[Federal Register Volume 88, Number 189 (Monday, October 2, 2023)]
[Proposed Rules]
[Pages 67690-67694]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-21586]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 40 and 47

[REG-115559-23]
RIN 1545-BQ93


Excise Tax on Designated Drugs; Procedural Requirements

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations that would provide 
guidance on how taxpayers will report liability for the excise tax 
imposed on manufacturers, producers, or importers of certain designated 
drugs. The proposed regulations affect manufacturers, producers, and 
importers of designated drugs that sell such drugs during certain 
statutory periods. The proposed regulations also

[[Page 67691]]

would except such tax from semimonthly deposit requirements.

DATES: Written or electronic comments and requests for a public hearing 
must be received by December 1, 2023. 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-115559-23) by following the 
online instructions for submitting comments. Requests for a public 
hearing must be submitted as prescribed in the ``Comments and Requests 
for a Public Hearing'' section. 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eRulemaking Portal, comments cannot be edited or withdrawn.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:LPD:PR (REG-115559-23), 
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin 
Station, Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
contact Jacob W. Peeples, James S. Williford, or Michael H. Beker at 
(202) 317-6855 (not a toll-free number); concerning the submission of 
comments and/or requests for a public hearing, contact Vivian Hayes by 
phone at (202) 317-5306 (not a toll-free number) or by email at 
[email protected] (preferred).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains proposed regulations that would amend the 
Excise Tax Procedural Regulations (26 CFR part 40) and add a new part 
47 to 26 CFR chapter 1 to contain the ``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).
    Section 5000D, added to chapter 50A of the Code by section 11003 of 
Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly known as 
the Inflation Reduction Act of 2022 (IRA), imposes an excise tax on the 
sale by the manufacturer, producer, or importer (taxpayer) of any 
designated drug during a day that falls within a period described in 
section 5000D(b). Because chapter 50A is a new chapter of the Code, the 
existing regulations that prescribe the procedural rules applicable to 
most excise taxes do not apply to chapter 50A.
    Notice 2023-52 (2023-35 I.R.B. 650) announces that the Treasury 
Department and the IRS intend to propose regulations addressing 
substantive and procedural issues related to the section 5000D tax. 
These proposed regulations address return filing and other procedural 
requirements related to the section 5000D tax as set forth in Notice 
2023-52. The Treasury Department and the IRS will issue a separate 
notice of proposed rulemaking to address substantive issues related to 
the section 5000D tax.

Explanation of Provisions

I. Proposed Amendments to 26 CFR Part 40

    These proposed regulations would apply the Excise Tax Procedural 
Regulations in 26 CFR part 40 to excise taxes imposed by chapter 50A of 
the Code (and thus to the section 5000D tax), with some limited 
exceptions.
A. Proposed Amendments to Sec.  40.0-1
    Section 40.0-1(a) provides generally that the regulations in part 
40 set forth administrative rules relating to the excise taxes imposed 
by chapters 31 through 34, 36, 38, 39, and 49 of the Code. Proposed 
Sec.  40.0-1(a) would amend that provision by adding chapter 50A of the 
Code to the list of Code chapters subject to the part 40 regulations.
B. Proposed Amendments to Sec.  40.6011(a)-1
    Section 40.6011(a)-1(a)(1) provides that the return of tax to which 
part 40 applies must be made on Form 720, Quarterly Federal Excise Tax 
Return, according to the instructions applicable to the form. Section 
40.6011(a)-1(a)(2) provides, in part, that a return must be filed for 
the first calendar quarter in which liability for tax is incurred (or 
tax must be collected and paid over) and for each subsequent calendar 
quarter, whether or not liability is incurred (or tax must be collected 
and paid over) during that subsequent quarter, until a final return 
under Sec.  40.6011(a)-2 is filed.
    Proposed Sec.  40.6011(a)-1(d) would provide that a return that 
reports liability imposed by section 5000D must be made for a period of 
one calendar quarter, and that a return must be filed for each calendar 
quarter in which liability for the section 5000D tax is incurred. 
Therefore, under these proposed regulations, taxpayers would be 
required to report any section 5000D tax liability on Form 720; 
however, taxpayers would not be required to file subsequent returns for 
quarters in which they incur no section 5000D tax liability.
C. Proposed Amendments to Sec.  40.6302(c)-1
    Section 40.6302(c)-1(a) provides that except as provided by statute 
or by Sec.  40.6302(c)-1(e), each person required under Sec.  
40.6011(a)-1(a)(2) to file a quarterly return must make a deposit of 
tax for each semimonthly period (as defined in Sec.  40.0-1(c)) in 
which tax liability is incurred. Section 40.6302(c)-1(e) provides a 
list of taxes that are excepted from the semimonthly deposit 
requirement.
    Proposed Sec.  40.6302(c)-1(e)(1)(vi) would add the section 5000D 
tax to the list of taxes that are excepted from the semimonthly deposit 
requirement. Therefore, under these proposed regulations, taxpayers 
with section 5000D tax liability would not be required to make 
semimonthly deposits of the section 5000D tax.

