(a) In general. This section explains the terms used in this part for purposes of the fee imposed by section 9008 on branded prescription drugs.
(b) Agencies. The term Agencies means—
(1) The Centers for Medicare and Medicaid Services of the Department of Health and Human Services (CMS);
(2) The Department of Veterans Affairs (VA); and
(3) The Department of Defense (DOD).
(c) Branded prescription drug—(1) In general. The term branded prescription drug means—
(i) Any prescription drug the application for which was submitted under section 505(b) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(b)) (FFDCA); or
(ii) Any biological product the license for which was submitted under section 351(a) of the Public Health Service Act (42 U.S.C. 262(a)).
(2) Prescription drug. The term prescription drug means any drug that is subject to section 503(b) of the FFDCA.
(d) Branded prescription drug sales. The term branded prescription drug sales means sales of branded prescription drugs to any government program or pursuant to coverage under any such government program. However, the term does not include sales of orphan drugs.
(e) Covered entity—(1) In general. The term covered entity means any manufacturer or importer with gross receipts from branded prescription drug sales including—
(i) A single-person covered entity; or
(ii) A controlled group.
(2) Single-person covered entity. The term single-person covered entity means a covered entity that is not affiliated with a controlled group.
(3) Controlled group. The term controlled group means a group of two or more persons, including at least one person that is a covered entity, that is treated as a single employer under section 52(a), 52(b), 414(m), or 414(o).
(4) Special rules for controlled groups. For purposes of paragraph (e)(3) of this section (related to controlled groups)—
(i) A foreign entity subject to tax under section 881 is included within a group under section 52(a) or 52(b); and
(ii) A person is treated as being a member of a controlled group if it is a member of the group on the end of the day on December 31st of the sales year.
(5) Covered entity status—(i) Rule. An entity's status as a covered entity begins in the first fee year in which the entity has branded prescription drug sales and continues each subsequent fee year until there are no remaining branded prescription drug sales for that entity to be taken into account as described in §51.5(c) or used to calculate the adjustment amount described in §51.5(e).
(ii) Example. The following example illustrates the rule of paragraph (e)(5)(i) of this section:
(A) Facts. Entity A is a manufacturer with gross receipts of more than $5 million from branded prescription drugs sales in 2011. Entity A does not have any gross receipts from branded prescription drug sales before or after 2011.
(B) Analysis. Entity A is a covered entity beginning in 2011 because it had gross receipts from branded prescription drug sales in 2011. For the 2011 fee year, Entity A does not owe a fee because the 2011 fee is based on sales data from the 2009 sales year. For the 2012 fee year, Entity A does not owe a fee because the 2012 fee is based on sales data from the 2010 sales year. Entity A continues to be a covered entity for the 2012 fee year because its branded prescription drug sales from the 2011 sales year have not yet been taken into account as described in §51.5(c) and used to calculate the adjustment amount described in §51.5(e). For the 2013 fee year, Entity A continues to be a covered entity because a portion of its branded prescription drug sales from the 2011 sales year are taken into account as described in §51.5(c) for purposes of computing the 2013 fee. For the 2013 fee year, Entity A is also liable for the adjustment amount described in §51.5(e) for the difference between its 2012 fee computed using sales data from the 2010 sales year, which is $0, and what the 2012 fee would have been using sales data from the 2011 sales year. For the 2014 fee year, Entity A continues to be a covered entity because a portion of its branded prescription drug sales for the 2011 sales year are used to calculate the adjustment amount described in §51.5(e). Therefore, for the 2014 fee year, Entity A will receive an adjustment amount for the difference between its 2013 fee computed using sales data from the 2011 sales year, and what the 2013 fee would have been using sales data from the 2012 sales year, which is $0. After the 2014 fee year, there are no remaining branded prescription drug sales to be taken into account as described in §51.5(c) or used to calculate the adjustment amount described in §51.5(e) for Entity A. Accordingly, Entity A is not a covered entity after the 2014 fee year.
(f) Designated entity—(1) In general. The term designated entity means the person within a controlled group that is designated to act for the controlled group regarding the fee by—
(i) Filing Form 8947, “Report of Branded Prescription Drug Information”;
(ii) Receiving IRS communications about the fee for the group;
(iii) Filing an error report for the group, if applicable, as described in §51.7; and
(iv) Paying the fee to the government.
(2) Selection of designated entity—(i) Controlled group selection of a designated entity. Except as provided in paragraph (f)(2)(ii) of this section, the controlled group may select a person as the designated entity by filing Form 8947 in accordance with the form instructions. The designated entity must state under penalties of perjury that all members of the controlled group have consented to the selection of the designated entity. The designated entity must maintain a record of all member consents. Each member of a controlled group must maintain a record of its consent to the controlled group's selection of the designated entity.
(ii) Requirement for affiliated groups; agent for the group. If the controlled group, without regard to foreign corporations included under section 9008(d)(2)(B), is also an affiliated group whose common parent files a consolidated return for federal income tax purposes, the designated entity is the agent for the group (within the meaning of §1.1502-77 of this title).
