This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

31 

Vol. 90, No. 1 

Thursday, January 2, 2025 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 47 

[REG–115560–23] 

RIN 1545–BQ92 

Excise Tax on Designated Drugs 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This document contains 

proposed regulations relating to the 

excise tax on certain sales of designated 

drugs by manufacturers, producers, and 

importers during statutorily defined 

periods. The proposed regulations 

would provide substantive rules that 

relate to the imposition and calculation 

of the tax. The proposed regulations 

would affect manufacturers, producers, 

and importers of designated drugs that 

sell such drugs during statutorily 

defined periods. 

DATES: Written or electronic comments 

and requests for a public hearing must 

be received by March 3, 2025. Requests 

for a public hearing must be submitted 

as prescribed in the ‘‘Comments and 

Requests for a Public Hearing’’ section. 

ADDRESSES: Commenters are strongly 

encouraged to submit public comments 

electronically via the Federal 

eRulemaking Portal at https://

www.regulations.gov (indicate IRS and 

REG–115560–23) by following the 

online instructions for submitting 

comments. Once submitted to the 

Federal eRulemaking Portal, comments 

cannot be edited or withdrawn. The 

Department of the Treasury (Treasury 

Department) and the IRS will publish 

for public availability any comments 

submitted to the IRS’s public docket. 

Send paper submissions to: 

CC:PA:01:PR (REG–115560–23), Room 

5203, Internal Revenue Service, P.O. 

Box 7604, Ben Franklin Station, 

Washington, DC 20044. 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

contact James S. Williford or Jacob W. 

Peeples at (202) 317–6855 (not a tollfree number); concerning the 

submission of comments and requests 

for a public hearing, contact the 

Publications and Regulations Section of 

the Office of Associate Chief Counsel 

(Procedure and Administration) by 

phone at (202) 317–6901 (not a toll-free 

number) or by email at publichearings@

irs.gov (preferred). 

SUPPLEMENTARY INFORMATION: 

Authority 

This notice of proposed rulemaking 

contains proposed regulations that 

would amend 26 CFR part 47 

(Designated Drugs Excise Tax 

Regulations) related to the excise tax 

imposed by section 5000D of the 

Internal Revenue Code (Code) on certain 

sales by manufacturers, producers, or 

importers of designated drugs (section 

5000D tax). These proposed regulations 

are issued under the express delegation 

of authority granted to the Secretary of 

the Treasury or her delegate (Secretary) 

by section 5000D(h), which states: ‘‘The 

Secretary shall prescribe such 

regulations and other guidance as may 

be necessary to carry out the provisions 

of this section.’’ These proposed 

regulations are also issued under the 

express delegation of authority provided 

in section 7805(a), which authorizes the 

Secretary to prescribe all needful rules 

and regulations for the enforcement of 

the Code, including all rules and 

regulations as may be necessary by 

reason of any alteration of law in 

relation to internal revenue. 

Background 

Sections 1191 through 1198 of the 

Social Security Act (SSA) (42 U.S.C. 

1320f to 1320f–7), added by sections 

11001 and 11002 of Public Law 117– 

169, 136 Stat. 1818 (August 16, 2022), 

commonly known as the Inflation 

Reduction Act of 2022 (IRA), require the 

Secretary of Health and Human Services 

(HHS) to establish a Medicare 

prescription drug price negotiation 

program (Program) to negotiate 

maximum fair prices (MFPs) for certain 

high expenditure, single-source drugs 

covered by Medicare. Under the 

Program, the Secretary of HHS must, 

among other things: (1) publish a list of 

selected drugs in accordance with 

section 1192 of the SSA; (2) enter into 

agreements with willing manufacturers 

of selected drugs in accordance with 

section 1193 of the SSA; and (3) 

negotiate MFPs for such selected drugs 

in accordance with section 1194 of the 

SSA. Under section 1193(a)(3) of the 

SSA, manufacturers of selected drugs 

that choose to enter into agreements 

with the Secretary of HHS and that 

agree to an MFP commit to provide 

access to selected drugs at the 

negotiated prices to MFP-eligible 

individuals (as defined in section 

1191(c)(2) of the SSA), as well as to 

pharmacies and other dispensers, 

hospitals, physicians, other providers of 

services, and suppliers with respect to 

MFP-eligible individuals. 

Section 5000D was added to a new 

chapter 50A of the Code by section 

11003 of the IRA and is effective for 

sales on and after August 16, 2022. 

Section 5000D(a) imposes the section 

5000D tax on the sale by the 

manufacturer, producer, or importer of 

any designated drug during a day 

described in section 5000D(b), referred 

to herein as a ‘‘statutory period,’’ with 

respect to such designated drug. In the 

case of a sale of a designated drug timed 

for the purpose of avoiding the section 

5000D tax, section 5000D(f)(2) 

authorizes the Secretary to treat such 

sale as occurring during a statutory 

period. 

Section 5000D(e)(1) provides that a 

‘‘designated drug’’ is any ‘‘negotiationeligible drug,’’ as defined in section 

1192(d) of the SSA, included on the list 

published under section 1192(a) of the 

SSA that is manufactured or produced 

in the United States, as defined in 

section 5000D(e)(2), or entered into the 

United States for consumption, use, or 

warehousing. 

Under section 5000D(a), the amount 

of section 5000D tax imposed on the 

sale of a designated drug during a 

statutory period is the amount that 

causes the ratio of (1) the section 5000D 

tax, divided by (2) the sum of the 

section 5000D tax and the price for 

which the designated drug was sold, 

when such ratio is expressed as a 

percentage, to equal the ‘‘applicable 

percentage’’ (as defined in section 

5000D(d)): 

Applicable Percentage = Tax/(Tax + 

Price) 

The applicable percentage ranges 

from 65 percent to 95 percent, 

depending on the number of days a sale 


ddrumheller on DSK120RN23PROD with PROPOSALS1
32 Federal Register / Vol. 90, No. 1 / Thursday, January 2, 2025 / Proposed Rules 

1The Treasury Department and the IRS 

understand that, for purposes of the SSA and 

regulations and guidance issued thereunder, 

relabelers and repackagers are considered 

‘‘manufacturers,’’ and drugs, once relabeled or 

repackaged, new drugs. That regulatory regime is, 

however, nondeterminative with regard to the 

section 5000D tax. 

is made after the start of a statutory 

period. Section 5000D(d). 

As noted previously, section 5000D(h) 

authorizes the Secretary to prescribe 

such regulations and other guidance as 

may be necessary to carry out the 

provisions of section 5000D. On August 

28, 2023, the Treasury Department and 

the IRS published Notice 2023–52, 

2023–35 I.R.B. 650, announcing the 

Secretary’s intent to issue proposed 

regulations addressing substantive and 

procedural issues related to section 

5000D. Notice 2023–52 described 

certain rules that those proposed 

regulations would include and provided 

taxpayers with interim guidance. 

On October 2, 2023, the Treasury 

Department and the IRS published a 

notice of proposed rulemaking (REG– 

115559–23) in the Federal Register (88 

FR 67690) proposing amendments to the 

Excise Tax Procedural Regulations 

under 26 CFR part 40 to address tax 

return filing and other procedural 

requirements related to the section 

5000D tax applicable to returns filed for 

calendar quarters beginning on or after 

October 1, 2023. On July 5, 2024, the 

Treasury Department and the IRS 

published a Treasury decision (T.D. 

10003) in the Federal Register (89 FR 

55507) finalizing, with minor 

modifications, the proposed 

amendments to 26 CFR part 40 and 

adding part 47 to 26 CFR. 

These proposed regulations would 

amend the Designated Drugs Excise Tax 

Regulations by providing substantive 

rules related to the section 5000D tax, 

including rules consistent with the 

substantive rules described in Notice 

2023–52. Specifically, these proposed 

regulations would provide definitions of 

certain terms, such as ‘‘manufacturer, 

producer, or importer,’’ ‘‘sale,’’ and 

‘‘price,’’ and rules governing the 

imposition and calculation of the 

section 5000D tax. Concurrently with 

the filing for public inspection of these 

proposed regulations, the Treasury 

Department and the IRS are releasing 

Revenue Procedure 2025–9 to provide a 

safe harbor that taxpayers may use to 

identify the subset of each sale in units 

of a designated drug made during a 

statutory period that is subject to the 

section 5000D tax. After its release, 

Revenue Procedure 2025–9 will be 

published in the Internal Revenue 

Bulletin (see § 601.601(d) of the 

Statement of Procedural Rules (26 CFR 

part 601)). 

Explanation of Provisions 

These proposed regulations are 

organized into two sections: proposed 

§ 47.5000D–2 (relating to definitions) 

and proposed § 47.5000D–3 (relating to 

the imposition and calculation of the 

section 5000D tax). 

I. Definitions 

Proposed § 47.5000D–2 would 

provide definitions necessary to clarify 

the application of section 5000D. 

