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Payroll tax disputes can destroy a small or medium business and have a disastrous effect on business owner’s personal finances. This article will provide a general discus

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

sion of the typical payroll tax controversy and some tips on how to address payroll disputes.

Payroll taxes disputes often arise when businesses fail to timely

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

Examples of combination products may in

file employment tax returns (such as the Forms 941 or 940) and/or when businesses fail to timely remit their employment taxes to the IRS.

In either case, the IRS will ass

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

gn the matter to a Revenue Officer. The Revenue Officer’s job is to interview the taxpayer and third parties in order to (1) collect the tax return and payment in full or

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

(2) gather enough evidence to pin the trust fund recovery penalty on as many individuals as possible.

The trust fund recovery penalty is the mechanism whereby the IRS si

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

Combination pro

esteps the protections of the taxpayer’s legal entity to impose a personal liability on each individual who could have seen to it that the taxes were paid. The IRS refers

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

to these people as “responsible persons.” The penalty imposed on “responsible persons” each individual is equal to 100% of the unpaid taxes at the time that the Revenue O

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

fficer assesses the penalty.

There are a number of court cases which specify who is and is not a “responsible person” for purposes of this IRS penalty. A number of cases

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

have even held that persons who are the CEO of the company may not be the “responsible person” in some circumstances.

Taxpayers who find themselves subject to this penalt

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

will want to hire an experienced tax attorney immediately. In many cases the tax attorney may be able to convince the Revenue Officer that the taxpayer is not a “respons

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

ble person” or make other taxpayer-favorable payment arrangements; thereby avoiding the trust fund recovery penalty altogether.

In other cases the tax attorney can help b

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

Following aspects would a

uild a case that the IRS determination as to who is the “responsible person” is incorrect. These facts must be included in the IRS record at the time that the Revenue Off

dd to the challenges in developing combination products:

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

cer is working the case and, unfortunately, Revenue Officers do not add this information to the case file without strong pressure to do so.

If taxpayers miss these opport

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

nities, then they still may be able to ask a different function or branch of the IRS to remove the penalty. If that fails, taxpayers can ask the courts to rule that the I

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

RS was not correct in determining that he or she was a “responsible person” and imposing the civil trust fund recovery penalty.

This can be difficult in cases where the t

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

xpayer has failed to timely file employment tax returns. The Supreme Court, in a case that is often cited by the IRS in the payroll tax context, essentially said that the

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

Professional from academic institutions, pharmaceutical industries, health care indust

e is no excuse for filing a late tax return. A number of courts have echoed this sentiment.

The Third Circuit Court of Appeals has extended this reasoning to say that “y

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

es, there is no valid excuse for filing a late return unless the taxpayer is does not find themselves in the position of the ordinary taxpayer.” It is up to

.

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

individual taxpayers to show how they are not the “ordinary taxpayer.”

An experienced and creative tax attorney
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip
can go a long way in helping to eliminate, resolve or minimize the damage that employment tax controversies have on small and medium sized businesses and their owners

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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