establish an annual payment date that
is no later than September 30 of each year.
.03 Special rules in section 9008 exclude sales of certain orphan drugs from
“branded prescription drug sales”; provide
that a covered entity’s branded prescription drug sales between $5 million and
$400 million will only partially be taken
into account in determining a covered entity’s proportionate share of sales; and provide a controlled group rule so that all persons that are treated as a single employer
under certain provisions of the Internal
Revenue Code (Code) will be treated as a
single covered entity.
.04 Section 9008 requires the Secretary
of Health and Human Services, the Secretary of Veterans Affairs, and the Secretary of Defense (the Agencies) to report
to the Secretary of the Treasury, at such
time and in such manner as the Secretary of
the Treasury prescribes, the total branded
prescription drug sales under each Secretary’s jurisdiction. The provision includes
the detailed information to be included in
the reports by the respective Secretaries for
each specified government program.
.05 In Notice 2011–9, the Treasury Department and the Internal Revenue Service (IRS) described a proposed methodology for calculating the section 9008 fee
and the approach that the IRS will use
to perform a preliminary 2011 fee calculation for each covered entity. The IRS
will mail each covered entity notification
of its preliminary fee calculation for 2011
by May 16, 2011. (The IRS requested
that comments on this notice be submitted
by June 15, 2011.) Under that methodology, the IRS will calculate each covered
entity’s fee for 2011 using data from the

2011–20 I.R.B.

2009 sales year. As set forth in Notice
2011–9, the IRS asked covered entities to
submit a Form 8947, Report of Branded
Prescription Drug Information, to the IRS
by February 11, 2011, to provide data on
branded prescription drugs, orphan drugs,
and rebates. In addition, any controlled
group treated as a single covered entity under section 9008(d)(2) was asked to identify on Form 8947 a single person as the
“designated entity” to act for the controlled
group with respect to the section 9008 fee.
.06 From the data on the Forms 8947,
the IRS compiled a list of National Drug
Codes (NDCs) for branded prescription
drugs sold to the Programs and, after appropriate due diligence, provided that list
to the Agencies. The Agencies provided
sales data to the IRS on the branded prescription drug sales for the 2009 sales year
by Program and NDC.
.07 After receiving the sales data from
the Agencies, the IRS will make adjustments for orphan drug sales and rebates,
and then calculate each covered entity’s
branded prescription drug sales taken into
account for purposes of the ratio set forth
in section 9008(b)(1). The IRS will then
provide a preliminary fee calculation for
2011 for each covered entity by dividing
each covered entity’s branded prescription
drug sales taken into account under section 9008(b)(2) by the aggregate branded
prescription drug sales taken into account
for all covered entities and multiplying that
fraction by the applicable amount for the
year as set forth in section 9008(b)(4). The
IRS will mail each covered entity notification of its preliminary fee calculation for
2011 by May 16, 2011.
.08 The notification of the preliminary
fee calculation for 2011 will include: (1)
the covered entity’s preliminary fee calculation; (2) the covered entity’s branded
prescription drug sales for 2009, by NDC,
for each Program; (3) the covered entity’s
branded prescription drug sales for 2009
taken into account after application of
section 9008(b)(2); and (4) the aggregate
branded prescription drug sales for 2009
taken into account for all covered entities.
Covered entities will be able to review
this information before the June 15, 2011,
deadline for commenting on the methodology proposal in Notice 2011–9.
.09 The IRS will mail a final fee calculation for 2011 to each covered entity by
August 15, 2011, and payment of the fee

788

from each covered entity will be due no
later than September 30, 2011.
SECTION 3. SCOPE
This revenue procedure provides the
process a covered entity may use to dispute what it believes are errors in its 2011
preliminary fee calculation. This is the
exclusive process available to covered
entities to dispute the preliminary fee calculation and obtain any change to data that
would be reflected in the final fee calculation mailed by the IRS by August 15, 2011.
SECTION 4. PROCEDURES FOR
DISPUTING A 2011 PRELIMINARY
FEE CALCULATION
.01 Submission of claimed error(s) to
the IRS
Upon receipt of the notification that
contains its 2011 preliminary fee calculation from the IRS, a covered entity should
review the data contained in the notification. If the covered entity believes that
the notification contains one or more errors in the mathematical calculation of
the fee, the orphan drug or rebate data,
the Program drug sales data, or any other
error, the covered entity must provide a
written error report to the IRS postmarked
by June 1, 2011, in order for a correction
to the claimed error(s) to be considered
by the IRS. If a designated entity filed a
Form 8947 on behalf of the covered entity,
the designated entity must also file any
error report for the covered entity.
.02 Program drug sales data errors
If a covered entity asserts that there has
been one or more errors in drug sales data,
the entity must submit a separate error report for each Program with its 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. If the representative is not
an employee of the entity, a Form 2848,
Power of Attorney and Declaration of Rep-

May 16, 2011

resentative, must be filed with the error report.
(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, and documentation
of any Program drug sales data or other
information used to establish the existence
of any errors.
.03 Errors other than Program drug
sales errors
If a covered entity asserts 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), the 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 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 IRS and/or the Agencies
may discuss the claimed errors. If the representative is not an employee of the entity,
a Form 2848, Power of Attorney and Declaration of Representative, 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 expla-