A. Applicable Percentage 

Proposed § 47.5000D–2(b)(1) would 

incorporate the substance of the 

statutory definition of the term 

‘‘applicable percentage’’ provided in 

section 5000D(d). Proposed § 47.5000D– 

2(b)(1) would also clarify that, to 

determine the appropriate applicable 

percentage for a specific applicable sale, 

days described in section 5000D(b) are 

cumulative regardless of whether such 

days are consecutive. 

B. Applicable Sale 

Proposed § 47.5000D–2(b)(2) would 

define the term ‘‘applicable sale’’ to 

mean the sale transaction that is the 

subset of each sale in units of a 

designated drug, as defined in section 

5000D(e)(1), by the manufacturer, 

producer, or importer that will be 

dispensed, furnished, or administered to 

MFP-eligible individuals, as defined in 

section 1191(c)(2) of the Social Security 

Act (42 U.S.C. 1320f(c)(2)) and any 

regulations or guidance issued 

thereunder by the Secretary of HHS. As 

explained in part II.A of this 

Explanation of Provisions, the proposed 

definition of ‘‘applicable sale’’ would 

reflect the scope of the section 5000D 

tax provided by the statutory context of 

its enactment. 

C. Manufacturer, Producer, or Importer 

The section 5000D tax is imposed on 

the sale of a designated drug by the 

‘‘manufacturer, producer, or importer’’ 

of that designated drug. While the 

statute does not define ‘‘manufacturer, 

producer, or importer,’’ the language of 

section 5000D(a) makes clear that these 

terms are not limited to the persons 

directly responsible for the conduct that 

gives rise to statutory periods. Proposed 

§ 47.5000D–2(b)(3)(i) would define the 

term ‘‘manufacturer, producer, or 

importer’’ to mean the person that 

makes the first sale (the definition of 

‘‘sale’’ is explained in part I.F of this 

Explanation of Provisions) of units of a 

designated drug or, in the case of 

imports, the person that makes the first 

sale of such units after they are entered 

into the United States for consumption, 

use, or warehousing. See section 

5000D(e)(1). Under this proposed 

definition, the section 5000D tax would 

typically be imposed on persons 

colloquially considered drug makers 

(that is, persons that physically or 

chemically create units of a drug). 

The proposed definition of 

‘‘manufacturer, producer, or importer’’ 

would also clarify that a sale of units of 

a designated drug would be the ‘‘first 

sale’’ if that sale precedes in time all 

other sales of those units. The ‘‘first 

sale’’ of any units of a designated drug 

would not, therefore, generally be the 

sale of such units to an MFP-eligible 

individual or other sales of such units 

that typically occur ‘‘down’’ or ‘‘later’’ 

in the supply chain that begins with the 

maker of a drug and ends with its 

ultimate user. For example, sales of 

units of a designated drug by a 

wholesaler, relabeler, repackager,1 retail 

pharmacy, healthcare provider, or other 

person that typically sells drugs or 

biological products ‘‘down’’ or ‘‘later’’ 

in the supply chain, would not, under 

most circumstances, be the first sale of 

those units and, consequently, such 

person would not be the manufacturer, 

producer, or importer with respect to 

such units for purposes of the section 

5000D tax. That designation would, 

under most circumstances, fall to a 

person ‘‘up’’ or ‘‘earlier’’ in the supply 

chain. If, however, a wholesaler, 

relabeler, repackager, retail pharmacy, 

healthcare provider, or other person 

were to make the first sale of units of a 

designated drug after entry into the 

United States for consumption, use, or 

warehousing, such person would be the 

manufacturer, producer, or importer 

with respect to such units for purposes 

of the section 5000D tax. 

The first sale concept is consistent 

with almost a century of case law 

regarding the imposition of excise taxes 

on first or initial sales by manufacturers, 

producers, or importers. See, e.g., 

Indian Motorcycle Co. v. United States, 

283 U.S. 570, 574 (1931) (‘‘[T]he 

requirement that the tax be paid by ‘the 

manufacturer, producer, or importer’ 

[. . .] is intended to be no more than a 

comprehensive and convenient mode of 

reaching all first or initial sales[.]’’); 

Smith v. United States, 319 F.2d 776, 

778–79 (5th Cir. 1963) (excise tax is 

designed ‘‘to impose a tax on the initial 

sale made in the United States by a 

manufacturer, producer, or importer’’); 

Texas Truck Parts and Tire v. United 

States, 118 F.4th 687, 697 (5th Cir. 

2024) (‘‘Our reading of the relevant law 

comports with this principle, providing 


ddrumheller on DSK120RN23PROD with PROPOSALS1
Federal Register / Vol. 90, No. 1 / Thursday, January 2, 2025 / Proposed Rules 33 

2 ‘‘Price,’’ as defined in proposed § 47.5000D– 

2(b)(4), does not apply beyond section 5000D. 

that Texas Truck is liable for the excise 

tax upon the initial sale in the United 

States.’’). 

Proposed § 47.5000D–2(b)(3)(ii) 

would clarify that the proposed 

definition of ‘‘manufacturer, producer, 

or importer’’ would apply 

independently of whether the sale in 

question occurs during a statutory 

period, meaning that the person that 

makes the first sale of a unit of a 

designated drug is the manufacturer, 

producer, or importer of that unit, to the 

exclusion of others in the supply chain, 

even if such sale is not taxable. See the 

example provided in proposed 

§ 47.5000D–2(c)(2). 

D. Sale Prior to Publication of Selected 

Drug List 

Under proposed § 47.5000D– 

2(b)(3)(iii), a person that would meet the 

definition of ‘‘manufacturer, producer, 

or importer’’ but for the timing of the 

publication of the list of selected drugs 

published under section 1192(a) of the 

SSA would be considered a 

manufacturer, producer, or importer for 

purposes of the section 5000D tax. As 

illustrated in the example provided in 

proposed § 47.5000D–2(c)(3), this 

proposed rule would ensure that 

subsequent sales by other persons, 

‘‘down’’ or ‘‘later’’ in the supply chain, 

that take possession of a drug or 

biological product prior to the 

publication of that list are not subject to 

taxation if such drugs or biological 

products become designated drugs 

while in such persons’ possession. 

E. Price 

Under section 5000D(a)(2), the section 

5000D tax is calculated, in part, by 

reference to the price of the designated 

drug sold during a statutory period; 

however, section 5000D does not define 

the term ‘‘price’’ for this purpose. 

Proposed § 47.5000D–2(b)(4) would 

define ‘‘price’’ broadly,2 capturing all 

amounts (other than the amount of the 

section 5000D tax) required by a 

manufacturer, producer, or importer to 

be paid as consideration for, or 

otherwise as a condition of, a sale of the 

subset of units of such sale that 

comprise an applicable sale. Because, as 

explained in part II.A of this 

Explanation of Provisions, section 

5000D(a) imposes a tax only on sales of 

designated drugs dispensed, furnished, 

or administered to MFP-eligible 

individuals, the price charged by the 

manufacturer, producer, or importer for 

such units would generally be the 

relevant price for purposes of 

determining the section 5000D tax. For 

purposes of this proposed definition, it 

would be immaterial that any amount 

constituting the price may be paid to a 

person other than the manufacturer, 

producer, or importer, or that it may be 

separately billed to the buyer as an 

amount earmarked for expenses 

incurred or to be incurred on such 

buyer’s behalf. 

Rebates and other price adjustments 

are common in the prescription drug 

supply chain. To account for such 

adjustments, proposed § 47.5000D– 

2(b)(4)(ii) would allow a manufacturer, 

producer, or importer to adjust the 

amount charged in an applicable sale, 

for purposes of calculating the section 

5000D tax, to reflect bona fide 

discounts, rebates, or allowances that 

are connected to that applicable sale 

and either paid to the buyer in such 

applicable sale, credited to the account 

of such buyer, or reimbursed to a third 

party for the benefit of such buyer by 

such manufacturer, producer, or 

importer. Under the proposed rule, a 

bona fide discount, rebate, or allowance 

would be made when the amount 

actually paid by, or charged against the 

account of, the buyer in the applicable 

sale is reduced by subsequent 

transactions between the parties. For 

example, a wholesaler chargeback paid 

by a manufacturer, producer, or 

importer to reflect a discounted sale of 

drugs ‘‘downstream’’ by the wholesaler 

would constitute a bona fide discount, 

rebate, or allowance, provided that such 

chargeback is connected to the 

applicable sale giving rise to the section 

5000D tax liability (and not any other 

sale, ongoing sales generally, or any 

other goods or services) and reduces the 

amount paid by, or charged against the 

account of, the buyer in that applicable 

sale (and not any other sale). 

Proposed § 47.5000D–2(b)(4)(iii) 

would provide that the amount of any 

bona fide discount, rebate, or allowance 

described in § 47.5000D–2(b)(4)(ii) that 

may be used to reduce the amount 

charged for an applicable sale is limited 

to the percentage of a sale that 

constitutes such applicable sale. See 

Identification of Applicable Sales in 

part II.C of this Explanation of 

Provisions. 

