Internal Revenue Bulletin 2011-40 (PDF rendition): IRS Notices

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Bulletin No. 201
1-40
October 3, 2011
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2011–21, page 458.
Fringe benefits aircraft valuation formula.The Standard
Industry Fare Level (SIFL) cents-per-mile rates and terminal
charge in effect for the second half of 2011 are set forth for
purposes of determining the value of noncommercial flights
on employer-provided aircraft under section 1.61–2(g) of the
regulations.
Notice 2011–76, page 479.
This notice grants each executor of an estate of a decedent
who died in 2010 an automatic 6-month extension of time to
file Form 706,United States Estate (and Generation-Skipping
Tr a n s f e r ) Ta x R e tu r n, or Form 706-NA,United States Estate
(and Generation-Skipping Transfer) Tax Return,Estate of non-
resident not a citizen of the United States, and to pay the estate
tax, if the executor files an extension request. The notice also
changes the due date of Form 8939,Allocation of Increase in
Basis for Property Acquired From a Decedent, to January 17,
2012. In addition, it provides limited penalty relief to recipients
who sold property in 2010 that they acquired from a decedent
whose executor elected for the provisions of section 1022 of
the Code to apply to such property. Finally, it extends the date
to affirmatively allocate the generation-skipping transfer (GST)
exemption and provides guidance on the application of the au-
tomatic allocation of GST exemption for decedents who died in
2010.
Announcement 2011–62, page 483.
Results of the 2010-11 allocation round of the qualify-
ing advanced coal project program.This announcement
discloses the results of the 2010-11 allocation round under the
qualifying advanced coal project program of section 48A of the
Code (the “section 48A program”). The Service did not allocate
any credits under the 2010-11 allocation round under the sec-
tion 48A program. The announcement also serves notice to
applicants that the 2011-12 allocation round is currently open
for the section 48A program pursuant to Notice 2009–24.
EMPLOYEE PLANS
Notice 2011–75, page 475.
Weighted average interest rate update; corporate bond
indices; 30-year Treasury securities; segment rates.
This notice contains updates for the corporate bond weighted
average interest rate for plan years beginning in September
2011; the 24-month average segment rates; the funding
transitional segment rates applicable for September 2011;
and the minimum present value transitional rates for August
2011.
(Continued on the next page)
Finding Lists begin on page ii.

ESTATE TAX
Notice 2011–76, page 479.
This notice grants each executor of an estate of a decedent
who died in 2010 an automatic 6-month extension of time to
file Form 706,United States Estate (and Generation-Skipping
Tr a n s f e r ) Ta x R e tu r n, or Form 706-NA,United States Estate
(and Generation-Skipping Transfer) Tax Return,Estate of non-
resident not a citizen of the United States, and to pay the estate
tax, if the executor files an extension request. The notice also
changes the due date of Form 8939,Allocation of Increase in
Basis for Property Acquired From a Decedent, to January 17,
2012. In addition, it provides limited penalty relief to recipients
who sold property in 2010 that they acquired from a decedent
whose executor elected for the provisions of section 1022 of
the Code to apply to such property. Finally, it extends the date
to affirmatively allocate the generation-skipping transfer (GST)
exemption and provides guidance on the application of the au-
tomatic allocation of GST exemption for decedents who died in
2010.
EXCISE TAX
T.D. 9544, page 458.
REG–112805–10, page 482.
Temporary and proposed regulations provide guidance on
the annual fee imposed on covered entities engaged in the
business of manufacturing or importing branded prescription
drugs. This fee was enacted by section 9008 of the Patient
Protection and Affordable Care Act. The temporary regulations
affect persons engaged in the business of manufacturing or
importing certain branded prescription drugs. The temporary
regulations provide an explanation of terms, a description of
the information requested from covered entities and agencies,
the calculation and notification of a preliminary fee, a dispute
resolution process, the final fee calculation and notification,
the tax treatment of the fee, and instructions regarding how
to claim a refund.
Notice 2011–73, page 474.
This notice requests comments on a proposed safe harbor for
affordability under section 4980H(b) of the Code. Comments
must be submitted by December 13, 2011.
ADMINISTRATIVE
T.D. 9543, page 470.
Final regulations amending regulations section 301.7502–1 to
provide guidance as to the only ways to establishprima facie
evidence of delivery of documents that have a filing deadline
prescribed by the Internal Revenue laws, absent direct proof of
actual delivery.
October 3, 20112011–40 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top-quality service by helping
them understa
nd and meet their tax responsibilities and en-
force the law wi
th integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2011–40 I.R.B.October 3, 2011

October 3, 20112011–40 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 61.—G
ross Income
Defined
26 CFR 1.61–21
: Taxation of fringe benefits.
Fringe benefi
ts aircraft valuation for-
mula.The Sta
ndard Industry Fare Level
(SIFL) cents
-per-mile rates and terminal
charge in eff
ect for the second half of 2011
are set forth
for purposes of determining
the value of n
oncommercial flights on
employer-p
rovided aircraft under section
1.61–2(g) o
f the regulations.
Rev. Rul. 2011
–21
For purposes o
f the taxation of fringe
benefits unde
rsection61oftheInter-
nal Revenue Co
de, section 1.61–21(g) of
the Income Ta
x Regulations provides a
rule for valu
ing noncommercial flights
on employer-
provided aircraft. Section
1.61–21(g)(
5) provides an aircraft valua-
tion formul
a to determine the value of such
flights. Th
e value of a flight is determined
under the ba
se aircraft valuation formula
(also known
as the Standard Industry Fare
Level formula
or SIFL) by multiplying
the SIFL cents
-per-mile rates applicable
for the period
during which the flight was
takenbythea
ppropriate aircraft multiple
provided in s
ection 1.61–21(g)(7) and then
adding the ap
plicable terminal charge. The
SIFL cents-p
er-mile rates in the formula
and the term
inal charge are calculated by
the Departm
ent of Transportation and are
reviewed se
mi-annually.
The followi
ng chart sets forth the termi-
nal charge a
nd SIFL mileage rates:
Period During Which
the Flight Is Taken
Terminal
Charge
SIFL Mileage
Rates
7/1/11 - 12/31/11
$43.79
Up to 500 miles
= $.2395 per mile
501-1500 mi
les
= $.1826 per
mile
Over 1500 miles
= $.1756 per mile
DRAFTING IN
FORMATION
The principal author of this revenue
ruling is Kathleen Edmondson of the
Office of Division Counsel/Associate
Chief Counsel (Tax Exempt/Government
Entities).For further information
regarding this revenue ruling, contact
Ms. Edmondson at (202) 622–0047 (not a
toll-free call).
Section 1022.—Treatment
of Property Acquired From
a Decedent Dying Ater
December 31, 2009
Notice 2011–76 changes the due date of Form
8939,Allocation of Increase in Basis for Property
Acquired From a Decedent,toJanuary17,2012.See
Notice 2011-76, page 479.
Section 2632.—Special
Rules f
or Allocation of
GST Ex
emption
Notic
e 2011–76 extends the date to affirmatively
alloc
ate generation-skippingtransfer (GST) exemp-
tion a
nd provides guidance on the application of the
automatic a
llocation of GST exemption for decedents
whodiedin2
010. See Notice 2011-76, page 479.
Section 6161.—Extension
of Time for Paying Tax
Notice 2011–76 grants each executor of an estate
of a decedent who died in 2010 an automatic 6-month
extension of time to pay the estate tax imposed under
section 2031. See Notice 2011-76, page 479.
Section 6302.—Mode or
Time of Collection
26 CFR 51.1T: Overview (temporary).
T.D. 9544
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 51 and 602
Branded Prescription Drug
Fee
AGENCY
: Internal Revenue Service
(IRS),
Treasury.
ACTION: Tem
porary regulations.
SUMMARY: Th
is document contains
temporary r
egulations that provide guid-
ance on the a
nnual fee imposed on cov-
ered entit
ies engaged in the business of
manufactu
ring or importing branded pre-
scription
drugs. This fee was enacted
by section
9008 of the Patient Protection
and Affor
dable Care Act, as amended by
section 1
404 of the Health Care and Ed-
ucation R
econciliation Act of 2010. The
regulati
ons affect persons engaged in the
business
of manufacturing or importing
certain
branded prescription drugs. The
text of t
he temporary regulations also
serves a
s the text of the proposed reg-
ulation
s (REG–112805–10) set forth in
the noti
ce of proposed rulemaking on this
subjec
t in this issue of the Bulletin.
DATES:
Effective Date:These regulations
are eff
ective on August 18, 2011.
Applic
ability Date:For dates of appli-
cabili
ty, see §§51.11T and 51.6302–1T(b).
FOR FUR
THER INFORMATION
CONTAC
T: Celia Gabrysh, (202)
622–31
30 (not a toll-free number).
2011–40 I.R.B.458October 3, 2011

SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
These temporary regulations are being
issued without prior notice and public pro-
cedure pursuant to the Administrative Pro-
cedure Act (5 U.S.C. 553). For this reason,
the collection of information contained in
these regulations has been reviewed and
pending receipt and evaluation of public
comments, approved by the Office of Man-
agement and Budget under control number
1545–2209.
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.
For further information concerning this
collection of information, and where to
submit comments on the collection of in-
formation and the accuracy of the esti-
mated burden, and suggestions for reduc-
ing this burden, please refer to the pream-
ble to the cross-reference notice of pro-
posed rulemaking on this subject in this is-
sue of the Bulletin.
Books or records relating to a collection
of information must be retained as long
as 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 26 U.S.C. 6103.
Background
This document adds the Branded Pre-
scription Drug Fee Regulations to the
Code of Federal Regulations (26 CFR
Part 51) under section 9008 of the Pa-
tient Protection and Affordable Care Act
(ACA), Public Law 111–148 (124 Stat.
119 (2010)), as amended by section 1404
of the Health Care and Education Recon-
ciliation Act of 2010 (HCERA), Public
Law 111–152 (124 Stat. 1029 (2010)). All
references in this preamble to section 9008
are references to section 9008 of ACA,
as amended by section 1404 of HCERA.
Section 9008 did not amend the Internal
Revenue Code (Code) but cross-refer-
ences to specified Code sections.
Statutory provisions
Section 9008(a) imposes an annual fee
on each covered entity engaged in the
business of manufacturing or importing
brandedprescriptiondrugs,tobepaidnot
later than the annual date specified by the
Secretary of the Treasury or his delegate
(Secretary), but in no event later than
September 30
th
of each calendar year in
which a fee must be paid (fee year).
Section 9008(d)(1) defines acovered
entityas any manufacturer or importer
with gross receipts from branded pre-
scription drug sales. Section 9008(d)(2)
provides a controlled group rule under
which all persons treated as a single em-
ployer under section 52(a), 52(b), 414(m),
or 414(o) of the Code are treated as a
single covered entity. For this purpose, a
foreign entity subject to tax under section
881 is included within a controlled group
under section 52(a) or 52(b). Under sec-
tion 9008(d)(3), all persons treated as a
single employer under section 9008(d)(2)
are jointly and severally liable for the fee.
Section 9008(e)(2) definesbranded
prescription drugas (i) any prescription
drug the application for which was sub-
mitted under section 505(b) of the Federal
Food, Drug, and Cosmetic Act (FFDCA)
(21 U.S.C. 355(b)), or (ii) any biological
product the license for which was sub-
mitted under section 351(a) of the Public
Health Service Act (42 U.S.C. 262(a)).
For this purpose, aprescription drugis
any drug that is subject to section 503(b)
of the FFDCA (21 U.S.C. 353(b)).
Section 9008(b) provides rules for de-
termining the amount of the annual fee
for each covered entity. Under section
9008(b)(4), the aggregate fee amount each
year for all covered entities (referred to as
theapplicable amount) is $2.5 billion for
fee year 2011; $2.8 billion for fee years
2012 and 2013; $3 billion for fee years
2014 through 2016; $4 billion for fee year
2017; $4.1 billion for fee year 2018; and
$2.8 billion for fee year 2019 and there-
after. Section 9008(b)(1) requires the ap-
plicable amount for each year to be allo-
cated, using a specified formula, among
covered entities with aggregate branded
prescription drug sales of over $5 million
to specified government programs or pur-
suant to coverage under such programs.
Section 9008(e)(4) provides that thespec-
ified government programsare the Medi-
care Part B program, the Medicare Part
D program, the Medicaid program, any
program under which branded prescrip-
tion drugs are procured by the Department
of Veterans Affairs, any program under
which branded prescription drugs are pro-
cured by the Department of Defense, and
the TRICARE retail pharmacy program
(collectively, the Programs).
Specifically, section 9008(b)(1) pro-
vides that the annual fee for each covered
entity is calculated by determining the
ratio of (i) the covered entity’s branded
prescription drug sales taken into account
during the precedingcalendar year to (ii)
the aggregate branded prescription drug
sales taken into account for all covered
entities during the same year, and applying
this ratio to the applicable amount.Sales
taken into accountmeans branded pre-
scription drug sales after the application of
the percentage adjustment table in section
9008(b)(2). The sales data is generally to
be provided by the Centers for Medicare
and Medicaid Services of the Department
of Health and Human Services (CMS),
the Department of Veterans Affairs (VA),
and the Department of Defense (DOD)
(collectively, the Agencies) pursuant to
section 9008(g).
Section 9008(b)(3) requires the Secre-
tary to determine the amount of each cov-
ered entity’s fee and permits the Secretary
to rely on reports submitted by the Agen-
cies and any other source of information
available to the Secretary in determining
that amount. Section 9008(i) also directs
the Secretary to publish guidance neces-
sary to carry out the purposes of the statute.
Section 9008(f) treats the fee as an ex-
cise tax with respect to which only civil ac-
tions for refunds under the provisions of
subtitle F of the Code will apply. Thus,
the fee may be assessed and collected us-
ing the procedures in subtitle F without re-
gard to the restrictions on assessment in
section 6213 (relating to petitions to the
Tax Court). Section 9008(f) also charac-
terizes the fee as a nondeductible tax under
section 275 of the Code.
IRS guidance
On November 29, 2010, the Internal
Revenue Service (IRS) released Notice
2010–71, 2010–50 I.R.B. 822, which
proposed an approach to implementing
the section 9008 fee and requested com-
ments on the proposed approach. The
proposed approach included an opportu-
nity to report certain information to the
IRS relevant to the fee calculation and
October 3, 20114592011–40 I.R.B.

provided that the IRS would provide each
covered entity with notice of a preliminary
fee calculation. This notice was modi-
fied and superseded by Notice 2011–9,
2011–6 I.R.B. 459, which was released on
January 14, 2011.
On April 29, 2011, the IRS released
Rev. Proc. 2011–24, 2011–20 I.R.B. 787,
which established a process for covered
entities to submit claimed errors in their
preliminary fee calculations for considera-
tion before final fee calculations for 2011.
On May 27, 2011, the IRS released No-
tice 2011–46, 2011–25 I.R.B. 887, to defer
the due date for submission of error reports
and the last possible date for sending final
fee calculations for 2011.
Explanation of Provisions
The temporary regulations describe the
rules related to the fee and the actions to be
taken before the September 30
th
due date
of each year’s fee. The temporary reg-
ulations first provide a general overview
of the rules and then provide an expla-
nation of terms used in implementing the
fee. Next, the temporary regulations de-
scribe the information requested from cov-
ered entities and provided by the Agencies.
The temporary regulations then describe
how the fee is calculated and provide for
a subsequent adjustment. The temporary
regulations then provide for a notice of the
preliminary fee calculation, a dispute reso-
lution process to allow covered entities to
submit error reports relating to the prelim-
inary fee calculation, and a notice of the
final fee calculation. The temporary reg-
ulations also explain how to pay the fee,
how the fee is treated for tax purposes, and
how to make refund claims.
These temporary regulations are gener-
ally consistent with the approach proposed
in previous IRS guidance. Certain mod-
ifications and additions were made in re-
sponse to public comments that were re-
ceived in response to the solicitation in No-
tice 2011–9. The changes and the public
comments are discussed in more detail in
this preamble.
I.Overview
The temporary regulations provide
guidance on the annual fee imposed on
covered entities engaged in the business
of manufacturing or importing branded
prescription drugs by section 9008. Gen-
erally, each covered entity with aggregate
branded prescription drug sales of over $5
million to the Programs (or pursuant to
the Programs) is liable for an annual fee
in each fee year that is based on its sales
of branded prescription drugs in the sales
year that corresponds to the fee year in an
amount determined by the IRS under these
temporary regulations.
II.Explanation of terms
The temporary regulations define nu-
merous key terms used in section 9008 and
in these regulations, includingagencies,
branded prescription drug,covered en-
tity,fee year,government programs,sales
takenintoaccount,andsales year. Expla-
nations of several terms are discussed in
more detail in this preamble.
A.Manufacturer or importer
Section 9008(d)(1) provides thatcov-
ered entitymeans any manufacturer or im-
porter with gross receipts from branded
prescription drug sales. Consistent with
the proposal in previous IRS guidance, the
temporary regulations define a manufac-
turerorimporterofabrandedprescription
drug as the person identified in the Labeler
Code of the National Drug Code (NDC)
for such a drug. The NDC is an identi-
fier assigned by the FDA to a prescription
drug. The Labeler Code is the first five
numeric characters of the NDC or the first
six numeric characters when the available
five-character code combinations are ex-
hausted.
B.Designated entity
Consistent with the proposal in previ-
ous IRS guidance, the temporary regula-
tions provide that, in the case of a con-
trolled group that is treated as a single cov-
ered entity under section 9008(d)(2), the
controlled group may identify a person as
the designated entity that acts for the con-
trolled group concerning the section 9008
fee. However, the temporary regulations
further provide that if the controlled group,
without regard to foreign corporations in-
cluded under section 9008(d), is also an af-
filiated group that filed a consolidated re-
turn for federal income tax purposes, the
designated entity is the common parent of
the affiliated group identified on the tax
return filed for the sales year. If the con-
trolled group is not an affiliated group that
filed a consolidated return for federal in-
come tax purposes, it may select a per-
son as the designated entity on Form 8947,
“Report of Branded Prescription Drug In-
formation.” If the controlled group does
not select a person as a designated entity
on its Form 8947, the IRS will select a per-
son as a designated entity for the controlled
group and advise the filer accordingly.
C.Orphan drug sales
Section 9008(e)(3) excludes orphan
drug sales from the definition of branded
prescription drug sales. Consistent with
the proposal in previous IRS guidance,
the temporary regulations defineorphan
drug, subject to certain exceptions, as any
branded prescription drug for which any
person claimed a section 45C credit and
that credit was allowed for any taxable
year. The temporary regulations further
provide that an orphan drug does not in-
clude any drug for which there has been a
final assessment or court order disallow-
ing the full section 45C credit taken for
the drug. Additionally, an orphan drug
does not include any drug for any sales
year after the calendar year in which the
FDA approved the drug for marketing for
any indication other than the treatment
of a rare disease or condition for which a
section 45C credit was allowed, regard-
less of whether a section 45C credit was
allowed for the drug either before, at the
same time, or after this FDA approval.
Several commentators suggested that a
drug should be considered an orphan drug
if the section 45C credit was “allowable”;
that is, the section 45C credit could have
been claimed, rather than was claimed.
Other commentators suggested that orphan
drug status should be given to a drug for
which a section 45C credit was allowed
even though the drug had been approved
by the FDA for marketing for an indica-
tion other than the treatment of a rare dis-
ease or condition for which a section 45C
credit was allowed.
The temporary regulations do not adopt
these suggestions. The plain language
of section 9008(e)(3) requires the section
45C credit to have actually been allowed
rather than to have merely been allowable.
In addition, the Treasury Department and
2011–40 I.R.B.460October 3, 2011

