Advice You - Business

The mere thought of an IRS audit strikes fear into the hearts of the brave and courageous. Taxpayers have reason to fear the IRS inquisition; audits are designed to make believers out of the heathen. The feds have enormous clout and

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

are ready to use it if they think you have been fudging.

Understanding the system can help you dodge the audit bullet.

An IRS audit is not a notice. The IRS service centers generate millions of notices every year telling taxpayer

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

Examples of combination products may in

they have overlooked reporting of some item of income on their return, or other adjustment. The notice will recalculate the tax due and ask for payment or occasionally inform you of a refund.

An IRS audit letter will demand you to

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

come into the IRS office or worse yet, inform you of a scheduled visit by an IRS auditor at your place of business.

The IRS does not audit a large percentage of tax returns. They don’t have to. They have vast databases of informat

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

on to identify their targets. You are at a disadvantage dealing with them they know all about you and you shouldn’t count on the IRS missing anything.

Audits are normally not blind fishing expeditions; the audit letter will contain

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

Combination pro

a list of items the IRS wants to look at. Frequent items of interest to the IRS are travel and entertainment, auto expense, meals, miscellaneous expenses, underreported income and repairs. Auditors are equipped with an industry spec

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

ific checklist. These lists include likely tax problem areas in your line of business and items to be reviewed. The auditor has some discretion to examine other items that arise during the audit if they suggest problems.

The best

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

way to deal with audits is to avoid them. You should approach the federal tax system and the preparation of an income tax return the following assumptions clearly in front of you:

1: Don’t count on hiding anything. If you did anyth

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

ng financial and left a paper trail the IRS will know about it. If you have an expensive boat, they will ask how you paid for it. They check with all third parties, auto registrations, property records, bank records they will know a

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

bout any records you have with them. If you applied for a mortgage and fudged a little on income, to make yourself look better you will be asked to explain why your income on your tax return is not the same as income on the mortgage

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

application.

2: They have a pretty good idea of what it costs you to live. That is how much you should be spending for groceries, transportation and other items of a normal household. Combined with mortgage and other loan informati

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

Following aspects would a

n, what you have reported along with deductions you have taken the feds can arrive at a fairly comprehensive household budget. If you fall very far outside the averages your story had better make sense. If you live in an apartment i

dd to the challenges in developing combination products:

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

t might be a tough sell to tell them you don’t buy much food because you eat out of your garden. If there is not enough reported income to support your lifestyle you will be asked how you are maintaining it on your income. This is h

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

w Al Capone found himself on the way to prison.

3: They know what the average deductions should be for your income range. These numbers are published on the internet and you can look them up. If your deductions exceed the average b

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

a certain percentage and the exact percentage is a secret, they add points to you DIF score. A high enough DIF score and your return will get reviewed for possible audit. Experience tells us exceeding the averages by around 15% is

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

about the magic number to increase the odds of an audit. Normally an agent does not know why a return has been pulled for review, although they have the list of what they should be looking for on that return.

4: Stay off of round n

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

Professional from academic institutions, pharmaceutical industries, health care indust

mbers. Round numbers on your return are a flag; it tells the IRS you are using estimates and not keeping careful records. Mileage and meals are two high target areas, because this is often where something is hidden. Maybe you didn’t

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

go 12,000 business miles during the year maybe it was 11,917. Meal expense of $3,000 may be about right but $2,983 looks like you are a better record keeper.

5: Missing income. This is a killer. Making a mistake on deductions is o

.

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

ne thing but forgetting to put down income can be a ticket to court. Generally if it is detected you are underreporting your income the auditor starts assuming you are pulling something and they will no longer give you the benefit o

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

Companies that provide selfless information through particip

any doubt.

There is no way to guarantee avoidance of an audit, the selection process is a carefully guarded government secret, but a heads up on the above points and careful documentation in troublesome areas avoids a lot of grief

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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