II. Proposed Addition of 26 CFR Part 47

    In addition to proposing the addition of a new part 47 to 26 CFR 
chapter 1, proposed Sec.  47.5000D-1 would provide an introductory 
provision under part 47 that would designate 26 CFR part 47 as the 
``Designated Drugs Excise Tax Regulations.''

Proposed Applicability Dates

    These proposed regulations, once adopted as final regulations in a 
Treasury Decision published in the Federal Register, are proposed to 
apply to calendar quarters beginning on or after October 1, 2023. 
Taxpayers may rely on these proposed regulations for such returns 
beginning on October 1, 2023, and before the date that a Treasury 
Decision published in the Federal Register adopts these regulations as 
final regulations.

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.

[[Page 67692]]

II. Paperwork Reduction Act

    The collections of information contained within these proposed 
regulations will be submitted to the Office of Management and Budget 
(OMB) for review in accordance with the Paperwork Reduction Act (PRA) 
(44 U.S.C. 3507(d)). See 5 CFR 1320.11. The Treasury Department and the 
IRS request comments on the information collection burdens related to 
the proposed regulations. Commenters are strongly encouraged to submit 
public comments electronically. Written comments and recommendations 
for the proposed information collection should be sent to https://www.reginfo.gov/public/do/PRAMain, with copies to the IRS. To find this 
particular information collection, select ``Currently under Review--
Open for Public Comments'' and then use the search function. Submit 
electronic submissions for the proposed information collection to the 
IRS via email at [email protected] (indicate REG-115559-23 in the 
subject line). Comments on the collection of information must be 
received by December 1, 2023. Comments are specifically requested 
concerning:
    Whether the proposed collections of information are necessary for 
the proper performance of the functions of the IRS, including whether 
the information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collections of information (see below);
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collections of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The collections of information in these proposed regulations relate 
to reporting and recordkeeping requirements that will allow section 
5000D taxpayers to meet their tax reporting obligations. The 
collections of information would generally be used by the IRS for tax 
compliance purposes and by taxpayers to facilitate proper tax reporting 
and compliance. The reporting and recordkeeping requirements are 
covered within the form and instructions for Form 720. IRS is seeking 
OMB approval on the statutorily required revisions to the form. 
Therefore, collection requirements will be submitted to OMB under 
control number 1545-0023.
    Because the section 5000D tax is a new tax that has never been 
reported to the IRS, the Treasury Department and the IRS do not have 
historical data on the number of affected taxpayers. The Centers for 
Medicare and Medicaid Services (CMS) has selected 10 drugs for price 
negotiation for initial price applicability year 2026. CMS will select 
for negotiation a limited number of drugs for each initial price 
applicability year after that, as outlined in the IRA. Further, 
manufacturers, producers, and importers of such drugs may or may not 
become subject to section 5000D tax liability. Based on the foregoing, 
the IRS estimates that there will be between 0 and 50 taxpayers during 
the next 3 years.
    If a taxpayer has a section 5000D tax liability, it would be 
required to file Form 720 to report such liability. Form 720 is a 
quarterly return. A taxpayer would only be required to file Form 720 
during calendar quarters in which the taxpayer has a section 5000D tax 
liability. Therefore, a taxpayer that has a section 5000D tax liability 
in one calendar quarter but not in subsequent calendar quarters would 
only be required to file one Form 720.
    The respondents with regard to the section 5000D tax are 
manufacturers, producers, and importers of certain drugs. The Treasury 
Department and the IRS estimate the annual burden of the collections of 
information as follows (these estimates, which are for PRA purposes 
only, are based on the high end of the range of possible taxpayers and 
the high end of the range of the frequency of responses, in which a 
taxpayer would have tax liability in all four calendar quarters):
    Estimated frequency of responses: Quarterly.
    Estimated number of responses: 50.
    Estimated burden time per respondent: 6.9 hours.
    Estimated total annual reporting burden: 1,380 hours.
    A Federal 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 assigned by 
OMB. Books or records relating to a collection of information must be 
retained if their contents may become material in the administration of 
any internal revenue law. Generally, tax returns and tax return 
information are confidential, as required by section 6103.

III. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it 
is hereby certified 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, and importers 
sell certain drugs during periods described in section 5000D(b). The 
periods described in section 5000D(b) relate to benchmarks in the 
Medicare Drug Price Negotiation Program, which involves only certain 
drugs with high Medicare expenditures. If any section 5000D tax 
liability arises, the taxpayers will primarily not be small entities. 
As noted earlier, data is not readily available about the number of 
taxpayers affected, but the number is likely to be limited, in part due 
to the limited number of drugs selected for the Drug Price Negotiation 
Program in any particular year. In addition, these proposed regulations 
will assist taxpayers in meeting their tax reporting obligations by 
providing clarity on how to report section 5000D tax liability, which 
will make it easier for taxpayers to comply with section 5000D. 
Therefore, these proposed regulations will not create additional 
obligations for, or impose a significant economic impact on, small 
entities, and a regulatory flexibility analysis under the Regulatory 
Flexibility Act 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, these proposed regulations 
have 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

[[Page 67693]]

by the private sector, in excess of that threshold.

V. 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.

Statement of Availability of IRS Documents

    The IRS Notice cited in this preamble is published in the Internal 
Revenue Bulletin (or Cumulative Bulletin) and is available from the 
Superintendent of Documents, U.S. Government Publishing Office, 
Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov.

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 heading. The Treasury Department and the IRS request comments 
on all aspects of the proposed regulations. Any comments submitted will 
be made available at https://www.regulations.gov or upon request.
    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.

Drafting Information

    The principal author of these regulations is Jacob W. Peeples of 
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

26 CFR Part 40

    Excise taxes, Reporting and recordkeeping requirements.

26 CFR Part 47

    Excise taxes.

Proposed Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS propose to amend 
26 CFR chapter I, subchapter D, as follows:

PART 40--EXCISE TAX PROCEDURAL REGULATIONS

0
Paragraph 1. The authority citation for part 40 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805.
* * * * *
0
Par. 2. Section 40.0-1 is amended by revising paragraphs (a) and (e) to 
read as follows:


Sec.  40.0-1  Introduction.

    (a) In general. The regulations in this part are designated the 
Excise Tax Procedural Regulations. The regulations in this part set 
forth administrative provisions relating to the excise taxes imposed by 
chapters 31 through 34, 36, 38, 39, 49, and 50A of the Internal Revenue 
Code (Code) (except for the chapter 32 tax imposed by section 4181 
(firearms tax) and the chapter 36 taxes imposed by sections 4461 
(harbor maintenance tax) and 4481 (heavy vehicle use tax)), and to 
floor stocks taxes imposed on articles subject to any of these taxes. 
Chapter 31 relates to retail excise taxes; chapter 32 to manufacturers' 
excise taxes; chapter 33 to taxes imposed on communications services 
and air transportation services; chapter 34 to taxes imposed on certain 
insurance policies; chapter 36 to taxes imposed on transportation by 
water; chapter 38 to environmental taxes; chapter 39 to taxes imposed 
on registration-required obligations; chapter 49 to taxes imposed on 
indoor tanning services; and chapter 50A to taxes imposed on designated 
drugs. References in this part to taxes also include references to the 
fees imposed by sections 4375 and 4376 of the Code. See parts 43, 46 
through 49, and 52 of this chapter for regulations related to the 
imposition of tax.
* * * * *
    (e) Applicability dates--(1) Paragraph (a). Paragraph (a) of this 
section applies to returns required to be filed under Sec.  40.6011(a)-
1 for calendar quarters beginning on or after October 1, 2023. For 
rules that apply before October 1, 2023, see 26 CFR part 40, revised as 
of April 1, 2023.
    (2) Paragraphs (b) and (c). Paragraphs (b) and (c) of this section 
apply to returns for calendar quarters beginning after March 31, 2013. 
For rules that apply before March 31, 2013, see 26 CFR part 40, revised 
as of April 1, 2012.
    (3) Paragraph (d). Paragraph (d) of this section applies to returns 
for calendar quarters beginning on or after January 19, 2021. For rules 
that apply before January 19, 2021, see 26 CFR part 40, revised as of 
April 1, 2020.
0
Par. 3. Section 40.6011(a)-1 is amended by:
0
1. Revising the first sentence of paragraph (a)(2)(i).
0
2. Adding paragraphs (d) and (e).
    The revision and additions read as follows:


