The Internal Revenue Service has successfully implemented a provision of the Affordable Care Act involving prescription drug fees imposed on pharmaceutical manufacturers and importers, according to a new report.
The report, from the Treasury Inspector General for Tax Administration, found that the IRS developed a new reporting form (Form 8947, Report of Branded Prescription Drug Information) and instructions. It also developed procedures and a database to process covered entities’ sales data and to accurately calculate the annual fees.
TIGTA reviewed a sample of 15 Forms 8947 (representing more than 80 percent of the sales volume used to calculate the fee) for calendar years 2011 and 2012 and independently calculated the fee assessments. TIGTA determined that the IRS’s calculation, assessment and collection of the fees were accurate for the sampled cases.
In addition, the IRS’s efforts to identify noncompliant covered entities were effective, TITA found. Data on branded prescription drug sales are reported to the IRS from both the covered entities and the Government agencies, creating a dual reporting process. The IRS merged and compared the data from each source to identify any inconsistencies and promptly followed up to resolve them.
Section 9008 of the ACA imposes an annual fee on pharmaceutical manufacturers and importers (referred to as covered entities) based on branded prescription drug sales made to specified Government agencies. The fees collected under the branded prescription drug fee program are to be transferred to the Medicare Part B Trust Fund, which is used to subsidize a portion of the Medicare Part B program. By accurately assessing and promptly collecting the branded prescription drug fees, the IRS ensures timely availability of these funds to the Medicare Part B program.
TIGTA initiated its audit to assess the IRS’s efforts to implement the branded prescription drug fee, which went into effect in calendar year 2011. The objective of the review was to determine the effectiveness of the IRS’s efforts to implement Section 9008 of the ACA.
“TIGTA found that the IRS successfully implemented the branded prescription drug fee through collaborative efforts with the various third parties involved and an alternative approach to calculate and assess the fee,” said Inspector General J. Russell George in a statement.
TIGTA identified one area requiring management’s attention. From TIGTA’s sample of 15 cases, it determined that some covered entities incorrectly interpreted the temporary regulations. Changes to Form 8947 and its instructions should help clarify these issues and reduce the burden on taxpayers, TIGTA noted.
TIGTA recommended that the commissioner of the IRS’s Large Business and International Division, revise sections of Form 8947 and its instructions to clarify certain issues. Covered entities should also be notified of these revisions.
In response to the report, IRS officials said they agreed with TIGTA’s recommendation. IRS management plans to revise sections of Form 8947 and its instructions to clarify taxpayer understanding and reduce taxpayer burden.
“We agree with your recommendation to revise sections of the Form 8947 and its instructions to clarify certain issues and provide specific guidance regarding expired drugs, [branded prescription drug] ownership and orphan drugs,” wrote Heather C. Maloy, commissioner of the IRS’s Large Business and International Division. “The revisions may reduce the number of the covered entities’ fee assessment disputes and refund claims.”