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Taxpayers should be aware that Congress has just added a new tax penalty to the

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

existing 140+ tax penalties. This new tax penalty is called the “frivolous su

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

bmissions penalty.”

Essentially this penalty allows the IRS to assess a $5,000

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

fee against a taxpayer who submits a “frivolous submission” to the IRS. A “fr

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

ivolous submission” is any offer in compromise, installment agreement, collecti

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

n due process hearing, or taxpayer assistance order request submitted with the

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

intent to delay processing of cases.

Taxpayers should be particularly wary of

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

this penalty because the statute gives the IRS the authority to determine if th

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

e penalty is to apply. Thus, the IRS could deem any “submission” to be frivolo

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

us.

Congress did build in an escape for taxpayers in that the IRS can only imp

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

se the penalty after the IRS sends written notice to the taxpayer that the “sub

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

mission” was “frivolous” and the taxpayer does not withdraw the “submission” wi

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

thin 30 days.

This new penalty has not received a lot of publicity, so there i

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

s a good chance that it may catch a number of taxpayers off guard. This is esp

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

ecially true for taxpayers who are actively working with the IRS to resolve the

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

r IRS tax troubles.

The IRS will not be able to impose this new penalty on tax

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

payers, until the IRS releases instructions as to what types of "submissions" w

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

ill automatically be deemed "frivolous." We can expect this IRS list to be out

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

in the very near future.

Taxpayers should contact a tax attorney immediately

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

if they receive notice that the IRS has deemed a “submission” to be “frivolous.

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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