(iii) IRS selection of a designated entity. Except as provided in paragraph (f)(2)(ii) of this section, if a controlled group does not select a designated entity as provided in paragraph (f)(2)(i) of this section, the IRS will select a member of the controlled group as the designated entity for the controlled group. If the IRS selects the designated entity, then all members of that controlled group will be deemed to have consented to the IRS's selection of the designated entity.
(g) Fee year. The term fee year means the calendar year in which the fee for a particular sales year must be paid to the government.
(h) Government programs. The term government programs (collectively “Programs”), means—
(1) The Medicare Part B program;
(2) The Medicare Part D program;
(3) The Medicaid program;
(4) Any program under which branded prescription drugs are procured by the Department of Veterans Affairs;
(5) Any program under which branded prescription drugs are procured by the Department of Defense; and
(6) The TRICARE retail pharmacy program.
(i) Manufacturer or importer. The term manufacturer or importer means the person identified in the Labeler Code of the National Drug Code (NDC) for a branded prescription drug.
(j) NDC. The term NDC means the National Drug Code. The NDC is a unique identifier that is assigned to all drug products approved by the Food and Drug Administration (FDA), including a branded prescription drug. The Labeler Code is the first five numeric characters of the NDC or the first six numeric characters when the available five-character code combinations are exhausted.
(k) Orphan drugs—(1) In general. Except as provided in paragraph (k)(2) of this section, the term orphan drug means any branded prescription drug for which any person claimed a section 45C credit and that credit was allowed for any taxable year.
(2) Exclusions. The term orphan drug does not include—
(i) Any drug for which there has been a final assessment or court order disallowing the full section 45C credit taken for the drug; or
(ii) Any drug for any sales year after the calendar year in which the FDA approved the drug for marketing for any indication other than the treatment of a rare disease or condition for which a section 45C credit was allowed, regardless of whether a section 45C credit was allowed for the drug before, in the same year as, or after this FDA designation.
(3) FDA marketing approval for treatment of another rare disease or condition. If a drug has prior FDA marketing approval for the treatment of a rare disease or condition for which a section 45C credit was allowed, and the FDA subsequently gives the drug marketing approval for the treatment of another rare disease or condition for which another section 45C credit was also allowed, the drug retains its status as an orphan drug provided the FDA has never approved the drug for marketing for any indication other than the treatment of a rare disease or condition for which a section 45C credit was allowed.
(4) Examples. The following examples illustrate the rules of this paragraph (k):
(ii) Analysis. In 2011 and 2012, Drug A is an orphan drug because: first, it was a branded prescription drug for which a person claimed a section 45C credit and for which that credit was allowed for a taxable year; second, there was not a final assessment or court order disallowing the full credit taken for the drug; and third, before 2012, the FDA did not approve the drug for marketing for any indication other than the treatment of a rare disease or condition for which a section 45C credit was allowed. However, Drug A is not an orphan drug for the 2013 sales year or later sales years because in 2012 the FDA approved Drug A for marketing for an indication other than the treatment of the rare disease or condition for which the section 45C credit was allowed and this indication was not for treatment of another rare disease or condition for which a section 45C credit was allowed.
(ii) Analysis. In 2011, Drug B is not an orphan drug because no section 45C credit was allowed and because the FDA approved Drug B for an indication other than the treatment of a rare disease or condition. In 2012, although the covered entity was allowed a section 45C credit for its qualified clinical testing expenses related to Drug B and there was no final IRS assessment or court order that disallowed the full credit, Drug B still is not an orphan drug because the FDA had approved the drug in 2011 for marketing for an indication other than the treatment of a rare disease or condition for which a section 45C credit was allowed in 2012. Thus, Drug B is not an orphan drug for the 2012 sales year or later sales years.
(ii) Analysis. In 2010 and 2011, Drug C is an orphan drug because: first, it was a branded prescription drug for which a person claimed a section 45C credit and for which that credit was allowed for a taxable year; second, there was not a final assessment or court order disallowing the full credit taken for the drug; and third, FDA had not approved the drug for marketing for any indication other than the treatment of a rare disease or condition for which a section 45C credit was allowed. In 2012, Drug C retains its orphan drug status because another section 45C credit was allowed and the FDA did not approve Drug C for marketing for any indication other than the treatment of another rare disease or condition for which a section 45C credit was allowed. Thus, Drug C is an orphan drug for the 2013 sales year.
(l) Sales taken into account. The term sales taken into account means branded prescription drug sales after application of the percentage adjustment table in section 9008(b)(2) (relating to annual sales less than $400,000,001). See §51.5(a)(3).
(m) Sales year. The term sales year means the second calendar year preceding the fee year. Thus, for example, for the fee year of 2014, the sales year is 2012.
[T.D. 9684, 79 FR 43639, July 28, 2014, as amended by T.D. 9823, 82 FR 34612, July 26, 2017]
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