the IRS interpret section 9008(e)(3) to
mean that if a drug is ever approved for an
indication other than the treatment of a rare
disease or condition for which a section
45C credit was allowed, whether before,
during, or after a section 45C credit was
allowed for the drug, sales of that drug are
not considered sales of an orphan drug.
However, a drug will retain its orphan drug
status if the drug receives approval for a
subsequent indication for a rare disease or
condition for which a subsequent section
45C credit was allowed.
III.Information requested from covered
entities
Consistent with the proposal in previ-
ous IRS guidance, the temporary regula-
tions give each covered entity the opportu-
nity to provide information relevant to the
determination of the section 9008 fee by
annually submitting Form 8947, “Report
of Branded Prescription Drug Informa-
tion,” and providing the information speci-
fied by the form and instructions, including
the NDCs for branded prescription drugs
that the covered entity sold to the Programs
(or pursuant to coverage under the Pro-
grams), Medicare andMedicaid rebate in-
formation, section 45C orphan drug infor-
mation, members of controlled groups, and
designated entity information.
One commentator suggested that the
Treasury Department and the IRS confirm
that submission of Form 8947 is volun-
tary. Section 51.3T(a) of the temporary
regulations provides that a covered entity
mayfile a completed Form 8947; thus, the
submission of Form 8947 is voluntary.
Commentators expressed a preference
for CMS to include all rebate data in their
reports to the IRS rather than collecting
rebate data from the covered entities on
Form 8947. The IRS and CMS are contin-
uing to work on this issue. Until CMS can
report all the relevant rebate data, covered
entities will continue to have the opportu-
nity to submit rebate data as requested on
Forms 8947 and in the format prescribed
in the form instructions.
Several commentators suggested that
the Treasury Department and the IRS pro-
vide guidance on how covered entities may
amend their Form 8947 to correct errors
or omissions in the information reported.
A number of covered entities notified the
IRS of corrections to their Forms 8947 in
the error reports that they submitted as part
of the dispute resolution process provided
under Rev. Proc. 2011–24. That proved to
be an efficient and effective way to relay
corrections. Accordingly, under the tem-
porary regulations, a covered entity may
notify the IRS of any changes or additions
to information it submitted on Form 8947
by submitting error reports in the dispute
resolution process, discussed later in this
preamble.
IV.Information provided by the Agencies
Consistent with the proposal in the pre-
vious IRS guidance, the temporary regula-
tions provide that the IRS will (1) compile
a list of branded prescription drugs by
NDC using the data submitted on Forms
8947; (2) apply appropriate due diligence;
and (3) provide the Agencies with the list.
The temporary regulations describe the
data the Agencies are to provide the IRS
annually for each NDC on the list by Pro-
gram. The temporary regulations further
clarify that the IRS may revise the list of
NDCs as a result of information received
in the dispute resolution process, and that
thedatatheIRSusestoproducethefinal
fee determination includes any revisions
provided by the Agencies at the comple-
tion of the dispute resolution process.
Commentators raised questions about
the descriptions in previous IRS guidance
of the methodology used by the Agencies
to report branded prescription drug sales
to the IRS and asked that these descrip-
tions be clarified. In addition, some of the
error reports submitted as part of the dis-
pute resolution process under Rev. Proc.
2011–24 identified the need for clarifica-
tion in describing Agency data. In re-
sponse to the comments and the issues illu-
minated by the error reports, the temporary
regulations provide revised descriptions of
the data and computations for some of the
Programs.
Commentators raised questions about
the methodology proposed for computing
branded prescription drug sales for Medi-
care Part B. Specifically, they questioned
the use of Medicare-allowed charges to
establish the sales rather than a computa-
tion based on the per-unit average sales
price (ASP) and the units paid for under
Medicare Part B as specified in section
9008(g)(2). Commentators also asked
whether CMS would use ASP (that is,
ASP plus 0%) or ASP plus 6% (which re-
flects amounts actually paid) in computing
the sales figures. After considering the
comments, CMS refined its calculation
process. Thus, the temporary regulations
provide that branded prescription drug
sales for Medicare Part B will be com-
puted based on ASP and units paid for
under Medicare Part B.
Commentators also requested clarifica-
tion about how sales will be calculated
for branded prescription drugs that are not
separately payable or reported. In the un-
usual situation where CMS is unable to
establish a reliable proportion of sales by
NDC, for example due to unavailable, in-
accurate, or incomplete manufacturer sales
data, the temporary regulations clarify that
CMS has a back-up method that will use
Medicare Part D utilization percentages in
lieu of manufacturer data. It should be
noted, however, that for the 2011 fee cal-
culations, this back-up method was not re-
quired.
Commentators also expressed concerns
about whether Medicare Part B is captur-
ing complete data with respect to non-sep-
arately payable drugs, that is, drugs that
are not directly correlated with a specific
HCPCS Code. CMS recognizes the com-
mentators’ concern and has made exten-
sive efforts to gather as complete a data set
as possible. CMS will continue to work
with the data available to capture non-sep-
arately payable drugs.
Some commentators asked whether the
sales data from Medicaid reflected sales
where Medicaid was the secondary payer,
resulting potentially in duplicate reporting
where another one of the Programs (for
example, Medicare Part B), was the pri-
mary payer. In response, CMS has revised
the Medicaid methodology to exclude
non-Medicaid payments, and the tempo-
rary regulations include a description of
this aspect of the methodology. Commen-
tators asked whether TRICARE sales data
would be net of refunds and rebates asso-
ciated with specific NDCs. The temporary
regulations make clear that DOD will re-
port for TRICARE the sales data for each
NDC based on retail pharmacy claims
submitted during the sales year, net of any
refunds or rebates. Commentators ques-
tioned whether the VA sales data excluded
purchases made at individual treatment
facilities. The VA includes most of its
purchases made at the individual medical
October 3, 20114612011–40 I.R.B.

treatment facility level in its data because
most of these purchases are made via VA’s
Pharmaceutical Prime Vendor. The de-
scription of VA sales data contained in the
temporary regulation is revised from the
description contained in earlier guidance
to eliminate language suggesting that sales
at the individual medical treatment facility
level are not included and to clarify that
the sales data is net of refunds and rebates.
V.Fee calculation including adjustment
The temporary regulations clarify that
theIRSwillcomputethefeeforacov-
ered entity based on the branded prescrip-
tion drug sales data for each NDC reported
by the Agencies and any rebate data for
each NDC reported by the covered enti-
ties. For purposes of computing the fee,
each NDC will be assigned to the covered
entity that owns the NDC as of the end
of the day on December 31
st
of the sales
year. For a covered entity that is a con-
trolled group, this includes all NDCs that
amemberofthecoveredentityownsasof
the end of the day on December 31
st
of the
sales year. The temporary regulations pro-
vide that two years are relevant to the cal-
culation of the section 9008 fee: the fee
year, and the calendar year of the branded
prescription drug sales, which will be used
to determine the amount of the fee (the
sales year). As proposed in previous IRS
guidance, the temporary regulations use
the second calendar year preceding the fee
year as the sales year for purposes of calcu-
lating the section 9008 fee. The Treasury
Department and the IRS have determined
that, although DOD and VA are expected
to have complete data on branded prescrip-
tion drug sales for the calendar year im-
mediately preceding the fee year within
the time frame necessary to administer the
fee, CMS is not expected to have compa-
rable data because it cannot complete its
data processing within the necessary time
frame. Accordingly,the IRS will calculate
the fee based on the branded prescription
drug sales data provided by the Agencies
for the second calendar year preceding the
fee year. Because the use of the second
preceding year as the sales year, rather than
the immediately preceding year, may af-
fect the amount of the fee paid by a cov-
ered entity, the annual fee due in every
year after 2011 will include an adjustment
amount. This adjustment amount will be
added (or subtracted), as appropriate, to
(or from) the fee otherwise payable by the
coveredentityinthefeeyearinwhichthe
adjustment is calculated.
The proposal in previous guidance was
to compute the adjustment separately for
each NDC. Commentators raised ques-
tions about the effect of the adjustment
where a drug is owned by different cov-
ered entities in the second preceding year
and immediately preceding year and asked
whether the adjustment could be computed
at the covered entity level rather than the
NDC level. The Treasury Department and
the IRS have considered these questions,
and have decided to calculate the adjust-
ment at the covered entity level.
The adjustment will reflect the differ-
ence between the fee determined for a cov-
ered entity in the immediately preceding
fee year, using data from the second calen-
dar year preceding that fee year, and what
the fee for the covered entity would have
been for the immediately preceding fee
year using data from the calendar year im-
mediately preceding the prior fee year. For
example, for 2012, the adjustment amount
for a covered entity will be the difference
between the 2011 fee computed using 2009
sales data, and what the 2011 fee would
have been using 2010 sales data. Although
the adjustment reflects a revision of the
prior year’s fee based on data from the
sales year immediately preceding the prior
fee year, the adjustment is only taken into
account by adding it to or subtracting it
from the fee computed for the current fee
year.
VI.Notice of preliminary fee calculation
Consistent with the proposal in the
previous IRS guidance, the temporary
regulations provide that the IRS will pro-
vide each covered entity with a notice of
preliminary fee calculation each year that
will include the covered entity’s prelimi-
nary fee calculation; the covered entity’s
branded prescription drug sales, by NDC,
for each Program; the covered entity’s
branded prescription drug sales taken
into account after application of section
9008(a)(2); the aggregate branded pre-
scription drug sales taken into account for
all covered entities; after the 2011 fee year,
a preliminary adjustment amount; and
a reference to the fee dispute resolution
process set forth in guidance published in
the Internal Revenue Bulletin. The date by
which the IRS will send the preliminary
fee calculation notice will be specified for
future years in guidance published in the
Internal Revenue Bulletin. For 2011, the
IRS sent the notices by May 16, 2011. The
Treasury Department and the IRS antici-
pate sending these notices earlier in future
years.
VII.Dispute resolution process
Consistent with previous IRS guidance,
the temporary regulations provide for a
dispute resolution process that allows a
coveredentitytosubmiterrorreportsinre-
sponse to the preliminary fee calculation
for the IRS to consider before performing a
final fee calculation. The temporary regu-
lations describe the information that cov-
ered entities must submit. The IRS will
specify in guidance published in the Inter-
nal Revenue Bulletin the format for error
report submissions and the date by which
a covered entity must submit an error re-
port(s). For 2011, a covered entity’s er-
ror report was required to be submitted no
later than June 10, 2011. The Treasury De-
partment and the IRS anticipate that cov-
ered entities will have more time to pre-
pare and send their error reports to the IRS
in future years.
Several commentators requested the
ability to submit additional error reports
after the IRS sends notification of the fi-
nal fee determination. In the interest of
providing finality to the fee calculation
process, the temporary regulations do not
adopt this suggestion.
VIII.Notification and payment of fee
Section 9008(a) provides that the an-
nual fee must be paid not later than the an-
nual date specified by the Secretary, but
in no event later than September 30
th
of
each fee year. The temporary regulations
provide that the IRS will send each cov-
ered entity its final fee calculation for that
year no later than August 31
st
and that
the covered entity must pay the fee by
September 30
th
by electronic funds trans-
fer. For 2011, the IRS will send covered
entities notification of their 2011 final fee
calculation by August 24
th
. This notifica-
tion will include the covered entity’s final
fee; the covered entity’s branded prescrip-
tion drug sales by NDC for each Program;
2011–40 I.R.B.462October 3, 2011

the covered entity’s branded prescription
drug sales taken into account after appli-
cation of section 9008(a)(2); the aggregate
brandedprescriptiondrugsalestakeninto
account for all covered entities; after the
2011 fee year, an adjustment amount; and
the final determination with respect to er-
ror reports.
There is no tax return to be filed for the
section 9008 fee.
IX.Tax treatment of fee
Section 9008(f)(1) provides that the
branded prescription drug fee for purposes
of subtitle F of the Internal Revenue Code
shall be treated as an excise tax with re-
spect to which only civil actions for refund
under procedures of subtitle F shall apply.
Thus, under the temporary regulations, the
section 9008 fee is treated as an excise tax
for purposes of subtitle F of the Code (sec-
tions 6001–7874) to which the deficiency
procedures of sections 6211–6216 do not
apply. The temporary regulations provide
that the IRS must assess the amount of the
section 9008 fee for any fee year within
three years of September 30
th
of that fee
year.
X.Refund claims
The temporary regulations provide that
any claim for refund must be filed on Form
843, “Claim for Refund and Request for
Abatement.”
Availability of IRS documents
IRS notices and the revenue procedure
cited in this preamble are published in the
Internal Revenue Bulletin or Cumulative
Bulletin and are available atIRS.gov.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866, as supplemented by Executive Or-
der 13563. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Admin-
istrative Procedure Act (APA) (5 U.S.C.
chapter 5) does not apply to these regu-
lations. For applicability of the Regula-
tory Flexibility Act (5 U.S.C. chapter 6),
please refer to the Special Analysis section
in the preamble to the cross-referenced no-
tice of proposed rulemaking in this issue of
the Bulletin. Pursuant to section 7805(f)
of the Code, these regulations have been
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on their impact on small busi-
nesses.
Section 553(b) of the APA does not
apply to these regulations because they
are interpretative rules. Alternatively, the
Treasury Department and the IRS have de-
termined that good cause exists under sec-
tion 553(b)(B) of the APA. That section
provides that an agency is not required to
publish a notice of proposed rulemaking
in theFederal Registerwhen the agency,
for good cause, finds that notice and pub-
lic comment thereon are impracticable, un-
necessary, or contrary to the public inter-
est. Due to the novel and complex is-
sues raised by the branded prescription
drug fee provision and the required coordi-
nation with other governmental agencies,
the Treasury Department and the IRS have
concluded that it would take significantly
longer than the time between enactment
(March 23, 2010) and the date of collec-
tion of the first fee (no later than Septem-
ber 30, 2011) to draft and issue a proposed
rule with a comment period, review com-
ments thoroughly, and then draft and issue
a final rule. Accordingly, the Treasury De-
partment and the IRS have determined that
the notice and comment procedures are im-
practicable.
In the months following enactment of
section 9008, the Treasury Department
and the IRS, in coordination with other
governmental agencies, developed the
proposed methodologies and processes
to compute, verify, assess and collect the
annual fee amounts, and published notices
and a revenue procedure in the Internal
Revenue Bulletin describing the proposed
approach and soliciting public comments.
The Treasury Department and the IRS
provided an extended comment period to
give the covered entities an opportunity to
review their preliminary fee calculations
before submitting comments on the pro-
posed approach. In addition, the Treasury
Department and the IRS engaged in dis-
cussions with affectedexternal stakehold-
ers and extensively coordinated with other
governmental agencies. Consequently,
the Treasury Department and the IRS also
have determined that additional notice and
comment before implementation of the
process set forth in these regulations is
unnecessary.
Since Congress mandated that the IRS
collect the applicable fee amount for the
first fee year no later than September 30,
2011, it is necessary that these regulations
be issued immediately in order to provide
covered entities with the rules governing
the fee and payment prior to issuance of
final fee determinations. However, com-
ments are being solicited in the cross-refer-
enced notice of proposed rulemaking that
is in this issue of the Bulletin and will
be considered before final regulations are
issued regarding the branded prescription
drug fee.
Drafting I
nformation
The principal author of these regula-
tions is Celia Gabrysh, Office of the As-
sociate Chief Counsel (Passthroughs and
Special Industries). However, other per-
sonnel from the Treasury Department and
the IRS participated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR chapter 1 is
amended by adding part 51 to subchapter
D and amending part 602 as follows:
Paragraph 1. Part 51 is added to read as
follows:
PART 51—BRANDED PRESCRIPTION
DRUG FEE
Sec.
51.1T Overview (temporary).
51.2T Explanations of terms (tempo-
rary).
51.3T Information requested from cov-
ered entities (temporary).
51.4T Information provided by the
agencies (temporary).
51.5T Fee calculation (temporary).
51.6T Notice of preliminary fee calcu-
lation (temporary).
51.7T Dispute resolution process (tem-
porary).
51.8T Notification and payment of fee
(temporary).
51.9T Tax treatment of fee (temporary).
51.10T Refund claims (temporary).
51.11T Effective/applicability date
(temporary).
October 3, 20114632011–40 I.R.B.

