rp-11-24.pdf

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing.

This collection currently includes the publisher’s available advance-release directory. Historical bulletin renditions are discovered separately; an advance-release record alone does not certify the collection archive complete.

Part III

Administrative, Procedural, and Miscellaneous

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

Rev. Proc. 2011-24

Branded Prescription Drug Sales – Dispute Resolution Process for 2011 Preliminary
Fee Calculation

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.

2
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 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

3
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 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

4
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

5
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 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 PRELIM
INARY 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

6
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 Representative, 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

7
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 explanation of why
the Form 8947 data was erroneous and why the IRS should use the proposed corrected
data instead.

8
(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

9
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 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

10
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

(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.

11
(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.
SECTION 6. CONTACT INFORMATION

For questions regarding this dispute resolution process, contact Lou Milano on
(908) 301-2118 (not a toll-free call). For all other questions regarding this revenue
procedure, contact Celia Gabrysh on (202) 622-3130 (not a toll-free call).
SECTION 7. EFFECTIVE DATE
This revenue procedure is effecti
ve 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.
The collections of information in this revenue procedure are in section 4.
This information is required to evaluate whet
her an error report regarding a

12
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.