Sec.  40.6011(a)-1  Returns.

    (a) * * *
    (2) * * *
    (i) * * * Except as provided in paragraphs (b) through (d) of this 
section, the return must be made for a period of one calendar quarter. 
* * *
* * * * *
    (d) Tax on designated drugs. A return that reports liability 
imposed by section 5000D must be made for a period of one calendar 
quarter. A return must be filed for each calendar quarter in which 
liability for the tax imposed by section 5000D is incurred. There is no 
requirement that a return be filed for a calendar quarter in which 
there is no liability imposed by section 5000D.
    (e) Applicability dates--(1) Paragraph (a)(2)(i). Paragraph 
(a)(2)(i) of this section applies to returns filed for calendar 
quarters beginning on or after October 1, 2023. For rules that apply 
before October 1, 2023, see 26 CFR part 40, revised as of April 1, 
2023.
    (2) Paragraph (c). See paragraph (c)(2) of this section.
    (3) Paragraph (d). Paragraph (d) of this section applies to returns 
filed for calendar quarters beginning on and after October 1, 2023.
0
Par. 4. Section 40.6302(c)-1 is amended by:
0
1. Revising paragraphs (e)(1)(iv) and (v).
0
2. Adding paragraph (e)(1)(vi).
0
3. Revising paragraph (f).
    The revisions and addition read as follows:


Sec.  40.6302(c)-1  Deposits.

* * * * *
    (e) * * *
    (1) * * *
    (iv) Sections 4375 and 4376 (relating to fees on health insurance 
policies and self-insured insurance plans);
    (v) Section 5000B (relating to indoor tanning services); and
    (vi) Section 5000D (relating to designated drugs).
* * * * *

[[Page 67694]]

    (f) Applicability dates--(1) Paragraphs (a) through (d). Paragraphs 
(a) through (d) of this section apply to deposits and payments made 
after March 31, 2013. For rules that apply before March 31, 2013, see 
26 CFR part 40, revised as of April 1, 2012.
    (2) Paragraph (e). Paragraph (e) of this section applies to 
calendar quarters beginning on or after October 1, 2023. For rules that 
apply before October 1, 2023, see 26 CFR part 40, revised as of April 
1, 2023.
0
Par. 5. Add part 47 to read as follows:

PART 47--DESIGNATED DRUGS EXCISE TAX REGULATIONS

Sec.
47.5000D-0 Table of contents.
47.5000D-1 Introduction.
47.5000D-2-47.5000D-3 [Reserved]

    Authority: 26 U.S.C. 7805.

    Section 47.5000D-1 also issued under 26 U.S.C. 5000D.

Sec.  47.5000D-0  Table of contents.

    This section lists the table of contents for Sec. Sec.  47.5000D-1 
through 47.5000D-3.


Sec.  47.5000D-1  Introduction.

    (a) In general.
    (b) Applicability date.


Sec. Sec.  47.5000D-2 and 47.5000D-3  [Reserved]


Sec.  47.5000D-1  Introduction.

    (a) In general. The regulations in this part are designated the 
Designated Drugs Excise Tax Regulations. The regulations in this part 
relate to the tax imposed by section 5000D of the Internal Revenue 
Code. See part 40 of this chapter for regulations relating to returns, 
payments, and other procedural rules applicable to this part.
    (b) Applicability date. This section applies to returns filed for 
calendar quarters beginning on or after October 1, 2023.


Sec. Sec.  47.5000D-2-47.5000D-3  [Reserved]

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-21586 Filed 9-27-23; 11:15 am]
BILLING CODE 4830-01-P