51.12T Expiration date (temporary).
51.6302–1T Method of paying the
branded prescription drug fee (temporary).
Authority: 26 U.S.C. 7805; sec. 9008,
Public Law 111–347 (124 Stat. 119).
Section 51.8 also issued under
26 U.S.C. 6302(a).
Section 51.6302–1 also issued under
26 U.S.C. 6302(a).
§51.1T Overview (temporary).
(a) The regulations in this part 51 are
designated “Branded Prescription Drug
Fee Regulations.”
(b) The regulations in this part 51 pro-
vide guidance on the annual fee imposed
on covered entities engaged in the business
of manufacturing or importing branded
prescription drugs by section 9008 of the
Patient Protection and Affordable Care Act
(ACA), Public Law 111–148 (124 Stat.
119 (2010)), as amended by section 1404
of the Health Care and Education Recon-
ciliation Act of 2010 (HCERA), Public
Law 111–152 (124 Stat. 1029 (2010)). All
references in these regulations to section
9008 are references to section 9008 of
the ACA, as amended by section 1404 of
HCERA. Unless otherwise indicated, all
other section references are to sections in
the Internal Revenue Code. All references
to “fee” in these regulations are references
to the fee imposed by section 9008.
(c) Section 9008(b)(4) sets an applica-
ble fee amount for each year, beginning
with 2011, that will be apportioned among
covered entities with aggregate branded
prescription drug sales of over $5 mil-
lion to government programs or pursuant
to coverage under such programs. Gener-
ally, each covered entity is liable for a fee
in each fee year that is based on its sales
of branded prescription drugs in the sales
year that corresponds to the fee year in an
amount determined by the Internal Rev-
enue Service (IRS) under the rules of this
part.
§51.2T Explanation of terms (temporary).
(a)In general. This section explains the
terms used in this part for purposes of the
fee imposed by section 9008 on branded
prescription drugs.
(b)Agencies.Thetermagencies
means—
(1) The Centers for Medicare and Med-
icaid Services of the Department of Health
and Human Services (CMS);
(2) The Department of Veterans Affairs
(VA); and
(3) The Department of Defense (DOD).
(c)Branded prescription drug—(1)In
general.Thetermbranded prescription
drugmeans—
(i) Any prescription drug the applica-
tion for which was submitted under section
505(b) of the Federal Food, Drug, and Cos-
metic Act (21 U.S.C. 355(b)); or
(ii) Any biological product the license
for which was submitted under section
351(a) of the Public Health Service Act
(42 U.S.C. 262(a)).
(2)Prescription drug.Thetermpre-
scription drugmeans any drug that is
subject to section 503(b) of the Federal
Food, Drug, and Cosmetic Act (21 U.S.C.
353(b)).
(d)Branded prescription drug sales.
The termbranded prescription drug sales
means sales of branded prescription drugs
to any government program or pursuant to
coverage under any such government pro-
gram. However, the term does not include
sales of orphan drugs.
(e)Covered entity—(1)In general.The
termcovered entitymeans any manufac-
turer or importer with gross receipts from
branded prescription drug sales includ-
ing—
(i) A single-person covered entity; or
(ii) A controlled group.
(2)Single-person covered entity.The
termsingle-person covered entitymeans a
covered entity that is not affiliated with any
other covered entity.
(3)Controlled group.Thetermcon-
trolled groupmeans a group of at least two
covered entities that are treated as a sin-
gle employer under section 52(a), 52(b),
414(m), or 414(o).
(4)Special rules for controlled groups.
For purposes of paragraph (e)(3) of this
section(relatedtocontrolledgroups)—
(i) A foreign entity subject to tax under
section 881 is included within a group un-
der section 52(a) or 52(b); and
(ii) A covered entity is treated as being
a member of a controlled group if it is a
member of the group on the end of the day
on December 31
st
of the sales year.
(f)Designated entity—(1)In general.
The termdesignated entitymeans the per-
son that acts for a controlled group regard-
ing the fee by—
(i) Filing Form 8947, “Report of
Branded Prescription Drug Information”;
(ii) Receiving IRS communications
about the fee for the group;
(iii) Filing an error report for the group,
if applicable, as described in §51.7T; and
(iv) Paying the fee to the IRS.
(2)Selection of designated entity—(i)
Choice of controlled group. Unless the
controlled group is an affiliated group that
filed a consolidated return for federal in-
come tax purposes, the controlled group
may select a person as the designated en-
tity by filing Form8947 in accordance
with the form instructions. Among other
requirements, the designated entity must
state that all the manufacturers or im-
porters of branded prescription drugs that
are members of the group have consented
to the selection of the designated entity.
(ii)Requirement for affiliated groups;
common parent. If the controlled group,
without regard to foreign corporations in-
cluded under section 9008(d)(2)(B), is also
an affiliated group thatfiled a consolidated
return for federal income tax purposes, the
designated entity is the common parent of
the affiliated group as identified on the tax
return filed for the sales year. The covered
entities in an affiliated group must name
the common parent as the designated en-
tity on Form 8947.
(iii)IRS selection of a designated en-
tity. If a controlled group does not select
a designated entity, the IRS will select a
member of the controlled group as the des-
ignated entity for the controlled group.
(g)Fee year.Thetermfee yearmeans
the calendar year in which the fee for a
particular sales year must be paid to the
government.
(h)Government programs.Theterm
government programs(collectively “Pro-
grams”), means—
(1) The Medicare Part B program;
(2) The Medicare Part D program;
(3) The Medicaid program;
(4) Any program under which branded
prescription drugs are procured by the De-
partment of Veterans Affairs;
(5) Any program under which branded
prescription drugs are procured by the De-
partment of Defense; and
(6) The TRICARE retail pharmacy pro-
gram.
2011–40 I.R.B.464October 3, 2011

(i)Manufacturer or importer.Theterm
manufacturer or importermeans the per-
son identified in the Labeler Code of the
National Drug Code (NDC) for a branded
prescription drug.
(j)NDC.ThetermNDCmeans the Na-
tional Drug Code. The NDC is an iden-
tifier assigned by the Food and Drug Ad-
ministration (FDA) to a branded prescrip-
tion drug, as well as other drugs. The La-
beler Code is the first five numeric char-
acters of the NDC or the first six numeric
characters when the available five-charac-
ter code combinations are exhausted.
(k)Orphan drugs—(1)In general.Ex-
cept as provided in paragraph (j)(2) of this
section, the termorphan drugmeans any
brandedprescriptiondrugforwhichany
person claimed a section 45C credit and
that credit was allowed for any taxable
year.
(2)Exclusions.Thetermorphan drug
does not include—
(i) Any drug for which there has been a
final assessment or court order disallowing
the full section 45C credit taken for the
drug; or
(ii) Any drug for any sales year after the
calendar year in which the FDA approved
the drug for marketing for any indication
other than the treatment of a rare disease
or condition for which a section 45C credit
was allowed, regardless of whether a sec-
tion 45C credit was allowed for the drug
either before, in the same year as, or after
this FDA designation.
(3)FDA marketing approval for treat-
ment of another rare disease or condition.
If a drug has prior FDA marketing ap-
proval for the treatment of a rare disease
or condition for which a section 45C credit
was allowed, and the FDA subsequently
gives the drug marketing approval for the
treatment of another rare disease or condi-
tion for which another section 45C credit
was also allowed, the drug retains its sta-
tusasanorphandrugprovidedtheFDA
has never approved the drug for marketing
for any indication other than the treatment
ofararediseaseorconditionforwhicha
section 45C credit was allowed.
(4)Examples. The following examples
illustrate the rules of this paragraph (k):
Example 1: Allowance of section 45C credit and
later FDA marketing approval of drug for an indi-
cation other than the treatment of a rare disease or
condition.(i)Facts. Drug A is a branded prescrip-
tion drug that was not on the market before 2008. In
2008, a covered entity claimed a section 45C credit
for its qualified clinical testing expenses related to
Drug A. There was no final IRS assessment or court
order that disallowed the full credit for Drug A. In
2009, the FDA approved Drug A for marketing for
an indication other than the treatment of the rare dis-
ease or condition for which the section 45C credit was
allowed and this indication was not for another rare
disease or condition for which a section 45C was al-
lowed.
(ii)Analysis. In 2008 and 2009, Drug A is an or-
phan drug because: first, it was a branded prescrip-
tiondrugforwhichapersonclaimedasection45C
credit and for which that credit was allowed for a tax-
able year; second, there was not a final assessment
or court order disallowing the full credit taken for the
drug; and third, before 2009, the FDA did not approve
the drug for marketing for any indication other than
the treatment of a rare disease or condition for which
a section 45C credit was allowed. However, Drug
A is not an orphan drug for the 2010 sales year or
later sales years because in 2009 the FDA approved
Drug A for marketing for an indication other than the
treatment of the rare disease or condition for which
the section 45C credit was allowed and this indica-
tion was not for treatment of another rare disease or
condition for which a section 45C credit was allowed.
Example 2: FDA marketing approval of drug for
an indication other than the treatment of a rare dis-
ease or condition and later allowance of section 45C
credit.(i)Facts. Drug B is a branded prescription
drug that was not on the market before 2008. In 2008,
FDA approved Drug B for marketing for an indica-
tion other than the treatment of a rare disease or con-
dition for which a section 45C credit was allowed. In
2009, a covered entity claimed a section 45C credit
for its qualified clinical testing expenses related to
Drug B. There was no final IRS assessment or court
order that disallowed the full credit for Drug B.
(ii)Analysis. In2008,DrugBisnotanorphan
drug because no section 45C credit was allowed.
In 2009, although the covered entity was allowed a
section 45C credit for its qualified clinical testing
expensesrelatedtoDrugBandtherewasnofinal
IRS assessment or court order that disallowed the full
credit, Drug B still is not an orphan drug because the
FDA had approved the drug in 2008 for marketing
for an indication other than the treatment of a rare
disease or condition for which a section 45C credit
was allowed in 2009. Thus, Drug B is not an orphan
drug for the 2009 sales year or later sales years.
Example 3: Allowance of section 45C credit and
subsequent allowance of section 45C credit with no
intervening FDA marketing approval of drug for an
indication other than the treatment of a rare disease
or condition for which a section 45C credit was al-
lowed.(i)Facts. Drug C is a branded prescription
drug that was not on the market before 2007. In 2007,
a covered entity claimed a section 45C credit for its
qualified clinical testing expenses related to Drug C.
In 2009, a covered entity claimed an additional sec-
tion 45C credit for its qualified clinical testing ex-
penses related to Drug C for marketing for the treat-
ment of a rare disease or condition different than the
one for which the section 45C credit was claimed in
2007. There was no final IRS assessment or court or-
der that disallowed the full credit for Drug C in 2007
or 2009. The FDA has not approved Drug C for an
indication other than the treatment of a rare disease
or condition for which a section 45C was allowed.
(ii)Analysis. In 2007 and 2008, Drug C is an or-
phan drug because: first, it was a branded prescrip-
tion drug for which a person claimed a section 45C
credit and for which that credit was allowed for a tax-
able year; second, there was not a final assessment
or court order disallowing the full credit taken for the
drug; and third, FDA had not approved the drug for
marketing for any indication other than the treatment
of a rare disease or condition for which a section 45C
credit was allowed. In 2009, Drug C retains its or-
phan drug status because another section 45C credit
was allowed and the FDA did not approve Drug C
for marketing for any indication other than the treat-
ment of another rare disease or condition for which a
section 45C credit was allowed. Thus, Drug C is an
orphan drug for the 2010 sales year.
(l)Sales taken into account.Theterm
sales taken into accountmeans branded
prescription drug sales after application of
the percentage adjustment table in section
9008(b)(2) (relating to annual sales less
than $400,000,001). See §51.5T(a)(3).
(m)Sales year.Thetermsales year
means the second calendar year preceding
the fee year. Thus, for example, for the fee
year of 2011, the sales year is 2009.
§51.3T Information requested from
covered entities (temporary).
(a)In general. Annually, each covered
entity may submit a completed Form 8947,
“Report of Branded Prescription Drug In-
formation,” in accordance with the instruc-
tions for the form. Generally, the form so-
licits information from covered entities on
NDCs, orphan drugs, designated entities,
rebates, and other information specified by
the form or its instructions.
(b)Due date. Form 8947 must be filed
by the date prescribed in guidance in the
Internal Revenue Bulletin.
§51.4T Information provided by the
agencies (temporary).
(a)In general. For each sales year,
the IRS will compile a list of branded
prescription drugs by NDC using the data
submitted on Forms 8947 and in error
reports submitted as part of the dispute res-
olution process (described in §51.7T) and,
after applying appropriate due diligence,
will provide this list to the Agencies. The
Agencies will provide data to the IRS
on branded prescription drug sales dur-
ing the sales year by Program and NDC.
The Agencies will provide data for use in
preparing the preliminary fee calculation
(described in §§51.5T and 51.6T) and may
revise or supplement that data following
October 3, 20114652011–40 I.R.B.