Proposed § 47.5000D–2(b)(4)(ii) and 

(iii) are intended to reflect the amount 

charged for the applicable sale in light 

of industry practices related to bona fide 

discounts, rebates, and allowances. The 

Treasury Department and the IRS 

request comments on other types of 

discounts, rebates, or allowances, 

including discounts, rebates, and 

allowances occurring at other points in 

the supply chain, that should be 

considered or treated as price 

adjustments under proposed 

§ 47.5000D–2(b)(4)(ii) and (iii). 

Proposed § 47.5000D–2(b)(4)(iv) 

would provide the method for allocating 

the amount described in proposed 

§ 47.5000D–2(b)(4)(iii)—that is, the 

amount by which any bona fide 

discount, rebate, or allowance reduces 

the amount charged in an applicable 

sale—between tax and price. This 

proposed rule would treat an applicable 

sale, including the extent to which the 

amount charged includes price and tax, 

as provided in § 47.5000D–3(b)(2)(i), as 

though such applicable sale was 

initially made at the adjusted price. 

Proposed § 47.5000D–2(c)(6) would 

provide an example of a price 

adjustment under proposed § 47.5000D– 

2(b)(4)(ii) and (iii) and the allocation 

required under proposed § 47.5000D– 

2(b)(4)(iv). 

F. Sale 

Proposed § 47.5000D–2(b)(5) would 

define ‘‘sale’’ as any agreement by 

which substantial incidents of 

ownership in units of a designated drug 

serve, in whole or in part, as 

consideration. 

II. Imposition and Calculation of Tax 

Proposed § 47.5000D–3 would 

provide rules relating to the imposition 

and calculation of the section 5000D 

tax. 

A. Imposition of Tax 

Proposed § 47.5000D–3(a)(1) would 

provide that section 5000D imposes a 

tax on an applicable sale made by a 

manufacturer, producer, or importer 

during a day described in section 

5000D(b). As described in part I.B of 

this Explanation of Provisions, the term 

‘‘applicable sale’’ refers to the subset of 

a sale in units of a designated drug that 

will be dispensed, furnished, or 

administered to MFP-eligible 

individuals, as defined in section 

1191(c)(2) of the SSA and any 

regulations or guidance issued 

thereunder by the Secretary of HHS. 

The scope of sales potentially subject 

to the section 5000D tax, as expressed 

in this proposed rule, reflects the 

broader statutory context of the 

Program, which defines both the 

substance and operation of the tax. 

Among other things, the objects of the 

tax, ‘‘designated drug[s],’’ are defined by 

section 5000D(e)(1), in part, by reference 

to the ‘‘negotiation-eligible drugs,’’ as 

defined in section 1192(d) of the SSA, 

included on the list published under 

section 1192(a) of the SSA. Such 

negotiation-eligible drugs are identified, 

under the Program, on the basis of 


ddrumheller on DSK120RN23PROD with PROPOSALS1
34 Federal Register / Vol. 90, No. 1 / Thursday, January 2, 2025 / Proposed Rules 

historical Medicare expenditures (see 

section 1192(b) and (c) of the SSA) and 

for the sole purpose of affecting prices 

paid by Medicare beneficiaries (see 

section 1192(a)(3) of the SSA). 

Similarly, the statutory periods during 

which the section 5000D tax may arise 

are defined by reference to milestones of 

the Program. See section 5000D(b). And, 

more generally, the applicability of the 

section 5000D tax is expressly linked to 

whether the manufacturer of a 

designated drug has a statutorily 

defined agreement with Medicare in 

place. See section 5000D(c). Because the 

section 5000D tax depends 

substantively on, and operates only in 

relation to, the Program, the scope of the 

Program—which provides access to 

selected drugs at the negotiated prices 

only to Medicare beneficiaries and their 

pharmacies, mail order services, and 

other dispensers, as well as hospitals, 

physicians, and other providers of 

services and suppliers—is reflected in 

the scope of the tax. 

B. Attachment of and Person Liable for 

the Tax 

Proposed § 47.5000D–3(a)(2) would 

clarify that the section 5000D tax 

attaches when a manufacturer, 

producer, or importer of a designated 

drug makes an applicable sale of such 

designated drug during a statutory 

period. Under proposed § 47.5000D– 

3(a)(3), the manufacturer, producer, or 

importer of a designated drug that sells 

units of such designated drug during a 

statutory period would be liable for any 

section 5000D tax arising from that sale. 

C. Identification of Applicable Sales 

Consistent with Notice 2023–52, 

proposed § 47.5000D–3(a)(4) would 

require a manufacturer, producer, or 

importer to employ a reasonable method 

to identify any applicable sales it made 

during a statutory period. The proposed 

rule would require a manufacturer, 

producer, or importer’s method of 

identifying such applicable sales to be 

based on recent transactions reflected in 

books, records, or other information 

pertaining to the drug or biological 

product selected under the Program. For 

this purpose, recent transactions would 

include those occurring no more than 24 

months before the first day of the 

calendar quarter in which the applicable 

sales occurred. 

For statutory periods that begin prior 

to March 1, 2026, proposed § 47.5000D– 

3(a)(4)(iii) would allow a manufacturer, 

producer, or importer to disregard sales 

of drugs or biological products 

furnished or administered by a hospital, 

physician, or other provider of services 

or supplier, where the recipient is an 

individual enrolled under Medicare part 

B of title XVIII of the SSA, including an 

individual enrolled in a Medicare 

Advantage plan under part C of title 

XVIII of the SSA, if payment may be 

made under part B for such units, 

consistent with section 1192(b)(2) of the 

SSA, which provides for the temporary 

exclusion of expenditures under part B 

of title XVIII of the SSA for purposes of 

ranking negotiation-eligible drugs. 

The Treasury Department and the IRS 

are aware that identifying applicable 

sales made during a statutory period 

may be difficult or burdensome. To help 

a manufacturer, producer, or importer 

comply with this requirement, the 

Treasury Department and the IRS are 

proposing a safe harbor for identifying 

such applicable sales. Specifically, 

proposed § 47.5000D–3(a)(4)(iv) would 

provide that a manufacturer, producer, 

or importer may satisfy the requirement 

to identify applicable sales by using the 

safe harbor percentage provided in 

guidance published in the Internal 

Revenue Bulletin. A manufacturer, 

producer, or importer that uses the safe 

harbor provided in proposed 

§ 47.5000D–3(a)(4)(iv) to identify the 

applicable sales made during a statutory 

period would be deemed to have 

complied with the requirements of 

proposed § 47.5000D–3(a)(4)(i) through 

(iii), as applicable. 

To ensure consistent reporting and 

reduce the potential for abuse, proposed 

§ 47.5000D–3(a)(4)(iv)(C) and (D) would 

require the safe harbor to be applied 

uniformly to all sales of a designated 

drug by a manufacturer, producer, or 

importer subject to the section 5000D 

tax during a calendar quarter and, 

unless the safe harbor percentage is 

changed by subsequent guidance, for a 

period of three consecutive calendar 

quarters thereafter. 

Under proposed § 47.5000D– 

3(a)(4)(iv)(E), any update of to the safe 

harbor percentage described in 

proposed § 47.5000D–3(a)(4)(iv)(A) 

would use a calculation methodology 

similar to that described in proposed 

§ 47.5000D–3(a)(4)(iv)(A), use the most 

recent analysis that the IRS has received 

from CMS of data available to CMS, and 

relieve a manufacturer, producer, or 

importer from an existing obligation 

under proposed § 47.5000D– 

3(a)(4)(iv)(C) to use the safe harbor 

described in proposed § 47.5000D– 

3(a)(4)(iv) as of the effective date of such 

updated safe harbor percentage. If a 

manufacturer, producer, or importer 

continues to use the safe harbor 

described in proposed § 47.5000D– 

3(a)(4)(iv) after the safe harbor 

percentage is updated, such 

manufacturer, producer, or importer 

would be required to use the updated 

safe harbor percentage on and after the 

effective date of such updated safe 

harbor percentage and for the remainder 

of any period required by proposed 

§ 47.5000D–3(a)(4)(iv)(C). 

Finally, proposed § 47.5000D– 

3(a)(4)(v) would provide that once a 

section 5000D tax liability is reported to 

the IRS for a particular calendar quarter, 

the manufacturer, producer, or importer 

liable for the section 5000D tax may not 

later recalculate its section 5000D tax 

liability for that quarter using a different 

method to identify its applicable sales. 

However, the correction of a 

mathematical or clerical error or the use 

of corrected data from the same 

historical period used to identify the 

applicable sales originally would not 

alone constitute the recalculation of a 

section 5000D tax liability using a 

different method. 

D. Calculation of Tax 

Proposed § 47.5000D–3(b)(1) would 

provide the tax rate by restating the 

statutory formula for calculating the 

section 5000D tax. As described in the 

Background section of this preamble, 

section 5000D(a) provides a formula for 

calculating the section 5000D tax by 

which an applicable percentage, ranging 

from 65 to 95 percent, equals the tax 

divided by the sum of the tax and the 

price. The applicable percentage varies 

depending on the number of days that 

have passed since a statutory period 

began. 

