In proposed regulations (REG-115559-23), the IRS and Treasury Department outline how to report liability for the IRC Section 5000D excise tax imposed on manufacturers, producers or importers (collectively, taxpayers) of designated drugs¹ sold during the applicable statutory period. As described in the "Special Analyses" section of the proposed regulations, the applicable periods "relate to benchmarks in the Medicare Drug Price Negotiation Program, which involves only certain drugs with high Medicare expenditures."

Currently, the existing procedural rules that apply to most excise taxes (26 CFR Part 40) do not apply to IRC Chapter 50A, which is where IRC Section 5000D was added by the Inflation Reduction Act of 2022 (IRA). The proposed regulations would amend Treas. Reg. Section 40.0-1 to add Chapter 50A, with some exceptions.

The proposed regulations would require taxpayers to report the IRC Section 5000D excise tax on Form 720, Quarterly Federal Excise Tax Return, and file the return in each quarter in which liability for the tax is incurred. The proposed regulations would not require taxpayers to make semimonthly deposits of the IRC Section 5000D tax.

The proposed regulations would apply to calendar quarters beginning on or after October 1, 2023. Taxpayers may rely on them for returns beginning on this date.

Additionally, the proposed regulations would add a new Part 47 to 26 CFR to contain the "Designated Drugs Excise Tax Regulations" related to the excise tax imposed on certain sales by manufacturers, producers or importers of designated drugs.

Implications

Affected taxpayers should review the proposed regulations and consider providing comments by December 1, 2023. Additional information on how to submit comments, or request a hearing on the proposed regulations, is available here.

While these proposed regulations outline procedural guidance, the IRS and Treasury indicated that they would issue separate proposed regulations addressing substantive issues related to the IRC Section 5000D excise tax. Specifically, those regulations would clarify (1) the scope of taxable sales, (2) the method for calculating the IRC Section 5000D liability, and (3) the exclusion of the separately charged IRC Section 5000D excise tax from the price of the drug. (See IRS Notice 2023-52.)

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Published by NTD’s Tax Technical Knowledge Services group; Jennifer A Brittenham, legal editor

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ENDNOTE

¹ IRC Section 5000D(e)(1) defines "designated drug" as "any negotiation-eligible drug (as defined in [S]ection 1192(d) of the Social Security Act) included on the list published under [S]ection 1192(a) of such Act which is manufactured or produced in the United States or entered into the United States for consumption, use, or warehousing."