review of error reports submitted as part
of the dispute resolution process. The cal-
culation methodology for calculating the
sales amounts for each Program, including
any reasonable estimation techniques and
assumptions that the Agencies expect to
use, is described in this section.
(b)Medicare Part D. CMS will aggre-
gate the ingredient cost reported in the “In-
gredient Cost Paid” field and the units re-
ported in the “Quantity Dispensed” field of
the Prescription Drug Event (PDE) records
at the NDC level for each sales year. Only
PDE data that Part D sponsors have sub-
mitted by the PDE submission deadline
(within 6 months after the end of the sales
year) and have been approved for inclusion
in the Part D payment reconciliation will
be included.
(c)Medicare Part B—(1)In general.
CMS will determine branded prescription
drug sales under Medicare Part B using the
following two data sources:
(i) CMS will use data reported by man-
ufacturers pursuant to section 1847A(c)
of the Social Security Act to calculate the
annual weighted average sales price (ASP)
for each Healthcare Common Procedure
Coding System (HCPCS) code for the
sales year.
(ii) CMS will use the Medicare Part
B National Summary Data File located
athttp://www.cms.gov/NonIdentifiable-
DataFiles/03_PartBNationalSummary-
DataFile.aspto obtain the number of
allowed billing units per HCPCS code for
claims incurred during the sales year.
(2)Calculation. Using the data de-
scribed in paragraph (c)(1) of this section,
CMS will determine branded prescription
drugs sales under Medicare Part B as de-
scribed in paragraphs (c)(3), (4), and (5)
of this section.
(3)HCPCS code; single entity.For
each HCPCS code consisting solely and
exclusively of branded prescription drugs
(as identified by their respective NDCs)
manufactured by a single entity, CMS will
multiply the annual weighted ASP by the
total number of allowed billing units paid
during the sales year to determine the to-
tal sales for all NDCs associated with the
HCPCS code attributed to Medicare Part
B.
(4)HCPCS code; multiple manufactur-
ers and/or multiple drugs—(i)Step one.
For each HCPCS code consisting of a mix-
ture of branded prescription drugs made by
different manufacturers and/or a mixture
of branded prescription and generic drugs,
CMS will determine—
(A) The annual weighted ASP for the
HCPCS code;
(B) The total number of allowed billing
units paid by Medicare Part B for each
HCPCS code during the sales year;
(C) The names of the entities engaged in
manufacturing each NDC assigned to the
HCPCS code; and
(D) Those entities (if any) identified in
paragraph (c)(4)(C) of this section that are
manufacturing branded prescription drugs
assigned to the HCPCS code.
(ii)Step two. Using the information
from paragraph (c)(4)(i) of this section,
CMS will then do the following:
(A) Calculate the proportion of sales,
expressed as a percentage, attributed to
each NDC assigned to the HCPCS code
by determining the percentage of total
sales reported to CMS by each manufac-
turerofNDC(s)thatareassignedtothe
HCPCS code. For example, if HCPCS
code JXXXX contains three drugs with
a total of $310,000 sales reported by
manufacturers to CMS for the sales year,
and $100,000 was reported for Drug A,
$200,000 was reported for Drug B, and
$10,000 was reported for Drug C, the pro-
portion of sales attributed to each NDC
will be 32.26 percent for Drug A, 64.52
percent for Drug B, and 3.22 percent for
Drug C; and
(B) For each NDC, multiply the product
of the annual weighted ASP and the total
allowed billing units paid by Medicare Part
B for the HCPCS code by the proportion of
sales calculated in paragraph (c)(4)(ii)(A)
of this section to determine the sales re-
portable to the IRS (that is, percentage x
(annual weighted ASP x allowed units) =
total sales reported to IRS for the NDC).
The sales for each manufacturer’s NDCs
assigned to a HCPCS code are summed
and the total sales for each manufacturer’s
NDCs in a HCPCS code will be reported
to the IRS.
(5)HCPCS code; unable to establish
a reliable proportion of sales.If CMS is
unable to establish a reliable proportion of
sales attributable to each NDC assigned
to the HCPCS code using the method
described in paragraph (c)(4)(ii)(A) of
this section, CMS will use Medicare Part
D utilization percentages in lieu of the
proportion of sales determined under
paragraph (c)(4)(ii)(A) of this section to
perform the calculation described in para-
graph (c)(4)(ii)(B) of this section.
(d)Medicaid. (1) CMS will determine
the branded prescription drug sales for
Medicaid as the per-unit Average Manu-
facturer Price (AMP) less the Unit Rebate
Amounts (URA) that CMS calculates
based on manufacturer-reported pricing
data multiplied by the number of units
reported billed by states to manufactur-
ers. This data will be based on the data
reported to CMS during the sales year by
covered entities and the states for drugs
paid for by the states in the Medicaid drug
rebate program during the sales year.
(2) For any covered entity identified in
the first five (or six) digits of an NDC dur-
ing any of the four quarters of a sales year,
CMS will use the following methodology
to derive the sales figures that account for
third-party payers, such as Medicare Part
B:
(i) Report total dollars per NDC for
AMP-URA multiplied by the units re-
ported by a state or states.
(ii) Determine the percentage of the to-
talamountreimbursedthatistheMedic-
aid amount of that reimbursement. For ex-
ample, if the total amount reimbursed is
$100,000, and the Medicaid amount reim-
bursed is $20,000, then the percentage is
20 percent.
(iii) Multiply the percentage of the
Medicaid amount of that reimbursement
(in the example in paragraph (d)(2)(ii)
of this section, 20 percent) by the dollar
figure derived from paragraph (d)(2)(i) of
this section (AMP minus URA multiplied
by units) to get the new adjusted sales
dollar totals.
(e)Department of Veterans Affairs.VA
will provide, by NDC, the total amount
paid (net of refunds and rebates, when they
are associated with a specific NDC) for
each branded prescription drug procured
by the VA for its beneficiaries during the
sales year. For this purpose, a drug is pro-
cured on the invoice (billing) date. The
basis of this information will be national
procurement data reported during the sales
year by VA’s Pharmaceutical Prime Vendor
to the VA Pharmacy Benefits Management
Service and National Acquisition Center.
(f)Department of Defense.TheDOD
will provide, by Labeler Code, the man-
ufacturer’s name, the NDC, brand name,
and the amount paid (net of rebates and
2011–40 I.R.B.466October 3, 2011

or refunds) for each branded prescrip-
tion drug procured by DOD (for DOD
programs other than the TRICARE re-
tail pharmacy program) during the sales
year. For DOD programs other than the
TRICARE retail pharmacy program, a
drug is procured based upon the date it
was ordered. DOD will provide, by La-
beler Code, the manufacturer’s name,
the NDC, brand name, and the amount
paid (net of rebates or refunds) for each
brandedprescriptiondrugprocuredby
DOD through the TRICARE Retail Phar-
macy Program during the sales year. For
the TRICARE retail pharmacy program,
a drug is procured based upon the date it
was dispensed. The amount paid is based
on the submitted ingredient cost paid, ag-
gregated by NDC, for eligible TRICARE
retail pharmacy claims submitted during
the program year, minus any refunds or
rebates for the corresponding claims.
§51.5T Fee calculation (temporary).
(a)Fee components—(1)In general.
For every fee year, the IRS will calculate
a covered entity’s total fee as described in
this section. For each fee year after 2011,
the IRS will determine a covered entity’s
total fee by applying, if applicable, the
adjustment amount described in paragraph
(e) of this section to the entity’s allocated
fee described in paragraph (d) of this sec-
tion.
(2)Calculation of branded prescription
drug sales. Each covered entity’s allocated
fee for any fee year is equal to an amount
that bears the same ratio to the applica-
ble amount as the covered entity’s branded
prescription drug sales taken into account
during the sales year bears to the aggregate
branded prescription drug sales of all cov-
ered entities taken into account during the
sales year.
(3)Applicable amount. The applicable
amounts for fee years are—
Fee yearApplicable amount
2011
$2,500,000,000
2012
$2,800,000,000
2013
$2,800,000,000
2014
$3,000,000,000
2015
$3,000,000,000
2016
$3,000,000,000
2017
$4,000,000,000
2018
$4,100,000,000
2019 and thereafter
$2,800,000,000
(3)Sales taken into account. A covered
entity’s branded prescription drug sales
taken into account during any calendar
year are as follows:
Covered entity’s branded prescription drug sales during the
calendar year that are:
Percentage of branded prescription drug sales taken into
account is
Not more than $5,000,000
0 percent
More than $5,000,000 but not more than $125,000,000
10 percent
More than $125,000,000 but not more than $225,000,000
40 percent
More than $225,000,000 but not more than $400,000,000
75 percent
More than $400,000,000
100 percent
(b)Determination of branded prescrip-
tion drug sales. The IRS will compile
each covered entity’s branded prescription
drug sales for each Program by NDC. Each
NDC will be attributed to the covered en-
tity that owns the NDC as of the end of the
day on December 31
st
of the sales year. For
a covered entity thatis a controlled group,
this includes all NDCs that a member of
the covered entity owns as of the end of the
day on December 31
st
of the sales year. For
this purpose, the IRS may revise the list of
NDCs as a result of information received
in the dispute resolution process, and the
data the IRS uses to produce the final fee
calculation will include any revisions pro-
vided by the Agencies at the completion
of the dispute resolution process. Each
covered entity’s branded prescription drug
sales will be reduced by its Medicare Part
D rebates and Medicaid state supplemental
rebate amounts in the following manner. If
CMS has the rebate information for these
Programs for a sales year, CMS will report
to the IRS branded prescription drug sales
net of rebates. If CMS does not have the
rebate information for these programs for a
sales year, the IRS will reduce the branded
prescription drug sales reported for these
Programs by rebates reported by the cov-
ered entities on Forms 8947.
(c)Determination of sales taken into
account. (1) For each sales year and for
each covered entity, the IRS will calcu-
late sales taken into account. The result-
ing number is the numerator of the ratio
described in paragraph (d)(1) of this sec-
tion.
(2) For each sales year, the IRS will cal-
culate the aggregate branded prescription
drug sales taken into account for all cov-
ered entities. The resulting number is the
denominator of the ratio described in para-
graph (d)(2) of this section.
October 3, 20114672011–40 I.R.B.

(d)Allocated fee calculation. For each
covered entity for each fee year, the IRS
will calculate the entity’s allocated fee by
multiplying the applicable amount from
paragraph (a)(2) of this section by a frac-
tion—
(1) The numerator of which is the cov-
ered entity’s branded prescription drug
sales taken into account during the sales
year (described in paragraph (c)(1) of this
section); and
(2) The denominator of which is the
aggregate branded prescription drug sales
taken into account for all covered entities
during the same year (described in para-
graph (c)(2) of this section).
(e)Adjustment amount. For each fee
year after 2011, in addition to the allo-
cated fee computed under paragraph (d)
of this section, the IRS will also calcu-
late an adjustment amount that reflects the
difference between the allocated fee deter-
mined for the covered entity in the imme-
diately preceding feeyear, using data from
the second calendar year preceding that
fee year, and what the allocated fee would
have been for that entity for the immedi-
ately preceding fee year using data from
the calendar year immediately preceding
that fee year. For example, for 2012, the
adjustment amount for a covered entity
will be the difference between the entity’s
2011 allocated fee, using 2009 data, and
what the 2011 allocated fee would have
been using 2010 data. Although the ad-
justment reflects a revision of the prior
year’s fee based on data from the year im-
mediately preceding the prior fee year, the
adjustment is only taken into account by
adding it to or subtracting it from the allo-
cated fee computed under paragraph (d) of
this section for the current fee year to ar-
rive at the total fee for the current fee year.
§51.6T Notice of preliminary fee
calculation (temporary).
(a)Content of notice.For each sales
year, the IRS will make a preliminary cal-
culation of the fee for each covered entity
as described in §51.5T. The IRS will notify
each covered entity of its preliminary fee
calculation for that sales year. The notifi-
cation to a covered entity of its preliminary
fee calculation will include—
(1) The covered entity’s allocated fee;
(2) The covered entity’s branded pre-
scriptiondrugsales,byNDC,byProgram;
(3) The covered entity’s branded pre-
scription drug sales taken into account af-
ter application of §51.5T(a)(3);
(4) The aggregate branded prescription
drug sales taken into account for all cov-
ered entities;
(5) After the 2011 fee year, the covered
entity’s adjustment amount calculated as
described in §51.5T(e); and
(6) A reference to the fee dispute resolu-
tion procedures set forth in guidance pub-
lished in the Internal Revenue Bulletin.
(b)Time of notice.TheIRSwillsend
each covered entity notice of its prelimi-
nary fee calculation by the date prescribed
in guidance published in the Internal Rev-
enue Bulletin.
§51.7T Dispute resolution process
(temporary).
(a)In general. Upon receipt of its pre-
liminary fee calculation, each covered en-
tity will have an opportunity to dispute this
calculation by submitting to the IRS an
error report as described in this section.
The IRS will provide its final determina-
tion with respect to error reports no later
than the time the IRS provides a covered
entity with a final fee calculation.
(b)Program errors. To assert that there
has been one or more errors in drug sales
data, a covered entity must submit a sepa-
rate error report for each Program with the
asserted errors. Each report must include
the following information—
(1) Entity name, entity number (if appli-
cable, from Part I(a) of the Form 8947), ad-
dress, and Employer Identification Num-
ber (EIN) as previously reported on the
Form 8947;
(2) The name, telephone number, and
e-mail address (if available) of one or more
employees or representatives of the entity
with whom the Agencies may discuss the
claimed errors. A Form 2848, “Power of
Attorney and Declaration of Representa-
tive,” must be filed with the error report;
and
(3) The name of the Program that re-
ported the data, the NDC, the specific
amount of sales data disputed, the pro-
posed corrected amount, an explanation of
why the Agency should use the proposed
corrected data instead, and documentation
of any Program drug sales data or other
information used to establish the existence
of any errors.
(c)Errors other than Program drug
sales errors. To assert that there has been
one or more errors in the mathematical
calculation of the fee, the rebate data, the
listing of an NDC for an orphan drug, or
any other error (other than Program drug
sales data errors), a covered entity must
submit one error report, separated into
sections by type of error, and must include
the following information—
(1) Entity name, entity number (if ap-
plicable, from Part I(a) of the Form 8947),
address, and EIN as previously reported on
the Form 8947;
(2) The name, telephone number, and
e-mail address (if available) of one or more
employees or representatives of the entity
with whom the IRS and/or the Agencies
may discuss the claimed errors. If the rep-
resentative is not an employee of the entity,
a Form 2848 must be filed with the error
report;
(3) For a mathematical calculation er-
ror, the specific calculation element(s) that
the entity disputes and its proposed cor-
rected calculation;
(4) For a rebate data error, the NDC for
the drug to which it relates; a discussion
of whether the data used in the prelimi-
nary fee calculation matches previously re-
ported Form 8947 data on rebates; and, if
the data used in the preliminary fee cal-
culation does match the Form 8947 data,
an explanation of why the Form 8947 data
was erroneous and why the IRS should use
the proposed corrected data instead;
(5) For the listing of an NDC for an
orphan drug, the name and NDC of the
orphan drug; a discussion of whether the
data used in the preliminary fee calcu-
lation matches previously reported Form
8947 data on orphan drugs; and, if the
data used in the preliminary fee calculation
does match the Form 8947 data, an expla-
nation of why the Form 8947 data was er-
roneous and why the IRS should use the
proposed corrected data instead;
(6) For any other asserted error, an ex-
planation of the nature of the error, how the
error affects the fee calculation, an expla-
nation of how the entity established that an
error occurred, the proposed correction to
the error, and an explanation of why the
IRS or Agency should use the proposed
corrected data instead;
(7) If an entity is using data to establish
the existence of an error and that data was
not reported on Form 8947 or contained
2011–40 I.R.B.468October 3, 2011

in the notification of the preliminary fee
calculation, a description of what the data
is, how the entity acquired the data, and
who maintains it; and
(8) Documentation of any rebate and or-
phan drug data, or other information used
to establish the existence of any errors.
(d)Form, manner, and timing of sub-
mission. Each covered entity must submit
its error report(s) in the form and manner
that is prescribed in guidance published in
the Internal RevenueBulletin. This guid-
ance will also prescribe the date by which
each covered entity must submit its re-
port(s).
§51.8T Notification and payment of fee
(temporary).
(a)Notification of final fee calculation.
No later than August 31
st
of each fee year,
the IRS will send each covered entity its fi-
nal fee calculation for that year. In any fee
year, the IRS will base its final fee calcu-
lationondataprovidedtoitbytheAgen-
cies as adjusted pursuant to the dispute res-
olution process. The notification to a cov-
ered entity of its final fee calculation will
include—
(1) The covered entity’s allocated fee;
(2) After the 2011 fee year, an adjust-
ment amount calculated as described in
§51.5T;
(3) The covered entity’s branded pre-
scription drug sales, by NDC, by Program;
(4) The covered entity’s branded pre-
scription drug sales taken into account af-
ter application of §51.5T(a)(3);
(5) The aggregate branded prescription
drug sales taken into account for all cov-
ered entities; and
(6) The final determination with respect
to error reports.
(b)Differences in preliminary fee cal-
culation and final fee calculation.Acov-
ered entity’s final fee calculation may dif-
fer from the covered entity’s preliminary
fee calculation because of changes made
pursuant to the dispute resolution process
described in §51.7T. Even if a covered en-
tity did not file an error report described
in §51.7T, a covered entity’s final fee may
differ from a covered entity’s preliminary
fee because of a change in data reported by
the Agencies after resolution of error re-
ports, including a change in the aggregate
prescription drug sales figure. A change in
aggregate prescription drug sales data can
affect each covered entity’s fee because
each covered entity’s fee is a fraction of the
aggregate fee collected from all covered
entities. A covered entity’s final fee may
also differ from its preliminary fee calcu-
lation because the data used in the prelim-
inary fee calculation may have contained
inaccurate branded prescription drug sales
information that was corrected or updated
at the conclusion of the dispute resolution
process.
(c)Payment of final fee. Each cov-
ered entity must pay its final fee by
September 30
th
of the fee year. For a
controlled group, the payment must be
made using the designated entity’s EIN
as reported on Form 8947. The fee must
be paid by electronic funds transfer as
required by §51.6302–1T. There is no tax
return to be filed for the fee.
(d)Joint and several liability.Inthe
case of a controlled group that is liable for
the fee, all covered entities within the con-
trolled group are jointly and severally li-
able for the fee. Accordingly, if a covered
entity’s fee is not paid, the IRS will sep-
arately assess each covered entity in the
group for the full amount of the controlled
group’s fee.
§51.9T Tax treatment of fee (temporary).
(a)Treatment as an excise tax.Thefee
imposed by section 9008 is treated as an
excise tax for purposes of subtitle F of the
Code (sections 6001–7874). Thus, refer-
ences in subtitle F to “taxes imposed by
this title,” “internal revenue tax,” and simi-
lar references, are also references to the fee
imposed by section 9008. For example, the
fee imposed by section 9008 is assessed
(section 6201), collected (sections 6301,
6321, and 6331), enforced (section 7602),
subject to examination and summons (sec-
tion 7602), and subjectto confidentiality
rules (section 6103), in the same manner
as taxes imposed by the Code.
(b)Deficiency procedures.Thedefi-
ciency procedures of sections 6211–6216
do not apply to the fee imposed by section
9008.
(c)Limitation on assessment.The
IRS must assess the amount of the fee
for any fee year within three years of
September 30
th
of that fee year.
(d)Application of section 275.The
fee is treated as a tax described in section
275(a)(6) (relating to taxes for which no
deduction is allowed).
§51.10T Refund claims (temporary).
Any claim for a refund of the fee must
be made by the person that paid the fee
to the government and must be made on
Form 843, “Claim for Refund and Request
for Abatement,” in accordance with the in-
structions for that form.
§51.11T Effective/applicability date
(temporary).
Sections 51.1T through 51.10T apply to
any fee on branded prescription drug sales
that is due on or after September 30, 2011.
§51.12T Expiration date (temporary).
The applicability of §§51.1T through
51.10T expires August 15, 2014.
§51.6302–1T Method of paying
the branded prescription drug fee
(temporary).
(a)Feetobepaidbyelectronicfunds
transfer. Under the authority of section
6302(a), the fee imposed on branded pre-
scription drug sales by section 9008 and
§51.5T must be paid by electronic funds
transfer as defined in §31.6302–1(h)(4)(i),
as if the fee were a depository tax. For the
time for paying the fee, see §51.8T.
(b)Effective/applicability date.This
section applies on and after August 18,
2011.
(c)Expiration date. The applicability
of this section expires August 15, 2014.
PART 602—OMB CONTROL
NUMBERS UNDER THE PAPERWORK
REDUCTION ACT
Par. 2. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 3. In §602.101, paragraph (b) is
amended by adding the following entry in
numerical order to the table to read as fol-
lows:
§602.101 OMB Control numbers.
*****
(b) * * *
October 3, 20114692011–40 I.R.B.

