PLR concludes that reimbursement of pharma fee is not includible in income

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February 2019


The IRS recently ruled in PLR-115083-18 that a reimbursement to a taxpayer by foreign members of the taxpayer’s controlled group for the taxpayer’s payment of the annual branded prescription drug fee (pharma fee) to the federal government did not result in gross income to the taxpayer. The ruling held that the taxpayer was merely a conduit for paying the liability of the other group members.

The takeaway

An amount that a taxpayer receives as a reimbursement is not gross income to the taxpayer if the taxpayer is merely a conduit for paying the expenses of another party. Taxpayers with reimbursement arrangements similar to the arrangement in PLR-115083-18 should consider how the analysis in the PLR may be relevant to current and future reimbursement transactions, particularly in light of the new base erosion and anti-abuse tax (BEAT) provisions that may prevent taxpayers subject to BEAT from realizing the full tax benefit of amounts paid or accrued to foreign related parties.

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Christine Turgeon

Partner, Federal Tax Services Leader, PwC US

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