E. Effect of Invoicing Tax on Tax 

Calculation 

Consistent with Notice 2023–52, 

proposed § 47.5000D–3(b)(2)(i) would 

provide that if a manufacturer, 

producer, or importer makes no separate 

charge on its invoice or similar 

document with respect to a sale, the 

amount charged is presumed to include 

the proper amount of the section 5000D 

tax. The price would, under those 

circumstances, exclude the portion of 

the amount charged that is allocable to 

the section 5000D tax; no section 5000D 

tax would be calculated on the amount 

allocated to the section 5000D tax. see 

the example provided in proposed 

§ 47.5000D–3(b)(3). 

If a manufacturer, producer, or 

importer includes the section 5000D tax 

as a separate line item on an invoice or 

similar document, proposed 

§ 47.5000D–3(b)(2)(ii) would provide 

that the amount of section 5000D tax so 

charged is not included in the price; 

thus, no section 5000D tax would be 

due on the amount of section 5000D tax 

so charged. 


ddrumheller on DSK120RN23PROD with PROPOSALS1
Federal Register / Vol. 90, No. 1 / Thursday, January 2, 2025 / Proposed Rules 35 

Although this rule is modeled on a 

similar rule found in § 48.4216(a)–2(a) 

of the Manufacturers and Retailers 

Excise Tax Regulations, neither that rule 

nor any other found in 26 CFR part 48 

would apply or provide any interpretive 

guidance with respect to any rule 

proposed or issued under section 5000D 

because the part 48 regulations apply to 

taxes imposed by chapters 31 and 32 of 

the Code, and section 5000D is in 

chapter 50A. 

F. Anti-Abuse Rule 

Pursuant to the authority provided in 

section 5000D(h), proposed § 47.5000D– 

3(c) would provide an anti-abuse rule 

under which a transaction or series of 

transactions, including transactions 

made other than at arm’s length, may be 

adjusted, recharacterized, or otherwise 

recast by the IRS in circumstances in 

which the parties engaged in such 

transaction or series of transactions with 

a principal purpose of avoiding the 

section 5000D tax or substantially 

reducing the purported price on which 

the section 5000D tax is calculated. 

Proposed Applicability Date 

These regulations are proposed to 

apply to sales of designated drugs on 

and after the date the Treasury decision 

adopting these rules as final regulations 

is published in the Federal Register. 

Effect on Other Documents 

Taxpayers may continue to rely on 

sections 3.01 and 3.02 of Notice 2023– 

52 until these proposed regulations are 

finalized. 

Special Analyses 

I. Regulatory Planning and Review— 

Economic Analysis 

Pursuant to the Memorandum of 

Agreement, Review of Treasury 

Regulations under Executive Order 

12866 (June 9, 2023), tax regulatory 

actions issued by the IRS are not subject 

to the requirements of section 6 of 

Executive Order 12866, as amended. 

Therefore, a regulatory impact 

assessment is not required. 

II. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(44 U.S.C. 3501–3520) generally 

requires that a Federal agency obtain the 

approval of the Office of Management 

and Budget (OMB) before collecting 

information from the public, whether 

such collection of information is 

mandatory, voluntary, or required to 

obtain or retain a benefit. 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. 

Any collection burden associated 

with rules described in these proposed 

regulations is previously accounted for 

in OMB Control Number 1545–0023, 

which covers Form 720, Quarterly 

Federal Excise Tax Return. The 

recordkeeping requirements associated 

with Form 720 have already been 

approved by OMB. Moreover, a taxpayer 

may avail itself of the safe harbor 

proposed in these proposed regulations 

without filing any formal election or 

statement or performing any other 

affirmative act. These proposed 

regulations do not, therefore, alter 

previously accounted for information 

collection requirements or create new 

collection requirements. For PRA 

burden estimated for procedural rules 

related to the section 5000D tax, see the 

preamble to TD 10003. 

III. Regulatory Flexibility Act 

Pursuant to the Regulatory Flexibility 

Act (5 U.S.C. chapter 6) (RFA), the 

Secretary of the Treasury hereby 

certifies that these proposed regulations 

will not have a significant economic 

impact on a substantial number of small 

entities. This certification is based on 

the fact that the section 5000D tax is 

imposed only when certain drug 

manufacturers, producers, or importers 

sell certain designated drugs during 

periods described in section 5000D(b). 

The periods described in section 

5000D(b) relate to milestones in the 

Program, the scope of which is limited 

to a subset of drugs with high Medicare 

expenditures. To the extent any section 

5000D tax liability arises, taxpayers will 

be few and unlikely to meet the relevant 

definitions of small entities under the 

RFA and regulations thereunder. These 

proposed regulations will not, therefore, 

create additional obligations for, or have 

a significant economic impact on, a 

substantial number of small entities, 

and analysis under the RFA is not 

required. Notwithstanding this 

certification, the Treasury Department 

and the IRS welcome comments on the 

impact of these proposed regulations on 

small entities. 

IV. Section 7805(f) 

Pursuant to section 7805(f) of the 

Code, this notice of proposed 

rulemaking has been submitted to the 

Chief Counsel for the Office of 

Advocacy of the Small Business 

Administration for comment on its 

impact on small business. 

V. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 requires 

that agencies assess anticipated costs 

and benefits and take certain other 

actions before issuing a final rule that 

includes any Federal mandate that may 

result in expenditures in any one year 

by a State, local, or Tribal government, 

in the aggregate, or by the private sector, 

of $100 million in 1995 dollars, updated 

annually for inflation. These proposed 

regulations do not include any Federal 

mandate that may result in expenditures 

by State, local, or Tribal governments, or 

by the private sector, in excess of that 

threshold. 

VI. Executive Order 13132: Federalism 

Executive Order 13132 (Federalism) 

prohibits an agency from publishing any 

rule that has federalism implications if 

the rule either imposes substantial, 

direct compliance costs on State and 

local governments, and is not required 

by statute, or preempts State law, unless 

the agency meets the consultation and 

funding requirements of section 6 of the 

Executive order. These proposed 

regulations do not have federalism 

implications, do not impose substantial 

direct compliance costs on State and 

local governments, and do not preempt 

State law within the meaning of the 

Executive order. 

Comments and Requests for a Public 

Hearing 

Before these proposed amendments to 

the regulations are adopted as final 

regulations, consideration will be given 

to comments that are submitted timely 

to the IRS as prescribed in the preamble 

under the ADDRESSES section. The 

Treasury Department and the IRS 

request comments on all aspects of the 

proposed regulations. All commenters 

are strongly encouraged to submit 

comments electronically. The Treasury 

Department and the IRS will publish for 

public availability any comment 

submitted electronically or on paper to 

its public docket on https://

www.regulations.gov. 

A public hearing will be scheduled if 

requested in writing by any person who 

timely submits electronic or written 

comments. Requests for a public hearing 

are also encouraged to be made 

electronically. If a public hearing is 

scheduled, notice of the date and time 

for the public hearing will be published 

in the Federal Register. 

Statement of Availability of IRS 

Documents 

The IRS notice cited in this preamble 

is published in the Internal Revenue 

Bulletin and is available from the 

Superintendent of Documents, U.S. 

Government Publishing Office, 


ddrumheller on DSK120RN23PROD with PROPOSALS1
36 Federal Register / Vol. 90, No. 1 / Thursday, January 2, 2025 / Proposed Rules 

Washington, DC 20402, or by visiting 

the IRS website at https://www.irs.gov. 

Drafting Information 

The principal author of these 

regulations is the Office of the Associate 

Chief Counsel (Passthroughs & Special 

Industries). However, other personnel 

from the Treasury Department and the 

IRS participated in their development. 

List of Subjects in 26 CFR Part 47 

Excise taxes. 

Proposed Amendments to the 

Regulations 

Accordingly, the Treasury Department 

and the IRS propose to amend 26 CFR 

part 47 as follows: 

PART 47—DESIGNATED DRUGS 

EXCISE TAX REGULATIONS 

■ Paragraph 1. The authority citation 

for part 47 is amended by adding entries 

in numerical order for §§ 47.5000D–2 

and 47.5000D–3 to read in part as 

follows: 

Authority: 26 U.S.C. 7805. 

* * * * * 

Section 47.5000D–2 also issued under 26 

U.S.C. 5000D(h). Section 47.5000D–3 also 

issued under 26 U.S.C. 5000D(h). 

■ Par. 2. Section 47.5000D–0 is 

amended by: 

■ a. Removing the entry ‘‘§§ 47.5000D– 

2—47.5000D–4 [Reserved]’’. 

■ b. Adding entries for §§ 47.5000D–2 

and 47.5000D–3 and the entry 

‘‘§ 47.5000D–4 [Reserved]’’ in numerical 

order. 

The additions read as follows: 

§ 47.5000D–0 Table of contents. 