CFR part or section where
identified and described
Current OMB
control No.
*****
51.8T
...........................................................
1545–2209
*****
Sarah Hall Ingram,
Deputy Commissioner for
Services and Enforcement.
Approved August 12, 2011.
Emily S. McMahon,
Acting Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on August 8,
2011, 11:15 a.m., and published in the issue of the Federal
Register for August 18, 2011, 76 F.R. 51245)
Section 6651.—Failure to
File Tax Return or To Pay Tax
Notice 2011–76 provides limited penalty relief to
recipients who sold property in 2010 that they ac-
quired from a decedent whose executor elected for
the provisions of section 1022 of the Internal Revenue
Code to apply to such property. See Notice 2011-76,
page 479.
Section 6662.—Imposition
of Accuracy-Related
Penalty on Underpayments
Notice 2011–76 provides limited penalty relief to
recipients who sold property in 2010 that they ac-
quired from a decedent whose executor elected for
the provisions of section 1022 of the Internal Revenue
Code to apply to such property. See Notice 2011-76,
page 479.
Section 7502.—Timely
Mailing Treated as Timely
Filing and Paying
26 CFR 301.7502–1: Timely mailing of documen
ts
and payments treated as timely filing and pay
ing.
T.D. 9543
Timely Mailing Treated as
Timely Filing
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains reg-
ulations amending a Treasury Regulation
to provide guidance as to the only ways to
establishprima facieevidence of delivery
of documents that have a filing deadline
prescribed by the internal revenue laws,
absent direct proof ofactual delivery. The
regulations provide that the proper use of
registered or certified mail, or a service of a
private delivery service (PDS) designated
under criteria established by the IRS, will
constituteprima facieevidence of deliv-
ery. The regulations are necessary to pro-
vide greater certainty on this issue and to
provide specific guidance. The regulations
affect taxpayers who mail Federal tax doc-
uments to the Internal Revenue Service or
the United States Tax Court.
DATES: Effective Date: These regulations
are effective on August 23, 2011.
Applicability Date: These regula-
tions apply to any payment or document
mailed and delivered in accordance with
the requirements of this section in an en-
velope bearing a postmark dated after
September 21, 2004.
FOR FURTHER INFORMATION
CONTACT: Steven Karon, (202)
622–4570 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in these final regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under control
number 1545–1899. The collection of
information in these final regulations is
in §301.7502–1. This information is re-
quired in order for taxpayers to be able
to establish the postmark date andprima
facieevidence of delivery when using cer-
tified or registered mail.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless it displays
a valid control number.
Books or records relating to a collection
of information must be retained as long
as their contents might become material in
the administration of any internal revenue
law. Generally, tax returns and return in-
formation are confidential, as required by
26 U.S.C. 6103.
Background
This document contains regulations
amending 26 CFR part 301 under sec-
tion 7502 of the Internal Revenue Code
(Code). Section 7502(a) first appeared
as part of the recodification of the Code
in 1954. Section 7502(a) is commonly
known as the timely mailing/timely filing
rule. Section 301.7502–1 of the Procedure
and Administration Regulations provides
rules for taxpayers to follow to qualify for
favorable treatment under section 7502.
There is a conflict among the Federal cir-
cuit courts of appeal as to whether the
provisions in section 7502 provide the
exclusive means to establishprima facie
evidence of delivery of a document to
the IRS or the United States Tax Court.
Specifically, courts have reached differing
conclusions regarding whether a taxpayer
may raise a presumption of delivery of
Federal tax documents to the IRS and the
United States Tax Court only in situations
in which the taxpayer uses registered or
certified mail.
A notice of proposed rulemaking
(REG–138176–02, 2004–2 C.B. 710)
was published in theFederal Register
(69 FR 56377) on September 21, 2004.
The proposed regulations clarified that,
other than direct proof of actual delivery,
the exclusive means to establishprima
facieevidence of delivery of Federal tax
documents to the IRS and the United
States Tax Court is to prove the use of
registered or certified mail. Under section
7502(f)(3), the IRS may extend to a
service provided by a PDS a rule similar
to theprima facieevidence of delivery
rule applicable to certified and registered
2011–40 I.R.B.470October 3, 2011

mail. Prior to the publication of the notice
of proposed rulemaking, the IRS had not
received any comments or suggestions for
extending this rule, even though the IRS
and the Treasury Department previously
requested comments in a prior notice
of proposed rulemaking under section
7502. SeeFederal Register,64FR2606
(January 15, 1999). Because the IRS
was clarifying what documentation it will
accept as proof of delivery, additional
comments were sought on this issue.
Accordingly, in the notice of proposed
rulemaking, the IRS and the Treasury
Department encouraged the public to make
comments regarding whether theprima
facieevidence of delivery rule should be
extended to a service provided by a PDS.
Eighteen written comments were re-
ceived in response to the notice of pro-
posed rulemaking. Three commenters
requested a public hearing. A notice of
public hearing on proposed rulemaking
was published in theFederal Regis-
ter(69 FR 68282) on November 24,
2004. A public hearing was held on
January 11, 2005. Three commenters
appeared at the public hearing and
commented on the notice of proposed
rulemaking.
All comments were considered and are
available for public inspection upon re-
quest. After consideration of the written
comments and the comments provided at
the public hearing, the proposed regula-
tions under section 7502 are adopted as re-
vised by this Treasury Decision. The pub-
lic comments, public hearing, and the re-
visions are discussed in this preamble.
Summary of Comments and
Explanation of Provisions
Four commenters expressed concern
that the proposed regulations limited the
proof to satisfy the timely mailing/timely
filing rule of section 7502(a) rather than
theprima facieevidence of delivery rule
of section 7502(c). These final regulations
do not limit the use of U.S. Mail, other
delivery options offered by the United
States Postal Service (USPS), or a PDS
for purposes of satisfying the timely mail-
ing/timely filing rule of section 7502(a).
Instead, these final regulations clarify the
prima facieevidence of delivery rule of
section 7502(c).
Seven commenters suggested that the
proposed regulations provide that evi-
dence of proper use of a service offered
by a PDS should establishprima facie
evidence of delivery of Federal tax docu-
ments to the IRS and the United States Tax
Court. Seven commenters observed that
PDSs offered services similar to certified
and registered mail, and that the services
offered by the PDSs were as reliable as
registered mail and certified mail. Two
commenters noted that PDSs generally
provide a greater level of detail with re-
spect to tracking and delivery information
than certified and registered mail for pur-
poses of establishing proof of delivery.
Three commenters expressed concern that
it is inconsistent to permit individuals to
rely upon PDSs to satisfy the timely mail-
ing/timely filing rule of section 7502(a),
but not for section 7502(c). One com-
mentator observed thatsection 7502(f)(3)
requires that the Treasury Secretary and
the IRS consider PDS alternatives as sub-
stitutes for certifiedand registered mail.
After considering comments received
on the proposed regulations, these final
regulations provide that the Treasury De-
partment and IRS will issue guidance
that will establish the criteria to be used
to designate PDSs for purposes of the
prima facieevidence of delivery rule.
Cf. Notice 2004–83, 2004–2 C.B. 1030)
(listing PDSs that the Secretary has des-
ignated pursuant to section 7502(f)(2))
(see §601.601(d)(2)(ii)(b) of this chapter);
Rev. Proc. 97–19, 1997–1 C.B. 644 (pro-
viding the criteria to determine whether
a PDS qualifies as a designated private
delivery service under section 7502(f)
and the procedures under which a PDS
can apply to become a designated PDS)
(see §601.601(d)(2)(ii)(b)ofthischapter).
Thus, these final regulations provide that,
other than direct proof of actual delivery,
proof of proper use of registered or cer-
tified mail (registered or certified mail
sender’s receipt), and proof of proper use
of a PDS duly designated under criteria es-
tablished by the IRS, are the sole means to
establishprima facieevidence of delivery
of documents that have a filing deadline
prescribed by the internal revenue laws.
The existing regulations under sec-
tion 7502 are being reorganized. Section
301.7502–1(e) will still be entitled “De-
livery,” but will now focus on the require-
ment for actual delivery or the use of one
of the means discussed above to establish
a presumption of delivery. Former para-
graph (e)(2) and the example in paragraph
(e)(3) are moved to paragraph (b)(2) to
consolidate the discussion of the effect of
section 7502 on certain claims for refund.
Seven commenters suggested that the
proposed regulations should permit ad-
ditional services offered by the USPS to
establishprima facieevidence of delivery
of Federal tax documents to the IRS and
the United States Tax Court. Commenters
recommended that the following USPS
services should be permitted to establish
prima facieevidence of delivery: Priority
Mail, Certificate of Mailing, Express Mail
Receipt, Delivery Confirmation Receipt,
and Signature Confirmation.
Section 7502 does not authorize the
Treasury Department or the IRS to adopt
a rule that would permit USPS services in
addition to certified and registered mail
to establishprima facieevidence of de-
livery. Congress has been clear when it
intended to change section 7502 to allow
proof of delivery by other means. In 1958,
Congressamendedsection7502topro-
vide the IRS with the authority to treat
certified mail the same as registered mail.
See Technical Amendments Act of 1958,
Public Law No. 85–866 (72 Stat. 1606
(1958)). Congress also amended section
7502 to authorize the IRS to publish rules
providing the extent to which a PDS is the
equivalent of certified mail. See Taxpayer
Bill of Rights 2, Public Law No. 104–168
(110 Stat. 1452 (1996)); Internal Revenue
Service Restructuring and Reform Act of
1998, Public Law No. 105–206 (112 Stat.
685 (1998)). Similar legislation would
be necessary to authorize the IRS to treat
additional USPS services asprima facie
evidence of delivery.
Two commenters expressed concern
that certified and registered mail services
are expensive and inconvenient in compar-
ison to first class mail. These commenters
suggested that regular first class mail
should suffice to establishprima facie
evidence of delivery. As described above,
theprima facieevidence of delivery rule
provides an exception to the actual deliv-
ery rule. Absent actual delivery, however,
first class mail without additional services
provides nothing, such as certified or reg-
istered mail receipt, to establish proof of
delivery. Moreover, without legislative
action, the Treasury Department and the
October 3, 20114712011–40 I.R.B.

IRS cannot adopt regulations extending
theprima facieevidence of delivery rule
to first class mail.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866, as supplemented by Executive Or-
der 13563. Therefore, a regulatory assess-
ment is not required. It has also been deter-
mined that section 553(b) of the Adminis-
trative Procedure Act (5 U.S.C. chapter 5)
does not apply to these regulations.
It is hereby certified that the collection
of information contained in this regula-
tion will not have a significant economic
impact on a substantial number of small
entities. Accordingly,a regulatory flexi-
bility analysis is not required. Although
the collection of information in this Trea-
sury decision affects a substantial number
of small entities, the economic impact on
these small entities is not substantial. If
a small entity uses registered or certified
mail to file a document with the IRS, the
additional burden (filling out the appro-
priate United States Postal Service forms)
over and above using regular mail is not
substantial. Furthermore, the extra cost to
use registered or certified mail is not sub-
stantial as certified mail costs only $2.80
and registered mail can be used for as lit-
tle as $10.60. Finally, the added burden
of retaining the certified or registered mail
sender’s receipt will be minimal as the re-
ceipt can be associated with the small en-
tity’s copy of the document that it filed
with the IRS.
Pursuant to section 7805(f) of the Code,
the proposed rule that preceded this Trea-
sury decision was submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small businesses.
Drafting Information
The principal author of these regula-
tions is Steven L. Karon of the Office of the
Associate Chief Counsel, Procedure and
Administration.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 is amended by removing the en-
try for §301.7502–1T to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.7502–1 is amended
by:
1. Revising paragraphs (b)(2) and (e).
2. Adding paragraphs (c)(3) and (g)(4).
The additions and revisions read as fol-
lows:
§301.7502–1 Timely mailing of documents
and payments treated as timely filing and
paying.
*****
(b) * * *
(2)Claims for refund—(i)In general.
In the case of certain taxes, a return may
constitute a claim forcredit or refund. Sec-
tion 7502 is applicable to the determina-
tion of whether a claim for credit or re-
fund is timely filed for purposes of section
6511(a) if the conditions of section 7502
are met, irrespective of whether the claim
is also a return. For rules regarding claims
for refund on late filed tax returns, see
paragraph (f) of this section. Section 7502
is also applicable when a claim for credit or
refund is delivered after the last day of the
period specified in section 6511(b)(2)(A)
or in any other corresponding provision of
lawrelatingtothelimitontheamountof
credit or refund that is allowable.
(ii)Example. The rules of paragraph
(b)(2)(i) of this section are illustrated by
the following example:
Example. (A) Taxpayer A, an individual, mailed
his 2004 Form 1040,“U.S. Individual Income Tax Re-
turn,”on May 10, 2005, but no tax was paid at that
time because the tax liability disclosed by the return
had been completely satisfied by the income tax that
had been withheld on A’s wages. On April 15, 2008,
A mails, in accordance with the requirements of this
section, a Form 1040X,“Amended U.S. Individual
Income Tax Return,”claiming a refund of a portion of
the tax that had been paid through withholding during
2004. The date of the postmark on the envelope con-
taining the claim for refund is April 15, 2008. The
claim is received by the IRS on April 18, 2008.
(B) Under section 6511(a), A’s claim for refund is
timely if filed within three years from May 10, 2005,
the date on which A’s 2004 return was filed. As a
result of the limitations of section 6511(b)(2)(A),
if A’s claim is not filed within three years after
April 15, 2005, the date on which A is deemed
undersection6513tohavepaidhis2004tax,Ais
not entitled to any refund. Because A’s claim for
refund is postmarked and mailed in accordance with
the requirements of this section and is delivered
after the last day of the period specified in section
6511(b)(2)(A), section 7502 is applicable and the
claim is deemed to have been filed on April 15, 2008.
*****
(c) * * *
(3)Private delivery services. Under
section 7502(f)(1), a service of a private
delivery service (PDS) may be treated as
an equivalent to United States mail for pur-
poses of the postmark rule if the Commis-
sioner determines that the service satisfies
the conditions of section 7502(f)(2). Thus,
the Commissioner may, in guidance pub-
lished in the Internal Revenue Bulletin (see
§601.601(d)(2)(ii)(b) of this chapter), pre-
scribe procedures and additional rules to
designate a service of a PDS for purposes
of the postmark rule of section 7502(a).
*****
(e)Delivery—(1)General rule. Except
as provided in section 7502(f) and para-
graphs (c)(3) and (d) of this section, sec-
tion 7502 is not applicable unless the docu-
ment or payment is delivered by U.S. mail
to the agency, officer, or office with which
the document is required to be filed or to
whichpaymentisrequiredtobemade.
(2)Exceptions to actual delivery—(i)
Registered and certified mail.In the case
of a document (but not a payment) sent by
registered or certified mail, proof that the
document was properly registered or that a
postmarked certified mail sender’s receipt
was properly issued and that the envelope
was properly addressed to the agency, of-
ficer, or office constitutesprima facieev-
idence that the document was delivered to
the agency, officer, or office. Other than
direct proof of actual delivery, proof of
proper use of registered or certified mail,
and proof of proper use of a duly desig-
nated PDS as provided for by paragraph
(e)(2)(ii) of this section, are the exclusive
means to establishprima facieevidence of
delivery of a document to the agency, of-
ficer, or office with which the document is
required to be filed. No other evidence of a
postmark or of mailing will beprima facie
2011–40 I.R.B.472October 3, 2011

