The IRS finalized rules (TD 10003) on the new drug excise tax under Section 5000D that was created as part of the legislation giving Medicare the power to negotiate drug prices.
Under the final rules, The IRS rules provide that the tax will apply to sales of designated drugs dispensed, furnished or administered to individuals under the terms of Medicare. The tax will be reported and paid quarterly on Form 720, but semimonthly deposits will not be required. However, the IRS and Treasury Department rejected requests for a safe harbor, and largely declined to make other changes raised in comments to preliminary guidance released last year.
The Inflation Reduction Act created a new program providing for the Secretary of Health and Human Services to negotiate the prices of a select number of high-cost, single-source drugs covered under Medicare. The new excise tax is meant as a “stick” to encourage participation in the price negotiation program. Manufacturers, producers or importers of a drug eligible for negotiation will face the excise tax at rates up to 19 times the price of the drug if the companies decline to participate in the program or don’t comply with the maximum fair price. The IRS estimates that there will be no more than 50 payers of the excise tax over the next three years.
Major trade groups are also challenging the program and the tax on the grounds that it violates the Eighth Amendment of the Constitution, an effort that may be likely to succeed after a series of business-friendly (but generally unrelated) decisions made by the Supreme Court in its most recent session.
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