* * * * * 

§ 47.5000D–2 Definitions. 

(a) Overview. 

(b) Definitions. 

(1) Applicable percentage. 

(2) Applicable sale. 

(3) Manufacturer, producer, or importer. 

(i) In general. 

(ii) Sale made other than on a day 

described in section 5000D(b). 

(iii) Sale made prior to publication of the 

list of selected drugs under section 1192(a) of 

the Social Security Act. 

(4) Price. 

(i) In general. 

(ii) Adjustment to amount charged. 

(iii) Amount of adjustment. 

(iv) Allocation between price and tax. 

(5) Sale. 

(c) Examples. 

(1) Example 1: First sale of units of a 

designated drug. 

(i) Facts. 

(ii) Analysis. 

(2) Example 2: Manufacturer sale prior to 

day described in section 5000D(b). 

(i) Facts. 

(ii) Analysis. 

(3) Example 3: Sale made prior to 

publication of the list of selected drugs. 

(i) Facts. 

(ii) Analysis. 

(4) Example 4: Subsequent sale to relabeler. 

(i) Facts. 

(ii) Analysis. 

(5) Example 5: Importation. 

(i) Facts. 

(ii) Analysis. 

(6) Example 6: Chargeback reimbursement 

and allocation. 

(i) Facts. 

(A) Manufacturer sale. 

(B) Wholesaler sale and chargeback. 

(ii) Analysis. 

(A) Bona fide discount, rebate, or 

allowance. 

(B) Allocation of chargeback 

reimbursement between tax and price. 

(d) Severability. 

(e) Applicability date. 

§ 47.5000D–3 Imposition of section 

5000D tax. 

(a) Imposition of tax. 

(1) In general. 

(2) Attachment of tax. 

(3) Person liable for tax. 

(4) Identification of applicable sales. 

(i) In general. 

(ii) Books, records, and other information. 

(iii) Disregard of Medicare part B sales 

permissible prior to March 1, 2026. 

(iv) Safe harbor. 

(A) In general. 

(B) No election required. 

(C) Must use safe harbor for four 

consecutive calendar quarters. 

(D) Uniform application required. 

(E) Updates to safe harbor percentage. 

(v) Recalculation of liability not permitted. 

(b) Calculation of tax. 

(1) In general. 

(2) Charging tax as line item; effect on 

price. 

(i) Presumption if no separate charge for 

tax is made. 

(ii) Separately charged tax not part of price. 

(3) Example. 

(i) Facts. 

(ii) Analysis. 

(A) In general. 

(B) Step 1. 

(C) Step 2. 

(D) Step 3. 

(E) Step 4. 

(c) Anti-abuse rule. 

(d) Severability. 

(e) Applicability date. 

§ 47.5000D–4 [Reserved] 

■ Par. 3. Sections 47.5000D–2 and 

47.5000D–3 are added to read as 

follows: 

§ 47.5000D–2 Definitions. 

(a) Overview. This section provides 

definitions for purposes of section 

5000D of the Internal Revenue Code 

(Code) and the Designated Drugs Excise 

Tax Regulations in this part. 

(b) Definitions—(1) Applicable 

percentage. The term applicable 

percentage has the meaning provided in 

section 5000D(d). To determine the 

applicable percentage with respect to a 

specific applicable sale, days described 

in section 5000D(b) are cumulative 

regardless of whether such days are 

consecutive. 

(2) Applicable sale. The term 

applicable sale means the sale 

transaction that is the subset of each 

sale in units of a designated drug, as 

defined in section 5000D(e)(1), made by 

the manufacturer, producer, or importer 

that will be dispensed, furnished, or 

administered to maximum fair priceeligible individuals, as defined in 

section 1191(c)(2) of the Social Security 

Act (42 U.S.C. 1320f(c)(2)) and any 

regulations (in title 42 of the Code of 

Federal Regulations) or guidance issued 

thereunder by the Secretary of Health 

and Human Services. See § 47.5000D– 

3(a)(4) for methods of identifying 

applicable sales. 

(3) Manufacturer, producer, or 

importer—(i) In general. With respect to 

any units of a designated drug, the term 

manufacturer, producer, or importer 

means the person that makes the first 

sale of such units or, in the case of 

imports, the person that makes the first 

sale of such units after such units are 

entered into the United States for 

consumption, use, or warehousing. A 

sale is the first sale if it precedes in time 

any other sale of the same units. Each 

unit of a designated drug, therefore, has 

only one manufacturer, producer, or 

importer. 

(ii) Sale made other than on a day 

described in section 5000D(b). A person 

that meets the criteria of paragraph 

(b)(3)(i) of this section is a 

manufacturer, producer, or importer 

regardless of whether the sale described 

in paragraph (b)(3)(i) is made during a 

day described in section 5000D(b). See 

Example 2 provided in paragraph (c)(2) 

of this section. 

(iii) Sale made prior to publication of 

the list of selected drugs under section 

1192(a) of the Social Security Act. With 

respect to particular units of a drug or 

biological product, if a person would be 

described in paragraph (b)(3)(i) of this 

section but for the timing of the 

publication of the list of selected drugs 

under section 1192(a) of the Social 

Security Act, such person will 

nevertheless be considered the 

manufacturer, producer, or importer of 

such units. Subsequent sellers of such 

units would not, therefore, be the 

manufacturer, producer, or importer of 

such units. See Example 3 provided in 

paragraph (c)(3) of this section. 

(4) Price—(i) In general. Except as 

provided in § 47.5000D–3(b)(2)(i) and 

(ii), the term price means, with respect 

to an applicable sale of units of a 

designated drug sold during a day 


ddrumheller on DSK120RN23PROD with PROPOSALS1
Federal Register / Vol. 90, No. 1 / Thursday, January 2, 2025 / Proposed Rules 37 

described in section 5000D(b), any 

amount (whether in cash or in kind) that 

is required by a manufacturer, producer, 

or importer to be paid as a condition of 

such applicable sale. It is immaterial, for 

purposes of this paragraph (b)(4), that 

such amount may be paid to a person 

other than the manufacturer, producer, 

or importer, or that it may be separately 

billed to the buyer as an amount 

earmarked for expenses incurred or to 

be incurred on such buyer’s behalf. 

(ii) Adjustment to amount charged. A 

manufacturer, producer, or importer 

may adjust the amount charged in an 

applicable sale to reflect a bona fide 

discount, rebate, or allowance that is 

connected to such applicable sale and 

paid or credited by such manufacturer, 

producer, or importer against such 

amount. The basic consideration in 

determining, for purposes of this 

section, whether a bona fide discount, 

rebate, or allowance has been made is 

whether the amount actually paid by, or 

charged against the account of, the 

buyer in the applicable sale has been 

reduced. Such amount will be 

considered reduced by reason of a bona 

fide discount, rebate, or allowance only 

if the manufacturer, producer, or 

importer repays part or all of the 

amount charged to the buyer, credits the 

buyer’s account, or reimburses a third 

party for part or all of the amount 

charged for the benefit of the buyer. 

(iii) Amount of adjustment. The 

amount of any bona fide discount, 

rebate, or allowance described in 

paragraph (b)(4)(ii) of this section that 

may be used to reduce the amount 

charged for an applicable sale is limited 

by the percentage of a sale that 

constitutes such applicable sale. 

(iv) Allocation between price and tax. 

The amount described in paragraph 

(b)(4)(iii) of this section must be 

allocated between price and the tax 

imposed by section 5000D(a) (section 

5000D tax) in the same manner as the 

amount charged for the applicable sale 

absent such adjustment. See Example 6 

provided in paragraph (c)(6) of this 

section. 

(5) Sale. The term sale means any 

agreement by which substantial 

incidents of ownership in units of a 

designated drug serve as consideration. 

(c) Examples. The following examples 

illustrate the application of the 

definitions provided in this section and 

the rules provided in § 47.5000D–3. For 

purposes of this paragraph (c), all sales 

are applicable sales (see paragraph (b)(2) 

of this section and § 47.5000D–3(a)(4)) 

and, unless otherwise provided, all 

designated drugs are manufactured or 

produced in the United States. 

(1) Example 1: First sale of units of a 

designated drug—(i) Facts. 

Manufacturer D is a manufacturer of 

Designated Drug Y. During the fourth 

quarter of 2024, Manufacturer D sells 

1,000,000 units of Designated Drug Y to 

Wholesaler E, a drug wholesaler. With 

respect to Designated Drug Y, every day 

of the fourth quarter of 2024 is a day 

described in section 5000D(b). 

(ii) Analysis. Manufacturer D incurs 

liability under section 5000D(a) and 

§ 47.5000D–3(a) for its sale of the 

1,000,000 units of Designated Drug Y to 

Wholesaler E. No other person incurs 

liability under section 5000D(a) and 

§ 47.5000D–3(a) with respect to those 

units. Under paragraph (b)(3)(i) of this 

section, Manufacturer D’s sale of the 

1,000,000 units of Designated Drug Y to 

Wholesaler E is the first sale of such 

units of the designated drug. As a result, 

Manufacturer D is the manufacturer, 

producer, or importer with respect to 

such units of Designated Drug Y. 