evidence of delivery or raise a presumption
that the document was delivered.
(ii)Equivalents of registered and cer-
tified mail. Under section 7502(f)(3),
the Secretary may extend theprima fa-
cieevidence of delivery rule of section
7502(c)(1)(A) to a service of a designated
PDS, which is substantially equivalent to
United States registered or certified mail.
Thus, the Commissioner may, in guidance
published in the Internal Revenue Bulletin
(see §601.601(d)(2)(ii)(b) of this chap-
ter), prescribe procedures and additional
rules to designate a service of a PDS for
purposes of demonstratingprima facieev-
idence of delivery of a document pursuant
to section 7502(c).
*****
(g) * * *
(4)Registered or certified mail as the
means to prove delivery of a document.
Section 301.7502–1(e)(2) will apply to
all documents mailed after September 21,
2004.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved August 10, 2011.
Emily S. McMahon,
Acting Assistant Secretary
(Tax Policy).
(Filed by the Office of the Federal Register on August 22,
2011, 8:45 a.m., and published in the issue of the Federal
Register for August 23, 2011, 76 F.R. 52561)
October 3, 20114732011–40 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Request for Comments on
Health Coverage Affordability
Safe Harbor for Employers
(Section 4980H)
Notice 2011–73
I. PURPOSE AND BACKGROUND
This request for comments is intended
to continue the process of developing reg-
ulatory guidance on the shared employer
responsibility provisions of § 4980H of
the Internal Revenue Code (Code). The
process was initiated with the release of
Notice 2011–36, 2011–21 I.R.B. 792,
which described potential approaches to
interpreting and applying certain provi-
sions of § 4980H and invited comments
on those approaches. Section 4980H was
added to the Code by § 1513 of the Pa-
tient Protection and Affordable Care Act
(Affordable Care Act) enacted March 23,
2010, Pub. L. No. 111–148, and amended
by § 1003 of the Health Care and Educa-
tion Reconciliation Act of 2010, enacted
March 30, 2010, Pub. L. No. 111–152.
Section 4980H is effective for months
beginning after December 31, 2013.
Generally, § 4980H provides that an
applicable large employer (as defined in
§ 4980H(c)(2)) is subject to an assessable
payment if any full-time employee is cer-
tified to receive an applicable premium
tax credit or cost-sharing reduction and ei-
ther (1) the employer does not offer to
its full-time employees (and their depen-
dents) the opportunity to enroll in mini-
mum essential coverage under an eligible
employer-sponsored plan (§ 4980H(a))
1
;
or (2) the employer offers its full-time em-
ployees (and their dependents) the oppor-
tunity to enroll in minimum essential cov-
erage that either is unaffordable within the
meaning of § 36(B)(c)(2)(C)(i) or does not
provide minimum value within the mean-
ing of § 36(B)(c)(2)(C)(ii) (§ 4980H(b)).
Notice 2011–36 requested comments
on several discrete issues under § 4980H
and specifically on the issue of who is a
full-time employee, including a potential
“look-back/stability period safe harbor”
method for determining full-time status.
This notice requests comments on a pro-
posed safe harbor, which could be incor-
porated in future proposed regulations, for
determining the affordability of coverage
under an eligible employer sponsored plan
for purposes of an employer’s potential as-
sessable payment under § 4980H(b). The
Department of the Treasury (Treasury)
and the Internal Revenue Service (IRS)
intend to publish proposed regulations on
the issues addressed in Notice 2011–36,
on the proposed employer safe harbor out-
lined in this notice and on a broader set of
issues under § 4980H.
II. PROPOSED AFFORDABILITY
SAFE HARBOR FOR EMPLOYERS
Whether an applicable large employer’s
health coverage is affordable to its full-
time employees is essential in determining
whether an employee can receive a pre-
mium tax credit and, in turn, whether the
employer is subject to an assessable pay-
ment under § 4980H(b). Coverage un-
der an employer-sponsored plan is afford-
able to a particular employee if the em-
ployee’s required contribution (within the
meaning of § 5000A(e)(1)(B)) to the plan
does not exceed 9.5 percent of the em-
ployee’s household income for the taxable
year.
2
Section 36B(c)(2)(C)(i). Household
income for this purpose is defined as the
modified adjusted gross income of the em-
ployee and any members of the employee’s
family (which would include any spouse
and dependents) who are required to file an
income tax return. Section 36B(d)(2)(A).
Modified adjusted gross income means ad-
justed gross income (within the meaning
of § 62) increased by amounts excluded
from gross income under § 911 and by the
amount of any tax-exempt interest a tax-
payer receives or accrues during the tax-
able year. Section 36B(d)(2)(B).
Because affordability is determined
by reference to household income and
because household income is determined
by reference to variables that are gener-
ally unknown to an employer (i.e.,the
modified adjusted gross income of the
employee and the employee’s spouse and
dependents), employers may encounter
practical difficulties in assessing whether
the coverage they are offering is afford-
able to certain employees. To address
this concern and provide employers a
more workable option for determining
the affordability of their health coverage,
Treasury and the IRS expect to propose an
affordability safe harbor whereby, for pur-
poses of § 4980H(b), affordability of an
employer’s coverage would be measured
by reference to an employee’s wages from
that employer. Wages for this purpose
would be the total amount of wages as
defined in § 3401(a), which is the amount
requiredtobereportedinBox1ofForm
W–2,Wage and Tax Statement(W–2
wages).
It is contemplated that under this pro-
posed safe harbor, an employer would
need to meet certain requirements, in-
cluding: (1) that the employer must offer
its full-time employees (and their de-
pendents) the opportunity to enroll in
minimum essential coverage under an el-
igible employer-sponsored plan, and (2)
that the employee portion of the self-only
premium for the employer’s lowest cost
coverage that provides minimum value
(the employee contribution) must not ex-
ceed 9.5 percent of the employee’s W–2
wages. If the employer satisfies both of
these requirements for a particular em-
ployee (as well as any other conditions for
the safe harbor), the employer would not
be subject to an assessable payment under
§ 4980H(b) with respect to that particular
employee, even if that employee receives
a premium tax credit or cost sharing reduc-
tion. Application of this safe harbor would
be determined after the end of the calendar
year and on an employee-by-employee
basis, taking into account the W–2 wages
and the employee contribution. So, for
example, the employer would determine
whether it met the proposed affordability
safe harbor for 2014 for an employee by
looking at that employee’s W–2 wages for
2014 and comparing 9.5 percent of that
amount to the employee’s 2014 employee
contribution.
1
Minimum essential coverage is defined in § 5000A(f) of the Code. The definition of “eligible employer-sponsored plan” in § 5000A(f)(2) applies for purposes of § 4980H.
2
The 9.5 percent may be adjusted after 2014 to reflect rates of premium growthrelative to growth in income and after 2018 to reflect rates of premium growth relative to growth in the
consumer price index. See Prop. Treas. Reg. §§ 1.36B–0 through 1.36B–5.
2011–40 I.R.B.474October 3, 2011

Although the determination of whether
an employer actually satisfied the safe har-
bor would be made after the end of the cal-
endar year, an employer could also use the
safe harbor prospectively, at the beginning
of the year, by structuring its plan and oper-
ations to set the employee contribution at a
level so that the employee contribution for
each employee would not exceed 9.5 per-
cent of that employee’s W–2 wages for that
year. It is contemplated that employers,
on a consistent basis, would be permitted
to make reasonable and necessary adjust-
ments for pay periods so that the employee
contribution does not exceed 9.5 percent of
the employee’s W–2 wages.
By allowing employers to base their
affordability calculations on each em-
ployee’s W–2 wages (which employers
know) instead of each employee’s house-
hold income (which employers generally
would not know), the safe harbor could
provide a more workable and practical
method for measuring the affordability of
an employer’s coverage for § 4980H(b)
purposes. In most instances, if em-
ployer-sponsored coverage were afford-
able based on the employee’s W–2 wages,
it would also be affordable based on the
employee’s household income because an
employee’s household income is likely
to be greater than the employee’s W–2
wages. In that case, a premium tax credit
would not be available to that employee
and, in turn, the employer would not be
subject to an assessable payment under
§ 4980H(b) with respect to that employee.
In some circumstances, an employee’s
household income may be less than the
employee’s W–2 wages (for example, be-
cause of adjustments to gross income for
alimony paid or losses due to self-employ-
ment). The proposed safe harbor would
address those situations by allowing the
employer to rely on an employee’s W–2
wages for analyzing the affordability of
the employer’s health coverage with re-
spect to that employee.
This proposed affordability safe harbor
would apply only for purposes of deter-
mining whether an employer’s coverage
satisfies the 9.5 percent affordability test
for purposes of the assessable payment
under § 4980H(b). For example, the safe
harbor would not affect an employee’s
eligibility for a premium tax credit un-
der § 36B. An employee’s eligibility for
the premium tax credit would continue
to be based on the affordability of em-
ployer-sponsored coverage relative to an
employee’s household income. Accord-
ingly, in some instances, the effect of
the safe harbor could be to treat an em-
ployer’s offer of coverage to an employee
as affordable (based on W–2 wages) for
purposes of determining whether the em-
ployer is subject to an assessable payment
under § 4980H(b), while that same offer of
coverage could be treated as unaffordable
(based on household income) for purposes
of determining whether the employee is
eligible for a premium tax credit under
§36B.
III. REQUEST FOR COMMENTS
As noted, Treasury and the IRS intend
to issue guidance, including proposed reg-
ulations, on the employer shared responsi-
bility provisions under § 4980H. To help
inform that guidance, comments are in-
vited on the affordability safe harbor for
employers for purposes of § 4980H(b). In
particular, comments are invited on the fol-
lowing issues:
•Whether or how wages and employee
contribution amounts would need to be
determined for employees who are em-
ployed by an employer for less than
a full year, employees who move be-
tween full-time and part-time status,
situations in which the plan year is not
a calendar year, and other similar spe-
cial circumstances.
•Whether there are other possible safe
harbor methods for determining the af-
fordability of coverage under an em-
ployer-sponsored plan for purposes of
calculating an employer’s potential as-
sessable payment under § 4980H(b).
•How to coordinate any affordability
safe harbor with the full-time em-
ployee look-back/stability safe harbor
described in Notice 2011–36.
Comments must be submitted by
December 13, 2011. Comments should
include a reference to Notice 2011–73.
Send submissions to CC:PA:LPD:PR
(Notice 2011–73), Room 5203, Internal
Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.
Submissions may be hand deliveredMon-
day through Fridaybetween the hours
of 8 a.m. and 4 p.m. to CC:PA:LPD:PR
(Notice 2011–73), Courier’s Desk,
Internal Revenue Service, 1111
Constitution Avenue, NW, Washington,
DC 20044, or sent electronically,
via the following e-mail address:
Notice.comments@irscounsel.treas.gov.
Please include “Notice 2011–73” in
the subject line of any electronic
communication. All material submitted
will be available for public inspection and
copying.
NO INFERENCE
No inference should be drawn from any
provision of this notice concerning any
other provision of § 4980H or any other
section of the Affordable Care Act.
DRAFTING INFORMATION
The principal author of this notice is
Mireille Khoury of the Office of Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities).
For further information regarding this
notice, contact Mireille Khoury at (202)
622–6080 (not a toll-free call).
Update for Weighted Average
Interest Rates, Yield Curves,
and Segment Rates
Notice 2011–75
This notice provides guidance as to the
corporate bond weighted average interest
rate and the permissible range of interest
rates specified under §412(b)(5)(B)(ii)(II)
of the Internal Revenue Code as in ef-
fect for plan years beginning before 2008.
It also provides guidance on the cor-
porate bond monthly yield curve (and
the corresponding spot segment rates),
and the 24-month average segment rates
under § 430(h)(2). In addition, this no-
tice provides guidance as to the interest
rate on 30-year Treasury securities un-
der § 417(e)(3)(A)(ii)(II) as in effect for
plan years beginning before 2008, the
30-year Treasury weighted average rate
under § 431(c)(6)(E)(ii)(I), and the min-
imum present value segment rates under
§ 417(e)(3)(D) as in effect for plan years
beginning after 2007.
October 3, 20114752011–40 I.R.B.

CORPORATE BOND WEIGHTED
AVERAGE INTEREST RATE
Sections412(b)(5)(B)(ii)and
412(l)(7)(C)(i), as amended by the Pen-
sion Funding Equity Act of 2004 and by
the Pension Protection Act of 2006 (PPA),
provide that the interest rates used to cal-
culate current liability and to determine
the required contribution under § 412(l)
for plan years beginning in 2004 through
2007 must be within a permissible range
based on the weighted average of the rates
of interest on amounts invested conser-
vatively in long term investment grade
corporate bonds during the 4-year period
ending on the last day before the beginning
of the plan year.
Notice 2004–34, 2004–1 C.B. 848, pro-
vides guidelines for determining the cor-
porate bond weighted average interest rate
and the resulting permissible range of in-
terest rates used to calculate current liabil-
ity. That notice establishes that the corpo-
rate bond weighted average is based on the
monthly composite corporate bond rate de-
rived from designated corporate bond in-
dices. The methodology for determining
the monthly composite corporate bond rate
as set forth in Notice 2004–34 continues to
apply in determining that rate. See Notice
2006–75, 2006–2 C.B. 366.
The composite corporate bond rate for
August 2011 is 4.99 percent. Pursuant
to Notice 2004–34, the Service has de-
termined this rate as the average of the
monthly yields for the included corporate
bond indices for that month.
The following corporate bond weighted
average interest rate was determined for
plan years beginning in the month shown
below.
For Plan Years
Beginning inPermissible Range
MonthYear
Corporate
Bond Weighted
Average90%to100%
September2011
5.915.325.91
YIELD CURVE AND SEGMENT
RATES
Generally for plan years beginning
after 2007 (except for delayed effective
dates for certain plans under sections 104,
105, and 106 of PPA), § 430 of the Code
specifies the minimum funding require-
ments that apply to single employer plans
pursuant to § 412. Section 430(h)(2) spec-
ifies the interest rates that must be used
to determine a plan’s target normal cost
and funding target. Under this provision,
present value is generally determined us-
ing three 24-month average interest rates
(“segment rates”), each of which applies
to cash flows during specified periods.
However, an election may be made under
§ 430(h)(2)(D)(ii) to use the monthly yield
curve in place of the segment rates. Sec-
tion 430(h)(2)G) set forth a transitional
rule applicable to plan years beginning in
2008 and 2009 under which the segment
rates were blended with the corporate bond
weighted average described above, includ-
ing an election under § 430(h)(2)(G)(iv)
foranemployertousethesegmentrates
without the transitional rule.
Notice 2007–81, 2007–2 C.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, the
24-month average corporate bond seg-
ment rates, and the funding transitional
segment rates used to compute the tar-
get normal cost and the funding target.
Pursuant to Notice 2007–81, the monthly
corporate bond yield curve derived from
August 2011 data is in Table I at the end
of this notice. The spot first, second, and
third segment rates for the month of Au-
gust 2011 are, respectively, 1.85, 4.62,
and 6.02. The three 24-month average
corporate bond segment rates applicable
for September 2011 under the election of
§ 430(h)(2)(G)(iv) are as follows:
First
Segment
Second
Segment
Third
Segment
2.06
5.25
6.32
The transitional rule of § 430(h)(2)(G)
does not apply to plan years beginning af-
ter December 31, 2009. Therefore, for a
plan year beginning after 2009 with a look-
back month to September 2011, the fund-
ing segment rates are the three 24-month
average corporate bond segment rates ap-
plicable for September 2011, listed above
without blending for any transitional pe-
riod.
30-YEAR TREASURY SECURITIES
INTEREST RATES
Section 417(e)(3)(A)(ii)(II) (prior to
amendment by PPA) defines the appli-
cable interest rate, which must be used
for purposes of determining the minimum
present value of a participant’s benefit
under § 417(e)(1) and (2), as the annual
rate of interest on 30-year Treasury se-
curities for the month before the date
of distribution or such other time as the
Secretary may by regulations prescribe.
Section 1.417(e)–1(d)(3) of the Income
Tax Regulations provides that the applica-
ble interest rate for a month is the annual
rate of interest on 30-year Treasury secu-
rities as specified by the Commissioner
for that month in revenue rulings, notices
or other guidance published in the Internal
Revenue Bulletin.
The rate of interest on 30-year Treasury
securities for August 2011 is 3.65 percent.
The Service has determined this rate as the
average of the yield on the 30-year Trea-
sury bond maturing in May 2041 deter-
mined each day through August 10, 2011,
and the yield on the 30-year Treasury bond
maturing in August 2041 determined each
day for the balance of the month.
2011–40 I.R.B.476October 3, 2011

Generally for plan years beginning
after 2007, § 431 specifies the mini-
mum funding requirements that apply to
multiemployer plans pursuant to § 412.
Section 431(c)(6)(B)specifies a minimum
amount for the full-funding limitation
described in section 431(c)(6)(A), based
on the plan’s current liability. Section
431(c)(6)(E)(ii)(I) provides that the inter-
est rate used to calculate current liability
for this purpose must be no more than 5
percent above and no more than 10 percent
below the weighted average of the rates of
interest on 30-year Treasury securities dur-
ing the four-year period ending on the last
day before the beginning of the plan year.
Notice 88–73, 1988–2 C.B. 383, provides
guidelines for determining the weighted
average interest rate. The following rates
were determined for plan years beginning
in the month shown below.
For Plan Years
Beginning inPermissible R
ange
MonthYear
30-Year
Treasury
Weighted
Average
90%to
105%
September20114.233.814.44
MINIMUM PRESE
NT VALUE
SEGMENT RATE
S
Generally fo
r plan years beginning
after Decemb
er 31, 2007, the applicable
interest rat
es under § 417(e)(3)(D) are
segment rat
es computed without regard to
a 24-month a
verage. For plan years begin-
ning in 2008 th
rough 2011, the applicable
interest rat
es are the monthly spot seg-
ment rates bl
ended with the applicable rate
under § 417(e
)(3)(A)(ii)(II) as in effect
for plan year
s beginning in 2007. Notice
2007–81 prov
ides guidelines for determin-
ing the mini
mum present value segment
rates. Purs
uant to that notice, the mini-
mum present va
lue transitional segment
rates determ
ined for August 2011, tak-
ing into acco
unt the August 2011 30-year
Treasury rat
e of 3.65 stated above for plan
years beginn
ingin2010and2011,areas
follows:
For Plan Years
Beginning in
First
Segment
Second
Segment
Third
Segment
2010
2.57
4.23
5.07
20112.214.43
5.55
2012
1.85
4.626.02
DRAFTING I
NFORMATION
The princi
pal author of this notice is
Tony Monta
naro of the Employee Plans,
Tax Exempt
and Government Entities
Division.
Mr. Montanaro may be e-mailed
atRetirem
entPlanQuestions@irs.gov.
October 3, 20114772011–40 I.R.B.