May 16, 2011

nation 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 entity acquired the data, and
who maintains it.
(8) Documentation of any rebate and orphan drug data, or other information used
to establish the existence of any errors.
.04 Form and manner of submission
(1) Each covered entity must submit its
error report(s) in the following format and
manner:
(a) All error reports and the supporting
documentation must be submitted on a single CD-ROM.
(b) A separate folder must be created
for each Program with asserted drug sales
data errors and the corresponding files
for each Program placed in the Program
folder. (For example, a Microsoft Excel
spreadsheet file with drug sales data errors for the Medicaid program must be
separate from a Microsoft Excel spreadsheet file with drug sales data errors for
the Medicare Part D program). The folder
and file names of the Microsoft Excel,
Word, or Adobe files must include the
name of the Program to which the asserted
errors will be communicated. Asserted
errors in Program drug sales data must
be presented in a Microsoft Excel spreadsheet file (no version newer than 2007)
in a format consistent with the data format from Attachment 2 of the Preliminary
Fee Calculation Letter (the IRS will mail
these letters (Letter 4657) by May 16,
2011) showing the amount reported by the
Program and the corresponding amount
asserted by the covered entity, with the
difference between the two.
(c) Asserted errors in mathematical calculations, rebate data, an NDC listing for
an orphan drug, or any other asserted errors
must be submitted on a separate Microsoft
Excel spreadsheet file (no version newer

789

than 2007). This spreadsheet file must be
placed in a folder separate from the Program sales data folder(s). The folder and
file names must distinguish these items
from the Program sales data folder and
files. These folders must also contain the
corresponding files for the asserted errors.
(d) A separate narrative for each Microsoft Excel spreadsheet file must be submitted and must be in Microsoft Word format (no version newer than 2007).
(e) Supporting documentation for each
Microsoft Excel spreadsheet file must be
in Adobe Portable Document Format (no
version newer than 8.0), if not available in
Microsoft Word or Excel format.
(2) A covered entity must also provide
an additional copy of its error report(s)
and supporting documentation in a separate folder labeled “IRS Comprehensive
Error Report.”
.05 Alternative Formats
Formats for submission other than Microsoft Word or Excel, or Adobe Portable
Document format may be arranged on a
case-by-case basis, if necessary, by contacting the first IRS representative listed in
Section 6 of this revenue procedure.
.06 Address for submission
Error reports and all supporting documentation must be mailed to:
Department of the Treasury
Internal Revenue Service
1973 N. Rulon White Boulevard,
Mail Stop 4916
Ogden, UT 84404
SECTION 5. REVIEW OF CLAIMED
ERROR(S)
.01 In general
If a claimed error involves a mathematical calculation or a correction to orphan
drug or rebate data, the IRS will review
the information and determine whether to
make a correction. If a claimed error involves drug sales data provided by a Program, the IRS will provide the information
sent by the covered entity to the Agency
with jurisdiction over the appropriate Program to determine whether to make a correction. For any other claimed error, the
IRS will review the information and determine whether the IRS or an Agency should
determine whether to make a correction.
.02 Period of review of error reports and
notification of final determinations

2011–20 I.R.B.

(1) The IRS and the Agencies will
review the error reports to determine
whether to make the proposed corrections
to the covered entity’s preliminary fee
calculation for 2011. The IRS will rely
exclusively on the Agencies to make determinations with respect to any proposed
corrections to the Program drug sales data.
The IRS will notify the covered entity in
writing of the final determination with respect to error reports when the IRS sends
the covered entity the final fee calculation
no later than August 15, 2011.
(2) The IRS will base a covered entity’s
final fee determination solely on the data
used for the preliminary fee calculation together with any adjustments to that data
made as a result of the dispute resolution
process described in this revenue procedure. To the extent any covered entity’s
preliminary fee calculation is changed as a
result of the dispute resolution process, the
final fee calculation for one or more covered entities may differ from the preliminary fee calculations those entities previously received. Any such changes will be
reflected in the covered entity’s final fee
calculation for 2011.

2011–20 I.R.B.

SECTION 6. CONTACT
INFORMATION
For questions regarding this dispute
resolution process, contact Lou Milano at
(908) 301–2118 (not a toll-free call). For
all other questions regarding this revenue
procedure, contact Celia Gabrysh at (202)
622–3130 (not a toll-free call).
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective
May 2, 2011.
SECTION 8. PAPERWORK
REDUCTION ACT
The collections of information contained in this revenue procedure have
been reviewed and approved by the Office
of Management and Budget in accordance with the Paperwork Reduction Act
(44 U.S.C. § 3507) 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.

790

The collections of information in this
revenue procedure are in section 4.
This information is required to evaluate
whether an error report regarding a preliminary fee calculation is valid and justifies
an adjustment to the preliminary fee calculation. The likely respondents are businesses.
The estimated total annual reporting
and/or recordkeeping burden of this revenue procedure is 4,760 hours.
The estimated annual burden per respondent/recordkeeper varies from 8 hours
to 64 hours, depending on individual circumstances, with an estimated average
burden of 40 hours. The estimated number
of respondents and/or record keepers is
119.
The estimated frequency of responses is
annual.
Books or records relating to a collection
of information must be retained as long as
their contents may become material in the
administration of the branded prescription
drug fee and any related internal revenue
law. Generally, this information is confidential, as required by 26 U.S.C. § 6103.

May 16, 2011