Because Manufacturer D’s sale of the 

1,000,000 units of Designated Drug Y is 

made during a day described in section 

5000D(b), that sale is subject to taxation 

under section 5000D(a) and § 47.5000D– 

3(a). No tax liability under section 

5000D arises with respect to any 

subsequent sale of the 1,000,000 units of 

Designated Drug Y because no 

subsequent sale would qualify as the 

first sale of such units; therefore, no 

other person is the manufacturer, 

producer, or importer with respect to 

such units. 

(2) Example 2: Manufacturer sale 

prior to day described in section 

5000D(b)—(i) Facts. The facts are the 

same as those described in paragraph 

(c)(1)(i) of this section (Example 1), 

except that Manufacturer D’s sale of the 

1,000,000 units of Designated Drug Y is 

made after it is included on the list 

published under section 1192(a) of the 

Social Security Act, but before a day 

described in section 5000D(b). 

(ii) Analysis. Manufacturer D incurs 

no liability under section 5000D(a) and 

§ 47.5000D–3(a) for its sale of the 

1,000,000 units of Designated Drug Y to 

Wholesaler E. In addition, no other 

person incurs liability under section 

5000D(a) and § 47.5000D–3(a) with 

respect to those units. Under paragraph 

(b)(3)(i) of this section, Manufacturer D’s 

sale of the 1,000,000 units of Designated 

Drug Y to Wholesaler E is the first sale 

of such units of the designated drug. As 

a result, Manufacturer D is the 

manufacturer, producer, or importer 

with respect to such units of Designated 

Drug Y. No tax liability under section 

5000D, however, arises in relation to 

that sale because it was not made during 

a day described in section 5000D(b). 

Moreover, no tax liability under section 

5000D arises with respect to any 

subsequent sale of the 1,000,000 units of 

Designated Drug Y because no 

subsequent sale would qualify as the 

first sale of such units, and therefore no 

other person is the manufacturer, 

producer, or importer with respect to 

such units. 

(3) Example 3: Sale made prior to 

publication of the list of selected 

drugs—(i) Facts. Manufacturer B, a drug 

manufacturer, sells 1,000,000 units of 

Drug J to Wholesaler V, a drug 

wholesaler. After such sale and before 

Wholesaler V resells those 1,000,000 

units, Drug J is identified as a selected 

drug on the list published under section 

1192(a) of the Social Security Act, 

making it a designated drug (Designated 

Drug J), as defined in section 

5000D(e)(1). Wholesaler V subsequently 

sells the 1,000,000 units of Designated 

Drug J to pharmacies; these sales occur 

on a day described in section 5000D(b). 

(ii) Analysis. Manufacturer B incurs 

no liability under section 5000D(a) and 

§ 47.5000D–3(a) for its sale of the 

1,000,000 units of Designated Drug J to 

Wholesaler V. In addition, no other 

person incurs liability under section 

5000D(a) and § 47.5000D–3(a) with 

respect to those units. At the time of 

Manufacturer B’s sale to Wholesaler V, 

Drug J had not been included on the list 

of selected drugs published under 

section 1192(a) of the Social Security 

Act and, therefore, was not a designated 

drug as defined in section 5000D(e)(1). 

Under paragraph (b)(3)(iii) of this 

section, Manufacturer B would 

nevertheless be considered the 

manufacturer, producer, or importer 

with respect to the sale to Wholesaler V. 

No tax liability under section 5000D(a) 

and § 47.5000D–3(a) would arise with 

respect to Manufacturer B’s sale because 

that sale did not occur (and could not 

have occurred) during a day described 

in section 5000D(b). Moreover, no tax 

liability under section 5000D would 

arise with respect to Wholesaler V’s sale 

of the 1,000,000 units of Designated 

Drug J, even though such sale occurred 

during a day described in section 

5000D(b), because, as a function of the 

rule provided in paragraph (b)(3)(iii) of 

this section, Wholesaler V did not make 

the first sale of such units. Wholesaler 

V is not, therefore, the manufacturer, 

producer, or importer under paragraph 

(b)(3)(i) of this section with respect to 

such units of Designated Drug J, and is 

not subject to tax under section 5000D 

and § 47.5000D–3(a). 

(4) Example 4: Subsequent sale to 

relabeler—(i) Facts. The facts are the 

same as those described in paragraph 

(c)(1)(i) of this section (Example 1), 


ddrumheller on DSK120RN23PROD with PROPOSALS1
38 Federal Register / Vol. 90, No. 1 / Thursday, January 2, 2025 / Proposed Rules 

except that during the fourth quarter of 

2024, Wholesaler E sells the same 

1,000,000 units to Relabeler F, a drug 

relabeler. Relabeler F then relabels the 

1,000,000 units of Designated Drug Y 

and, before the end of the fourth quarter 

of 2024, sells all 1,000,000 units to 

pharmacies. 

(ii) Analysis. Manufacturer D incurs 

liability under section 5000D(a) and 

§ 47.5000D–3(a) for its sale of the 

1,000,000 units of Designated Drug Y to 

Wholesaler E. No other person incurs 

liability under section 5000D(a) and 

§ 47.5000D–3(a) with respect to those 

units. Relabeler F’s relabeling of the 

1,000,000 units of Designated Drug Y 

does not affect this outcome, regardless 

of whether such relabeling involves 

affixing a new National Drug Code or 

Codes to the units of Designated Drug Y 

prior to those units of Designated Drug 

Y being furnished to a maximum fair 

price-eligible individual. Relabeler F’s 

sales of the 1,000,000 units of 

Designated Drug Y to pharmacies are the 

third sales of such units, not the first. As 

a result, Manufacturer D is the 

manufacturer, producer, or importer 

with respect to such units under 

paragraph (b)(3)(i) of this section, not 

Relabeler F. Thus, Relabeler F’s sale of 

such units is not subject to taxation 

under section 5000D(a) and § 47.5000D– 

3(a), but Manufacturer D’s sale of such 

units to Wholesaler E is subject to the 

tax. 

(5) Example 5: Importation—(i) Facts. 

With respect to Designated Drug Y, 

every day of the fourth quarter of 2024 

is a day described in section 5000D(b). 

Manufacturer R is a manufacturer of 

Drug Y. During the fourth quarter of 

2024, Manufacturer R sells 1,000,000 

units of Drug Y to Wholesaler Q, a drug 

wholesaler, before such units are 

entered into the United States for 

consumption, use, or warehousing. 

Before the end of the fourth quarter of 

2024, Wholesaler Q enters the 1,000,000 

units of Drug Y into the United States 

for consumption, use or warehousing, 

rendering them units of a designated 

drug (Designated Drug Y), as defined in 

section 5000D(e)(1), and sells all 

1,000,000 units to pharmacies. 

(ii) Analysis. Wholesaler Q incurs 

liability under section 5000D(a) and 

§ 47.5000D–3(a) for its sale of the 

1,000,000 units of Designated Drug Y to 

the pharmacies. No other person incurs 

liability under section 5000D(a) and 

§ 47.5000D–3(a) with respect to those 

units. Under paragraph (b)(3)(i) of this 

section, Manufacturer R is not the 

manufacturer, producer, or importer 

with respect to the 1,000,000 units of 

Drug Y that Manufacturer R sold to 

Wholesaler Q during the fourth quarter 

of 2024 because Manufacturer R’s sale 

occurred before such units were entered 

into the United States for consumption, 

use, or warehousing. As a result, 

Manufacturer R’s sale to Wholesaler Q 

is not subject to taxation under section 

5000D(a) and § 47.5000D–3(a). 

Wholesaler Q’s sales of the same 

1,000,000 units of Designated Drug Y to 

pharmacies in the fourth quarter of 

2024, however, are subject to taxation 

under section 5000D(a) and § 47.5000D– 

3(a). Wholesaler Q’s sales to such 

pharmacies are the first sales of those 

units after they were entered into the 

United States for consumption, use, or 

warehousing. As a result, Wholesaler Q 

is the manufacturer, producer, or 

importer under paragraph (b)(3)(i) of 

this section with respect to such units 

of Designated Drug Y, and its sales 

thereof are subject to taxation under 

section 5000D(a) and § 47.5000D–3(a). 

(6) Example 6: Chargeback 

reimbursement and allocation—(i) 

Facts—(A) Manufacturer sale. 

Manufacturer P is the manufacturer, 

producer, or importer of 100,000 units 

of Designated Drug Q. During a day 

described in section 5000D(b), and no 

more than 90 days since the first such 

day, Manufacturer P sells 100,000 units 

of Designated Drug Q to Wholesaler V 

at $1.00 per unit ($100,000). 

Manufacturer P reasonably determines 

that 40 percent of the sale is the 

applicable sale. See paragraph (b)(2) of 

this section and § 47.5000D–3(a)(4). 