Table I
Monthly Yield Curve for August 2011
Derived from August 2011 Data
Maturity YieldMaturity YieldMaturity YieldMaturity YieldMaturity Yield
0.5
0.60
20.55.4840.5
6.08
60.5
6.28
80.5
6.39
1.0
0.89
21.0
5.51
41.0
6.09
61.0
6.29
81.0
6.39
1.51.1821.55.5441.56.1061.5
6.29
81.5
6.39
2.01.4722.0
5.56
42.06.1062.06.2982.06.39
2.51.7522.5
5.59
42.5
6.11
62.5
6.30
82.5
6.39
3.02.0323.0
5.61
43.06.1263.06.3083.0
6.39
3.5
2.29
23.55.6443.5
6.12
63.5
6.30
83.5
6.40
4.0
2.54
24.0
5.66
44.06.1364.06.3184.06.40
4.52.7724.55.6844.56.1464.56.3184.56.40
5.0
2.98
25.05.7045.0
6.14
65.0
6.31
85.0
6.40
5.5
3.17
25.55.7245.56.1565.5
6.31
85.5
6.40
6.0
3.35
26.0
5.74
46.0
6.15
66.06.3286.06.41
6.53.5126.55.7646.5
6.16
66.5
6.32
86.5
6.41
7.03.6627.0
5.78
47.06.1767.06.3287.06.41
7.53.8027.55.7947.56.1767.56.3387.56.41
8.03.9228.0
5.81
48.06.1868.06.3388.06.41
8.5
4.04
28.55.8248.5
6.18
68.5
6.33
88.5
6.41
9.0
4.15
29.0
5.84
49.06.1969.0
6.33
89.0
6.41
9.5
4.25
29.5
5.85
49.5
6.19
69.56.3489.56.42
10.0
4.35
30.0
5.8750.0
6.2070.06.34
90.0
6.42
10.54.4430.55.8850.56.2070.56.3490.56.42
11.0
4.52
31.05.89
51.0
6.2171.06.3491.06.42
11.5
4.60
31.5
5.91
51.5
6.21
71.56.35
91.56.42
12.04.6832.05.92
52.0
6.2272.0
6.35
92.0
6.42
12.54.7532.5
5.93
52.5
6.22
72.56.35
92.56.43
13.04.8133.05.94
53.0
6.2373.0
6.35
93.0
6.43
13.54.8833.55.9553.56.2373.56.3693.56.43
14.04.9434.05.96
54.0
6.2374.06.3694.06.43
14.5
4.99
34.5
5.97
54.5
6.24
74.5
6.3694.56.43
15.05.0435.0
5.99
55.0
6.24
75.0
6.3695.06.43
15.5
5.09
35.5
6.00
55.56.2575.5
6.3795.56.43
16.0
5.14
36.06.00
56.06.25
76.06.37
96.0
6.44
16.55.1936.56.0156.56.2576.56.3796.56.44
17.0
5.23
37.06.02
57.0
6.2677.06.3797.06.44
17.55.2737.5
6.03
57.5
6.26
77.5
6.3797.56.44
18.0
5.31
38.06.04
58.0
6.2778.06.38
98.0
6.44
18.55.3538.56.0558.5
6.27
78.5
6.3898.56.44
19.0
5.38
39.0
6.0659.06.27
79.0
6.38
99.0
6.44
19.55.4239.56.0759.56.2879.56.3899.56.44
20.0
5.45
40.06.0760.06.2880.06.38100.0
6.45
2011–40 I.R.B.478October 3, 2011

Due Dates for Filing Form 706,
Form 706-NA, or Form 8939,
Extension of Time to Pay
Estate Tax, and Penalty Relief
for Recipients of Property
Acquired from Decedents who
Died in 2010
Notice 2011–76
PURPOSE
This notice provides the executor of an
estate of a decedent who died in 2010 (Ex-
ecutor of a 2010 Estate) who timely files
a Form 4768,Application for Extension of
Time To File a Return and/or Pay U.S. Es-
tate (and Generation-Skipping Transfer)
Taxes, an automatic extension of time to
file an estate tax return and to pay the es-
tate tax due. Furthermore, this notice re-
vises the due date of Form 8939,Alloca-
tion of Increase in Basis for Property Ac-
quired From a Decedent.Italsoprovides
penalty relief to certain persons who ac-
quired property, the basis of which is de-
termined under section 1022, and disposed
of such property during 2010. This notice
applies to each Executor of a 2010 Estate
and to recipients of property acquired from
decedents who died in 2010.
BACKGROUND
In General
Section 501 of the Economic Growth
and Tax Relief Reconciliation Act of 2001,
P.L. 107–16 (115 Stat. 69) (EGTRRA),
repealed the estate tax for the estates of
decedents who died in 2010 (2010 Dece-
dents). EGTRRA also repealed section
1014 and replaced it with section 1022.
Section 1014 generally provides that the
recipient’s basis inproperty passing from
a decedent is the fair market value (FMV)
of the property on the decedent’s date of
death. Section 1022 generally provides
that the recipient’s basis in property ac-
quired from a decedent is the lesser of the
decedent’s adjusted basis in the property
and the FMV of the property on the dece-
dent’s date of death.
Section 301(a) of the Tax Relief,
Unemployment Insurance Reauthoriza-
tion, and Job Creation Act of 2010, P.L.
111–312 (124 Stat. 3296) (TRUIRJCA),
repealed section 501 of EGTRRA and
section 1022. The repeal of EGTRRA
retroactively reinstated the estate tax
for 2010 Decedents and also reinstated
section 1014. TRUIRJCA also increased
the applicable exclusion amount to
$5,000,000 for 2010 Decedents. Section
301(c) of TRUIRJCA, however, allows
the Executor of a 2010 Estate to elect
not to have the estate tax provisions and
section 1014 apply, but rather, to have the
provisions of section 1022 apply (Section
1022 Election). With the election, the
estate will pay no estate tax and in most
cases the basis of the property acquired
from the decedent will be determined
under section 1022. In addition, the
executor may allocate additional basis to
certain property.SeeRev. Proc. 2011–41,
2011–35 I.R.B. 188.
Filing and Payment Dates
Under section 301(d) of TRUIRJCA,
the due date for filing an estate tax return
and for paying the estate tax for an estate
of a decedent who died after December 31,
2009, and before December 17, 2010,
is no earlier than September 17, 2011.
The due date, therefore, for estates of
decedents who died on or after January 1,
2010, and on or before December 16,
2010, is September 19, 2011, because
September 17, 2011, falls on a Saturday.
Under section 6075(a), the due date for
filing an estate tax return for a decedent
who died after December 16, 2010, is nine
months after the date of the decedent’s
death. Section 6151 provides that, when a
tax return is required, the person required
to make such return shall pay such tax
at the time and place fixed for filing the
return (determined without regard to any
extension of time for filing the return).
Section 542 of EGTRRA provides that
the return required under former section
6018 (Form 8939, which is filed to make a
Section 1022 Election, to report the infor-
mation required under section 6018, and
to allocate additional basis under section
1022) shall be filed with the decedent’s fi-
nal income tax return (for example: Form
1040,United States Individual Income Tax
Return, or Form 1040-NR,United States
Nonresident Alien Income Tax Return)
or by such later date specified in regula-
tions prescribed by the Secretary. Notice
2011–66, 2011–35 I.R.B. 184, which the
Treasury Department and IRS intend to
confirm in regulations, provides that Form
8939 is due on or before November 15,
2011.
Section 6081 provides that the Secre-
tary may grant a reasonable extension of
time for filing any return and that, except
in the case of taxpayers who are abroad,
no such extension may be for more than
six months. In addition, section 6161(a)
provides that the Secretary may extend the
time for payment of the amount of the tax
shown, or required to be shown, on any re-
turn for a reasonable period from the date
fixed for payment thereof.
GUIDANCE
Forms 706 and 706-NA
Because of the date Congress en-
acted TRUIRJCA and the length of time
required to implement the legislative
changes and to issue the Form 8939 with
related instructions, the Executor of a 2010
Estate may not have sufficient time to
make an informed decision as to whether
or not to make a Section 1022 Election and
to complete the required filings. There-
fore, the Treasury Department and IRS
believe it is reasonable to grant the estates
of 2010 Decedents an automatic extension
of time to file the estate tax return and an
extension of time to pay the estate tax.
Accordingly, the Treasury Department and
IRS grant the Executor of a 2010 Estate
who files a Form 4768 by the due date
for filing Form 706,United States Estate
(and Generation-Skipping Transfer) Tax
Return, or Form 706-NA,United States
Estate (and Generation-Skipping Trans-
fer) Tax Return Estate of Nonresident not
a Citizen of the United States,bothan
automatic six-month extension of time to
file Form 706 or Form 706-NA pursuant
to section 6081, and a six-month exten-
sion of time to pay the estate tax. The
Executor of a 2010 Estate is not required
to substantiate on the Form 4768 the rea-
son for requesting an extension of time for
payment of the estate tax to receive the
six-month extension of time to pay the es-
tate tax due. However, interest will accrue
on the estate tax liability from the due date
of the return, excluding extensions.See
I.R.C. § 6601.
Except in the case of an executor
abroad, under section 6081, the Treasury
October 3, 20114792011–40 I.R.B.

Department and IRS cannot grant addi-
tional extensions of time to file Form 706
or Form 706-NA to such estates, regard-
less of whether an executor files a Form
4768 requesting an additional extension of
time to file. An executor, however, may
apply for an additional extension of time
topaytheestatetaxundersection6161if
the executor files a Form 4768 on or be-
fore the extended due date of the payment
of tax and provides the documentation re-
quired with such form.SeeI.R.C. § 6161.
The IRS will not impose late filing
and late payment penalties under section
6651(a)(1) or (2) on estates of decedents
who died after December 31, 2009, and
before December 17, 2010, if the estate
timely files Form 4768 and then files Form
706 or Form 706-NA and pays the estate
tax by March 19, 2012. The IRS also
will not impose late filing or late payment
penalties under section 6651(a)(1) or (2)
on estates of decedents who died after
December 16, 2010, and before January 1,
2011, if the estate timely files Form 4768
andthenfilesForm706orForm706-NA
and pays the estate tax within 15 months
after the decedent’s date of death.
Form 8939
The due date for filing Form 8939 is
changed from November 15, 2011, to Jan-
uary 17, 2012. Thus, a Section 1022 Elec-
tionistimelyifmadeonaForm8939filed
by (and may be amended or revoked on or
before) January 17, 2012. The Treasury
Department and IRS will not grant any fur-
ther extension of time to file Form 8939,
to make the Section 1022 Election, or to
amend or revoke the Section 1022 Elec-
tion, except as provided in sections I.A, B,
or D.1 or 2 of Notice 2011–66. Accord-
ingly, as contemplated in section I.D.2 of
Notice 2011–66, an executor may file an
amended Form 8939 if the provisions of
§ 301.9100–2(b) are satisfied, by July 17,
2012.
Moreover, the penalty under section
6716 does not apply to the Executor of
a 2010 Estate solely because the Form
8939 is filed after November 15, 2011,
but on or before January 17, 2012. Sim-
ilarly, a penalty under section 6716 does
not apply to the Executor of a 2010 Estate
solely because a statement required to be
furnished to beneficiaries is provided af-
ter December 15, 2011, but on or before
February 17, 2012.
Generation-Skipping Transfer (GST) Tax
If an executor makes a Section 1022
Election on a Form 8939 filed on or be-
fore January 17, 2012, and allocates the
decedent’s available GST exemption (or
makes an election under the GST tax) on
an attached Schedule R or R–1, the alloca-
tion or election will be considered timely
and effective as of the decedent’s date of
death pursuant to section 2632. Alterna-
tively, the automatic allocation rules un-
der section 2632 will apply if the executor
timely files the Form 8939 without attach-
ing a Schedule R or R–1. If the executor
does not make the Section 1022 Election
or if the executor timely revokes a Section
1022 Election, then the automatic alloca-
tion rules under section 2632 will apply
unless the executor timely files Form 706
or Form 706-NA with the Schedule R or
R–1 attached.
Federal Income Tax Return for any
Individual, Estate, or Trust, Form 709,
and State Estate or Inheritance Tax
This notice does not extend the due date
for paying any income tax or for filing
any income tax return for any individual,
estate, or trust (for example, Form 1040,
Form 1040-NR, or Form 1041,United
States Income Tax Return for Estates &
Trusts). In addition, this notice does not
extend the due date for paying any gift tax
or for filing any Form 709,United States
Gift (and Generation-Skipping Transfer)
Tax Return. Finally, this notice does not
extendthetimetofileanestateorinher-
itance tax return required by any state of
the United States or to pay any estate or
inheritance tax due to such state.
Penalty Relief
Section 6651(a)(2) generally provides
that, in the case of any failure to pay the tax
shown on any return required to be filed
under subchapter A of chapter 61 on its
due date, unless it is shown that the fail-
ure is due to reasonable cause and not will-
ful neglect, an addition to tax shall apply.
In addition, section 6662(a) imposes a 20
percent penalty on any portion of an un-
derpayment of tax due to negligence, dis-
regard of rules or regulations, or a substan-
tial understatement of income tax. Sec-
tion 6664(c) provides that no penalty under
section 6662(a) shall be imposed on any
portion of an underpayment if it is shown
that there is a reasonable cause for such
portion and that the taxpayer acted in good
faith with respect to such portion.
Revenue Procedure 2011–41 provides
a safe harbor for determining a recipient’s
basis and other pertinent information such
as the tax character and holding period
of property acquired from a 2010 Dece-
dent and whose executor makes a Section
1022 Election. However, when the re-
cipient of property acquired from a dece-
dent who disposed of such property dur-
ing 2010 files the recipient’s income tax re-
turn, the recipient may not know whether
the decedent’s executor will make the Sec-
tion 1022 Election and, if so, the amount (if
any) of Basis Increase (as defined in Rev.
Proc. 2011–41) the executor will allocate
to that property. Therefore, the recipient
may not know the property’s basis or other
pertinent information such as tax charac-
ter and holding period. When filing the re-
cipient’s income tax return and computing
the income tax liability, the recipient will
have to make a good faith estimate, based
on the facts and circumstances, regarding
such information with respect to the prop-
erty acquired from the 2010 Decedent. Ac-
cordingly, to the extent that the recipient’s
tax liability is increased, as shown on an
amended return or otherwise, by reason of
the application of section 1022 to the estate
of a 2010 Decedent, the recipient’s reason-
able cause and good faith will be presumed
and the Treasury Department and IRS will
not impose either the section 6651(a)(2)
addition to tax for failure to pay, or the sec-
tion 6662(a) penalty. The recipient should
write across the top of the amended return
“IR Notice 2011–76” to alert the IRS that
the recipient meets these requirements for
reasonable cause.
EFFECTIVE DATE
This notice is effective on
September 13, 2011. This notice applies
to each Executor of a 2010 Estate and to
persons acquiring property from a 2010
Decedent.
DRAFTING INFORMATION
The principal authors of this notice
are Laura Daly, Theresa Melchiorre, and
2011–40 I.R.B.480October 3, 2011

Mayer Samuels of the Office of Associate
Chief Counsel (Passthroughs & Special
Industries). For further information re-
garding this notice, contact Laura Daly,
Theresa Melchiorre, or Mayer Samuels at
(202) 622–3090 (not a toll-free call).
October 3, 20114812011–40 I.R.B.

