Dispute resolution process for the 2011 prescription drug annual fee.

• Author: Bakale, Anthony S.

The nondeductible annual fee on branded prescription drugs was enacted by the Patient Protection and Affordable Care Act, P.L. 1 1 1-148, as amended by the Health Care and Education Reconciliation Act of 2010, P.L. 111-152 (the acts). The aggregate annual fee will be $2.5 billion for 2011. The fee increases to $4.1 billion for 2018 and decreases to $2.8 billion for 2019 and later. The IRS will allocate the aggregate annual fee to each covered entity based upon its proportionate share of branded prescription drug sales made during the preceding calendar year. Covered entities are certain manufacturers and importers of branded prescription drugs; those with branded prescription drug sales that are $5 million or less are exempt from the fee.

The fee will be calculated based on the proportion of each covered entity's sales to any specified government programs: Medicare Part D, Medicare Part B, Medicaid, and any program under which branded prescription drugs are procured by the Department of Veterans Affairs, Department of Defense, and TRICARE retail pharmacy program.

In Notice 2011-9, the IRS asked taxpayers 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. Notice 2011-9 also provided methodology and the approach for the preliminary 2011 fee allocation to each covered entity.

On May 2, 2011, the IRS issued rules (Rev. Proc. 2011-24) that provide the exclusive process available to covered entities to dispute the 2011 preliminary fee calculations and obtain any change to data that would be reflected in the final fee allocation. In order to participate in the dispute resolution process, a covered entity must submit a written error report to the IRS that is postmarked no later than June 10, 2011. In May, the IRS mailed preliminary fee calculations to the...