Manufacturer P does not separately 

invoice any section 5000D tax to 

Wholesaler V. See § 47.5000D–3(b)(2)(i). 

Manufacturer P’s sale to Wholesaler V 

would, therefore, have resulted in a 

section 5000D tax liability of $26,000 

($26,000 ÷ $40,000 = 65 percent). 

(B) Wholesaler sale and chargeback. 

Pharmacy G purchases the 100,000 units 

of Designated Drug Q from Wholesaler 

V at a discount. Wholesaler V issues a 

$30,000 chargeback invoice to 

Manufacturer P related to the amount of 

the discount. Manufacturer P pays 

Wholesaler V the full amount of the 

chargeback. 

(ii) Analysis—(A) Bona fide discount, 

rebate, or allowance. Manufacturer P’s 

reimbursement for Wholesaler V’s 

chargeback is a bona fide discount, 

rebate, or allowance against the price of 

the applicable sale because it is for the 

sale of the 100,000 units (and no other 

sale, goods, or services). Of the 100,000 

units sold, 40 percent, or 40,000, 

constitute the applicable sale and are 

therefore subject to the section 5000D 

tax. Manufacturer P’s reimbursement to 

Wholesaler V reduces the amount 

charged in that applicable sale, such 

that the amount charged per unit is 

$0.70 and the total amount charged in 

the applicable sale is $28,000 ($0.70 per 

unit × 40,000 units). The reimbursement 

proportionally attributable to the 

applicable sale is, therefore, $12,000 

($0.30 per unit × 40,000 units). 

(B) Allocation of chargeback 

reimbursement between tax and price. 

(1) The amount by which the 

chargeback reimbursement reduces the 

price and tax, for purposes of section 

5000D, is determined by allocating the 

reimbursement according to the same 

price-tax ratio that initially applied to 

the applicable sale: 

Equation 1 to Paragraph (c)(6)(ii)(B)(1) 

(2) The quotient of the tax-inclusive 

price adjustment ($12,000) and the taxinclusive sale price (the $40,000 amount 

charged) multiplied by the initial taxexclusive sale price of the applicable 

sale (($1.00¥$0.65) × $40,000, or 

$14,000) results in a price adjustment of 

$4,200, meaning that, of the $12,000 

reimbursement, $7,800 is allocated to 

tax and $4,200 is allocated to price. 

Thus, Manufacturer P’s liability under 

section 5000D for the applicable sale is 

$18,200 (the $26,000 tax liability arising 

from the sale as originally made less the 

$7,800 of the reimbursement allocated 

to the tax). In other words, Manufacturer 

P’s liability under section 5000D after 

the price adjustment is identical to the 

liability that Manufacturer P would 

have incurred under section 5000D had 

Manufacturer P originally sold the 

100,000 units of Designated Drug Q to 

Wholesaler V at the adjusted amount 

($18,200 ÷ $28,000 = 65 percent). 

(d) Severability. The provisions of this 

section are separate and severable from 

one another and any other section in 

this part. If any provision of this section 

is stayed or determined to be invalid, it 

is the intention of the Department of the 

Treasury and the Internal Revenue 

Service that the remaining provisions 


ddrumheller on DSK120RN23PROD with PROPOSALS1EP02JA25.000</GPH>

Tax Inclusive Price Adjustment X Tax Exclusive Sale Price = Price Adjustment 

Tax Inclusive Sale Price 
Federal Register / Vol. 90, No. 1 / Thursday, January 2, 2025 / Proposed Rules 39 

and sections of this part shall continue 

in effect. 

(e) Applicability date. This section 

applies to sales of designated drugs on 

or after [date of publication of final 

regulations in the Federal Register]. 

§ 47.5000D–3 Imposition of section 5000D 

tax. 

(a) Imposition of tax—(1) In general. 

Section 5000D(a) of the Internal 

Revenue Code (Code) imposes a tax 

(section 5000D tax) on applicable sales 

made by a manufacturer, producer, or 

importer during a day described in 

section 5000D(b). 

(2) Attachment of tax. The section 

5000D tax attaches when a 

manufacturer, producer, or importer of 

units of a designated drug makes an 

applicable sale of such units during a 

day described in section 5000D(b). 

(3) Person liable for tax. A 

manufacturer, producer, or importer of 

units of a designated drug that makes an 

applicable sale of such units during a 

day described in section 5000D(b) is 

liable for the section 5000D tax imposed 

on such sale. 

(4) Identification of applicable sales— 

(i) In general. A manufacturer, producer, 

or importer of units of a designated drug 

must employ a reasonable method to 

identify the applicable sales of such 

units, if any, that it makes during a day 

described in section 5000D(b). A 

manufacturer, producer, or importer’s 

method of identifying such applicable 

sales must be based on its books, 

records, or other information. For 

example, a subsidiary may rely on 

historical sales data collected and 

analyzed by its parent, provided that 

such data and analysis meet the 

requirements of paragraph (a)(4)(ii) of 

this section and are otherwise 

reasonable. 

(ii) Books, records, and other 

information. Books, records, and other 

information used to identify applicable 

sales must reflect transactions 

pertaining to the drug or biological 

product selected for inclusion on the list 

of selected drugs published under 

section 1192(a) of the Social Security 

Act that predate the first day of the 

calendar quarter in which the applicable 

sales occurred by no more than 24 

months. 

(iii) Disregard of Medicare part B 

sales permissible prior to March 1, 2026. 

For periods described in section 

5000D(b) that begin prior to March 1, 

2026, a manufacturer, producer, or 

importer’s method may disregard sales 

of drugs or biological products 

furnished or administered by a hospital, 

physician, or other provider of services 

or supplier, the recipient of which is an 

individual enrolled under Medicare part 

B of title XVIII of the Social Security 

Act, including an individual enrolled in 

a Medicare Advantage plan under part 

C of such title, if payment may be made 

under part B for such units. See section 

1192(b)(2) of the Social Security Act. 

(iv) Safe harbor—(A) In general. A 

manufacturer, producer, or importer 

may satisfy the requirements of this 

paragraph (a)(4) by using the safe harbor 

percentage provided in guidance 

published in the Internal Revenue 

Bulletin (see § 601.601 of this chapter), 

as applicable to the relevant calendar 

quarter, to identify its applicable sales. 

Such safe harbor percentage is a 

rounded average of the percentage of all 

sales that are applicable sales of a 

sample of qualifying single-source drugs 

(as defined in section 1192(e) of the 

Social Security Act) that is large enough 

to yield meaningful results, as 

determined by the analysis of certain 

manufacturer- and patient-level data 

conducted by the Centers for Medicare 

and Medicaid Services (CMS). 

(B) No election required. No election 

is required for a manufacturer, 

producer, or importer to use the safe 

harbor described in paragraph 

(a)(4)(iv)(A) of this section. 

(C) Must use safe harbor for four 

consecutive calendar quarters. Except as 

provided in paragraph (a)(4)(iv)(E) of 

this section, a manufacturer, producer, 

or importer that uses the safe harbor 

described in paragraph (a)(4)(iv)(A) of 

this section must continue to use the 

safe harbor for a period of four 

consecutive calendar quarters, including 

the calendar quarter in which the safe 

harbor is first used. 

(D) Uniform application required. A 

manufacturer, producer, or importer 

that uses the safe harbor described in 

paragraph (a)(4)(iv)(A) of this section for 

sales made during any day described in 

section 5000D(b) falling within a 

calendar quarter must apply the safe 

harbor to all sales by such manufacturer, 

producer, or importer during all days 

described in section 5000D(b) falling 

within that calendar quarter. Thus, if a 

manufacturer, producer, or importer 

uses the safe harbor described in 

paragraph (a)(4)(iii)(A) of this section 

with respect to one sale of a designated 

drug during a day described in section 

5000D(b), it must use the safe harbor for 

all sales of that designated drug and all 

sales of any other designated drug that 

occur in that calendar quarter during a 

day described in section 5000D(b). 

(E) Updates to safe harbor percentage. 

Any update to the safe harbor 

percentage described in paragraph 

(a)(4)(iv)(A) of this section will use a 

calculation methodology similar to that 

described in paragraph (a)(4)(iv)(A) of 

this section, use the most recent 

analysis that the Internal Revenue 

Service (IRS) has received from CMS of 

data available to CMS, and relieve a 

manufacturer, producer, or importer 

from an existing obligation under 

paragraph (a)(4)(iv)(C) of this section to 

use the safe harbor described in this 

paragraph (a)(4)(iv) as of the effective 

date of such updated safe harbor 

percentage. If a manufacturer, producer, 

or importer continues to use the safe 

harbor described in this paragraph 

(a)(4)(iv) after the safe harbor percentage 

is updated, such manufacturer, 

producer, or importer must use the 

updated safe harbor percentage on and 

after the effective date of such updated 

safe harbor percentage and for the 

remainder of any period required by 

paragraph (a)(4)(iv)(C) of this section. 