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking by
Cross-Refere
nce to
Temporary Re
gulations
Branded Pres
cription Drug
Fee
REG–112805–10
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions.
SUMMARY: In this issue of the Bulletin,
the IRS is issuing temporary regulations
(T.D. 9544) relating to the branded pre-
scriptiondrugfeeimposedbytheAfford-
able Care Act (ACA). The regulations
affect persons engaged in the business
of manufacturing or importing certain
branded prescription drugs. The text of
the temporary regulations also serves as
the text of the proposed regulations.
DATES: Written and electronic comments
and requests for a public hearing must be
received by November 16, 2011.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–112805–10), room
5205, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand-delivered to: CC:PA:LPD:PR Mon-
day through Friday between the hours of
8 a.m. and 4 p.m. to: CC:PA:LPD:PR
(REG–112805–10), Courier’s Desk, Inter-
nal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC, or sent
electronically via the Federal eRulemak-
ing Portal athttp:www.regulations.gov
(IRS REG–112805–10).
FOR FUR
THER INFORMATION
CONTAC
T: Concerning the proposed
regul
ations, Celia Gabrysh at (202)
622–3
130; concerning submissions of
comme
nts and request for a hearing
Richa
rd.A.Hurst@irscounsel.treas.gov,
(202)
622–7180 (not toll-free numbers).
SUPPLEMENTAR
Y INFORMATION:
Paperwork Red
uction Act
The collectio
ns of information con-
tained in thi
s notice of proposed rulemak-
ing has been a
pproved by the Office of
Management a
nd Budget in accordance
with the Pape
rwork Reduction Act of 1995
(44 U.S.C. 3
507(d) and assigned control
number 1545
–2209.
Comments on
the collection of infor-
mation shou
ld be sent to the Office of
Management
and Budget, Attn: Desk Of-
ficer for th
e Department of the Treasury,
Office of I
nformation and Regulatory
Affairs, W
ashington, DC 20503, with
copies to t
he Internal Revenue Service,
Attn:IRSR
eports Clearance Officer,
SE:W:CAR:
MP:T:T:SP, Washington, DC
20224. Co
mments on the collection of
informat
ion should be received by Octo-
ber 17, 20
11. Comments are specifically
requeste
d concerning:
Whether t
he proposed collection of in-
formatio
n is necessary for the proper per-
formanc
e of the functions of the Internal
Revenue
Service, including whether the
informa
tion will have practical utility;
The accu
racy of the estimated burden
associa
ted with the proposed collection of
informa
tion;
How the q
uality, utility, and clarity of
the info
rmation to be collected may be en-
hanced
;
How the b
urden of complying with the
propos
ed collections of information may
be mini
mized, including through the appli-
cation
of automated collection techniques
or othe
r forms of information technology;
and
Estima
tes of capital or start-up costs of
operat
ion, maintenance, and purchase of
servi
ce to provide information.
The col
lection of information in this
propo
sedregulationisin§51.7. Thisin-
forma
tion is necessary to evaluate whether
an err
or report regarding a preliminary fee
calcu
lation is valid and justifies an ad-
justm
ent to the preliminary fee calcula-
tion
. The likely respondents are manufac-
ture
rs and importers of branded prescrip-
tion
drugs.
Esti
mated total annual reporting and/or
reco
rdkeeping burden: 1800 hours.
Estimated ann
ual burden per respon-
dent/recordk
eeper: 40 hours.
Estimated num
ber of respondents
and/or record
keepers: 45
Estimated fre
quency of responses: An-
nually.
An agency may n
ot conduct or sponsor,
and a person is
not required to respond
to, a collecti
on of information unless the
collection o
f information displays a valid
control numb
er.
Books or reco
rds relating to a collection
of informati
on must be retained as long
as their cont
ents may become material in
the administ
ration of any internal revenue
law. Genera
lly, tax returns and tax return
informatio
n are confidential, as required
by 26 U.S.C.
6103.
Background
Temporary r
egulations in this issue of
the Bulleti
n add a new part, Part 51, to sub-
chapter D, M
iscellaneous Excise Taxes.
Part 51 pro
vides guidance on the annual
fee impose
d on covered entities engaged
in the busi
ness of manufacturing or im-
porting br
anded prescription drugs by sec-
tion 9008
of the ACA. The text of those
regulati
ons also serves as the text of these
proposed
regulations. The preamble to
the tempo
rary regulations explains the new
part.
Special A
nalyses
It has bee
n determined that this notice
of propo
sed rulemaking is not a significant
regulat
ory action as defined in Executive
Order 12
866, as supplemented by Execu-
tive Ord
er 13563. Therefore, a regulatory
flexibi
lity assessment is not required. It
also ha
s been determined that section
553(b)
of the Administrative Procedure
Act (5 U
.S.C. chapter 5) does not apply
to thes
e regulations. It is hereby certified
that th
e collection of information in these
regul
ations will not have a significant eco-
nomic
impact on a substantial number of
small
entities. This certification is based
on the
fact that these regulations primarily
affec
t large corporations. Thus, Treasury
Depar
tment and the IRS do not expect
asub
stantial number of small entities
to be
effected. Therefore, a Regulatory
Flex
ibility Analysis under the Regulatory
2011–40 I.R.B.482October 3, 2011

Flexibility Act (5 U.S.C. chapter 6) is not
required. Pursuant to section 7805(f) of
the Internal Revenue Code, this notice of
proposed rulemaking has been submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments
(a signed original and eight (8) copies)
or electronic comments that are submitted
timely to the IRS. Comments are requested
on all aspects of the proposed regulations.
In addition, the IRS and the Treasury De-
partment specifically request comments on
the clarity of the proposed regulations and
how they may be made easier to under-
stand. All comments will be available for
public inspection and copying. A public
hearing may be scheduled if requested in
writing by any person that timely submits
written comments. If a public hearing is
scheduled, notice of the date, time, and
place for the hearing will be published in
theFederal Register.
Drafting Information
The principal author of these regula-
tions is Celia Gabrysh, Office of Associate
Chief Counsel (Passthroughs and Special
Industries). However, other personnel
from the IRS and the Treasury Department
participated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, and under the authority of
26 U.S.C. 7805 (sec. 9008, Public Law
111–347 (124 Stat. 119)), 26 CFR part 51
is proposed to be added to read as follows:
PART 51—BRANDED PRESCRIPTION
DRUGS
[The text of proposed §§51.1 through
51.11 is the same as the text of §§51.1T
through 51.11T published elsewhere in
this issue of the Bulletin.]
[The text of proposed §51.6302–1 is
the same as the text of paragraphs (a) and
(b) of §51.6302–1T published elsewhere in
this issue of the Bulletin.]
Sarah Hall Ingram,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on August 15,
2011, 11:15 a.m., and published in the issue of the Federal
Register for August 18, 2011, 76 F.R. 51310)
Announcement of the Results
of the 2010–2011 Allocation
Round of the Qualifying
Advanced Coal Project
Program
Announcement 2011–62
This announcement discloses the re-
sults of the 2010–11 allocation round
under the qualifying advanced coal project
program of § 48A of the Internal Revenue
Code. This announcement also serves as
notice to applicants that a 2011–12 alloca-
tion round under the qualifying advanced
coal project program is currently open pur-
suant to Notice 2009–24, 2009–16 I.R.B.
817.
QUALIFYING ADVANCED COAL
PROJECT PROGRAM
Section 48A provides a qualifying ad-
vanced coal project credit in an amount
equal to (1) 20 percent of the qualified in-
vestment (as defined in § 48A(b)) for that
taxable year in qualifying advanced coal
projects (as defined in § 48A(c)(1) and
(e)) described in § 48A(d)(3)(B)(i), (2) 15
percent of the qualified investment for that
taxable year in qualified advanced coal
projects described in § 48A(d)(3)(B)(ii),
and (3) 30 percent of the qualified in-
vestment for that taxable year in qualify-
ing advanced coal projects described in
§ 48A(d)(3)(B)(iii).
Section 48A(d)(5) provides that the
Secretary shall, upon making a certifica-
tion under § 48A(d) or § 48B(d), publicly
disclose the identity of the applicant and
the amount of the credit certified with
respect to such applicant.
On April 20, 2009, the Internal Rev-
enue Service (“Service”) issued Notice
2009–24 to announce an initial allocation
round for the qualifying advanced coal
projects described in§ 48A(d)(3)(B)(iii)
(“the Phase II advanced coal program”).
The Service will certify $1.25 billion of
credits to qualifying projects under the
Phase II advanced coal program.
Section 10.01 of Notice 2009–24 pro-
vides that the Service intends to publish
the results of the allocation process, and
disclose the following information in the
event a qualifying advanced coal project
credit under § 48A is allocated to the tax-
payer’s project: (a) the name of the tax-
payer and (b) the amount of the qualify-
ing advanced coal project credit allocated
to the project.
On September 27, 2010, the Service
issued Announcement 2010–56, 2010–39
I.R.B. 398, setting forth the results of the
initial allocation round, and notifying ap-
plicants of a second allocation round in
2010–11.
The allocation round in 2010–11 closed
on March 1, 2011, and did not result in any
allocation of the qualifying advanced coal
project credit. Therefore, the Service will
conduct an allocation round for 2011–12
in the manner and under the procedures as
provided under Notice 2009–24, as mod-
ified by Notice 2011–24, 2011–14 I.R.B.
603.
1
The available credit amount for
2011–12 allocation round under Phase II
of the qualifying advanced coal project
program is $240,564,000, out of which
$103,564,000 is available for qualifying
advanced coal projects that use sub-bi-
tuminous coal as a primary feedstock,
and $137,000,000 is available for qual-
ifying advanced coal projects that use
lignite as a primary feedstock. No credit
amount is available for advanced coal
projects that use bituminous coal as a
primary feedstock. As provided under
Notice 2009–24, the application period
for the 2011–12 allocation round began on
March 2, 2011, and ends on March 1, 2012,
and taxpayers must submit applications
1
Notice 2011–24 updated the rules relating to the annual measurement of separated and sequestered carbon dioxide and applies the recapture rules of § 50(a) in the event that a taxpayer fails
to attain or maintain the carbon dioxide separation and sequestration requirements of § 48A or § 48B.
October 3, 20114832011–40 I.R.B.

to the Department of Energy (DOE) on
or before November 1, 2011, and to the
Service on or before March 1, 2012.
DRAFTING INFORMATION
The principal author of this announce-
ment is Jennifer Bernardini of the Office
of Associate Chief Counsel (Passthroughs
& Special Industries).For further
information regarding this announcement,
contact Jennifer Bernardini at (202)
622–3110 (not a toll-free call).
2011–40 I.R.B.484October 3, 2011

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
October 3, 2011i2011–40 I.R.B.

Numerical Finding List
1
Bulletins 2011–27 through 2011–40
Announcements:
2011-37, 2011-27 I.R.B.37
2011-38, 2011-28 I.R.B.45
2011-39, 2011-28 I.R.B.46
2011-40, 2011-29 I.R.B.56
2011-41, 2011-28 I.R.B.47
2011-42, 2011-32 I.R.B.138
2011-43, 2011-35 I.R.B.198
2011-44, 2011-33 I.R.B.164
2011-45, 2011-34 I.R.B.178
2011-46, 2011-34 I.R.B.178
2011-47, 2011-34 I.R.B.178
2011-48, 2011-36 I.R.B.227
2011-49, 2011-36 I.R.B.228
2011-50, 2011-38 I.R.B.409
2011-51, 2011-38 I.R.B.409
2011-52, 2011-38 I.R.B.409
2011-53, 2011-38 I.R.B.409
2011-54, 2011-38 I.R.B.409
2011-55, 2011-38 I.R.B.409
2011-56, 2011-38 I.R.B.409
2011-57, 2011-38 I.R.B.409
2011-58, 2011-38 I.R.B.410
2011-59, 2011-37 I.R.B.335
2011-61, 2011-39 I.R.B.453
2011-62, 2011-40 I.R.B.483
Notices:
2011-47, 2011-27 I.R.B.34
2011-50, 2011-27 I.R.B.35
2011-51, 2011-27 I.R.B.36
2011-52, 2011-30 I.R.B.60
2011-53, 2011-32 I.R.B.124
2011-54, 2011-29 I.R.B.53
2011-55, 2011-29 I.R.B.53
2011-56, 2011-29 I.R.B.54
2011-57, 2011-31 I.R.B.84
2011-58, 2011-31 I.R.B.85
2011-59, 2011-31 I.R.B.86
2011-60, 2011-31 I.R.B.90
2011-61, 2011-31 I.R.B.91
2011-62, 2011-32 I.R.B.126
2011-63, 2011-34 I.R.B.172
2011-64, 2011-37 I.R.B.231
2011-65, 2011-34 I.R.B.173
2011-66, 2011-35 I.R.B.184
2011-67, 2011-34 I.R.B.174
2011-68, 2011-36 I.R.B.205
2011-69, 2011-39 I.R.B.445
2011-70, 2011-32 I.R.B.135
2011-71, 2011-37 I.R.B.233
2011-72, 2011-38 I.R.B.407
Notices— Continued:
2011-73, 2011-40 I.R.B.474
2011-75, 2011-40 I.R.B.475
2011-76, 2011-40 I.R.B.479
Proposed Regulations:
REG-137128-08, 2011-28 I.R.B.43
REG-112805-10, 2011-40 I.R.B.482
REG-120391-10, 2011-39 I.R.B.451
REG-125592-10, 2011-32 I.R.B.137
REG-131491-10, 2011-36 I.R.B.208
REG-101352-11, 2011-30 I.R.B.75
REG-109006-11, 2011-37 I.R.B.334
REG-118809-11, 2011-33 I.R.B.162
REG-122813-11, 2011-35 I.R.B.197
REG-126519-11, 2011-39 I.R.B.452
Revenue Procedures:
2011-38, 2011-30 I.R.B.66
2011-39, 2011-30 I.R.B.68
2011-40, 2011-37 I.R.B.235
2011-41, 2011-35 I.R.B.188
2011-42, 2011-37 I.R.B.318
2011-43, 2011-37 I.R.B.326
2011-44, 2011-39 I.R.B.446
2011-45, 2011-39 I.R.B.449
Revenue Rulings:
2011-14, 2011-27 I.R.B.31
2011-15, 2011-30 I.R.B.57
2011-16, 2011-32 I.R.B.93
2011-17, 2011-33 I.R.B.160
2011-18, 2011-39 I.R.B.428
2011-19, 2011-36 I.R.B.199
2011-20, 2011-36 I.R.B.202
2011-21, 2011-40 I.R.B.458
Treasury Decisions:
9527, 2011-27 I.R.B.1
9528, 2011-28 I.R.B.38
9529, 2011-30 I.R.B.57
9530, 2011-31 I.R.B.77
9531, 2011-31 I.R.B.79
9532, 2011-32 I.R.B.95
9533, 2011-33 I.R.B.139
9534, 2011-33 I.R.B.144
9535, 2011-39 I.R.B.415
9536, 2011-39 I.R.B.426
9537, 2011-35 I.R.B.181
9538, 2011-37 I.R.B.229
9539, 2011-35 I.R.B.179
9540, 2011-38 I.R.B.341
9541, 2011-39 I.R.B.438
9542, 2011-39 I.R.B.411
9543, 2011-40 I.R.B.470
9544, 2011-40 I.R.B.458
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2011–1 through 2011–26 is in Internal Revenue Bulletin
2011–26, dated June 27, 2011.
2011–40 I.R.B.iiOctober 3, 2011

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2011–27 through 2011–40
Announcements:
2007-47
Updated and superseded by
Ann. 2011-59, 2011-37 I.R.B.335
Notices:
2006-101
Amplified and superseded by
Notice 2011-64, 2011-37 I.R.B.231
2010-23
Modified and supplemented by
Notice 2011-54, 2011-29 I.R.B.53
2010-81
Amended and supplemented by
Notice 2011-63, 2011-34 I.R.B.172
2010-88
Modified by
Ann. 2011-40, 2011-29 I.R.B.56
Proposed Regulations:
REG-118761-09
Hearing scheduled by
Ann. 2011-38, 2011-28 I.R.B.45
REG-151687-10
Hearing scheduled by
Ann. 2011-48, 2011-36 I.R.B.227
Revenue Procedures:
72-36
Amplified and modified by
Rev. Proc. 2011-42, 2011-37 I.R.B.318
2004-29
Amplified and modified by
Rev. Proc. 2011-42, 2011-37 I.R.B.318
2007-35
Amplified and modified by
Rev. Proc. 2011-42, 2011-37 I.R.B.318
2008-24
Modified and superseded by
Rev. Proc. 2011-38, 2011-30 I.R.B.66
2008-32
Superseded by
Rev. Proc. 2011-39, 2011-30 I.R.B.68
2011-4
Modified by
Rev. Proc. 2011-44, 2011-39 I.R.B.446
2011-14
Modified by
Rev. Proc. 2011-43, 2011-37 I.R.B.326
Revenue Procedures— Continued:
2011-35
Amplified and modified by
Rev. Proc. 2011-42, 2011-37 I.R.B.318
Revenue Rulings:
58-225
Obsoleted by
Rev. Rul. 2011-15, 2011-30 I.R.B.57
Treasury Decisions:
9527
Corrected by
Ann. 2011-49, 2011-36 I.R.B.228
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2011–1 through 2011–26 is in Internal Revenue Bulletin 2011–26, dated June 27, 2011.
October 3, 2011iii2011–40 I.R.B.

INTERNAL REVENUE BULLETIN
The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin-
tendent of Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
sold on a single copy basis andare notincluded as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weekly
Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
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would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page (www.irs.gov)
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