(v) Recalculation of liability not 

permitted. Once a section 5000D tax 

liability is reported to the IRS for a 

particular calendar quarter, the 

manufacturer, producer, or importer 

liable for the section 5000D tax may not 

later recalculate its section 5000D tax 

liability for that quarter using a different 

method to identify its applicable sales. 

The correction of a mathematical or 

clerical error, or the use of corrected 

data from the same historical period 

used to originally identify the 

applicable sales, does not alone 

constitute the recalculation of a section 

5000D tax liability using a different 

method. 

(b) Calculation of tax—(1) In general. 

(i) For any applicable sale of units of a 

designated drug during a day described 

in section 5000D(b), the amount of the 

section 5000D tax is the amount such 

that the applicable percentage is equal 

to the ratio of such tax divided by the 

sum of such tax and the price of such 

applicable sale expressed as a 

percentage. This ratio may be expressed 

as follows: 

Equation 1 to Paragraph (b)(1)(i) 

Applicable Percentage = Tax/(Tax + 

Price) 

(ii) See paragraph (b)(2) of this section 

for rules relating to the effect of certain 

invoicing methods on the determination 

of price. 

(2) Charging tax as line item; effect on 

price—(i) Presumption if no separate 

charge for tax is made. If no separate 

charge is made for the section 5000D tax 

on the invoice or similar document 

pertaining to an applicable sale, the 

amount charged for units of the 

designated drug is presumed to include 

both the proper amount of section 

5000D tax and the price. In such cases, 

the price excludes the portion of the 


ddrumheller on DSK120RN23PROD with PROPOSALS1
40 Federal Register / Vol. 90, No. 1 / Thursday, January 2, 2025 / Proposed Rules 

amount charged allocable to the section 

5000D tax so charged, and no section 

5000D tax is due on the amount of 

section 5000D tax so charged. 

(ii) Separately charged tax not part of 

price. If the section 5000D tax is 

separately charged on the invoice or 

similar document pertaining to an 

applicable sale, the section 5000D tax so 

charged is not included in the price. 

Thus, if a manufacturer, producer, or 

importer calculates the section 5000D 

tax and charges it as a separate item on 

the invoice or similar document 

pertaining to an applicable sale, the 

amount of section 5000D tax so charged 

is not included in the price for purposes 

of calculating the section 5000D tax 

under paragraph (b)(1) of this section, 

and no section 5000D tax is due on the 

amount of section 5000D tax so charged. 

(3) Example—(i) Facts. Manufacturer 

X is the manufacturer, producer, or 

importer of 409,000 units of Designated 

Drug H (that is, it makes the first sale 

of those units). During a day described 

in section 5000D(b), and no more than 

90 days since the first such day, 

Manufacturer X sells 100,000 units of 

Designated Drug H to Wholesaler A at 

$1.00 per unit, 300,000 units of 

Designated Drug H to Wholesaler B at 

$0.90 per unit, and 9,000 units of 

Designated Drug H to Wholesaler C at 

$1.12 per unit. Manufacturer X has 

reasonably determined that the 

applicable sale consists of 35 percent of 

the units of Designated Drug H in each 

such sale. Manufacturer X has not 

separately invoiced any section 5000D 

tax to Wholesalers A, B, or C. 

(ii) Analysis—(A) In general. To 

calculate its section 5000D tax liability 

with respect to its sales of Designated 

Drug H to Wholesalers A, B, and C, 

Manufacturer X must aggregate its 

section 5000D tax liability for the 

applicable sales by applying the 

presumption described in paragraph 

(b)(2)(i) of this section. 

(B) Step 1. Manufacturer X begins by 

determining the applicable sales within 

each of the sales described in paragraph 

(b)(3)(i) of this section. The applicable 

sale within the sale to Wholesaler A is 

35,000 units (100,000 units × 0.35). The 

applicable sale within the sale to 

Wholesaler B is 105,000 units (300,000 

units × 0.35). And the applicable sale 

within the sale to Wholesaler C is 3,150 

units (9,000 units × 0.35). 

(C) Step 2. Next, Manufacturer X 

determines the amount charged for the 

applicable sales. The amount charged 

for the applicable sale to Wholesaler A 

is $35,000.00 (35,000 units × $1.00 per 

unit). The amount charged for the 

applicable sale to Wholesaler B is 

$94,500.00 (105,000 units × $0.90 per 

unit). And the amount charged for the 

applicable sale to Wholesaler C is 

$3,528.00 (3,150 units × $1.12 per unit). 

(D) Step 3. Manufacturer X then 

determines the correct tax and price 

with respect to each amount charged for 

the applicable sales under the 

presumption provided in paragraph 

(b)(3)(i) of this section. Of the 

$35,000.00 Manufacturer X charged for 

the applicable sale to Wholesaler A 

(35,000 of 100,000 units), Manufacturer 

X allocates $22,750.00 to the section 

5000D tax and $12,250.00 to the price 

($22,750.00/($22,750.00 + $12,250.00) = 

0.65). Of the $94,500.00 Manufacturer X 

charged for the applicable sale to 

Wholesaler B (105,000 of 300,000 units), 

Manufacturer X allocates $61,425.00 to 

the section 5000D tax and $33,075.00 to 

the price ($61,425.00/($61,425.00 + 

$33,075.00) = 0.65). And of the 

$3,528.00 Manufacturer X charged for 

the applicable sale to Wholesaler C 

(3,150 of 9,000 units), Manufacturer X 

allocates $2,293.20 to the section 5000D 

tax and $1,234.80 to the price 

($2,293.20/($2,293.20 + $1,234.80) = 

0.65). 

(E) Step 4. Manufacturer X’s section 

5000D tax liability for the applicable 

sales is $86,468.20 ($22,750.00 + 

$61,425.00 + $2,293.20 = $86,468.20). 

This amount, when divided by the sum 

of the tax and the price of the applicable 

sales, equals 65 percent ($86,468.20/ 

($86,468.20 + $46,559.80) = 0.65). 

(c) Anti-abuse rule. If a manufacturer, 

producer, or importer engages in any 

transaction (or series of transactions) 

with a principal purpose of avoiding the 

section 5000D tax or substantially 

reducing the purported price at which a 

sale is made, including transactions 

made other than at arm’s length, such 

transaction (or series of transactions) 

may be adjusted, recharacterized, or 

otherwise recast by the Secretary for 

purposes of determining the correct 

section 5000D tax liability. Whether a 

transaction (or series of transactions) 

has a principal purpose of avoiding the 

section 5000D tax or substantially 

reducing the purported price of an 

applicable sale is determined based on 

all of the facts and circumstances, 

including, but not limited to, a 

comparison of the purported business 

purpose for, and the section 5000D tax 

consequences of, the transaction (or 

series of transactions). 

(d) Severability. The provisions of this 

section are separate and severable from 

one another and any other section of 

this part. If any provision of this section 

is stayed or determined to be invalid, it 

is the intention of the Department of the 

Treasury and Internal Revenue Service 

that the remaining provisions and 

sections of this part shall continue in 

effect. 

(e) Applicability date. This section 

applies to sales of designated drugs on 

or after [date of publication of final 

regulations in the Federal Register]. 

Douglas W. O’Donnell, 

Deputy Commissioner. 

[FR Doc. 2024–31462 Filed 12–31–24; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF JUSTICE 

28 CFR Part 5 

[Docket No. NSD 102; AG Order No. 6121– 

2024] 

RIN 1124–AA00 

Amending and Clarifying Foreign 

Agents Registration Act Regulations 

AGENCY: Office of the Attorney General, 

Department of Justice. 

ACTION: Proposed rule; request for 

comments. 

SUMMARY: The Department of Justice 

(‘‘DOJ,’’ ‘‘the Department’’) is proposing 

amendments and other clarifications to 

the scope of certain exemptions, to 

update and add various definitions, and 

to make other modernizing changes to 

the Attorney General’s Foreign Agents 

Registration Act (‘‘FARA’’) 

implementing regulations. 

DATES: Electronic comments must be 

submitted and paper comments must be 

postmarked or otherwise indicate a 

shipping date on or before March 3, 

2025. Paper comments postmarked on 

or before that date will be considered 

timely. The electronic Federal Docket 

Management System at https://

www.regulations.gov will accept 

electronic comments until 11:59 p.m. 

Eastern Time on that date. 

ADDRESSES: If you wish to provide 

comments regarding this rulemaking, 

you must submit comments, identified 

by the agency name and reference RIN 

1124–AA00 or Docket No. NSD 102, by 

one of the two methods below: 

• Federal eRulemaking Portal: 

https://www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail/Commercial Courier: Jennifer 

Kennedy Gellie, Chief, 

Counterintelligence and Export Control 

Section, National Security Division, 

U.S. Department of Justice, FARA Unit, 

175 N Street NE, Constitution Square, 

Building 3—Room 1.100, Washington, 

DC 20002. 

Instructions: All submissions received 

must include the agency name and 

docket number or Regulatory 


ddrumheller on DSK120RN23PROD with PROPOSALS1