Advice You - Business

Though I read the letter three times, there was no mistaking the grim news: I was being summoned to the IRS for an audit. I had an instant flashback to the third grade when I was called to the principal’s office. I didn’t know what I had done, but it must have been something bad.

A

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

fter a tense conversation with my husband, I called my accountant. “You have nothing to worry about,” she assured me. “We have everything in order.”

The letter indicated that I needed to bring several items including bank statements, credit card statements, the prior year’s tax ret

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

Examples of combination products may in

urn, and charitable contribution receipts. To my great surprise (and relief), my accountant informed me that she kept copies of all of my statements. I had them too, but mine weren’t exactly in good order. I subscribe to the “shoebox” method of filing. It would have taken days to lo

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

cate everything I needed.

I put the appointment out of my mind until the day before, and then the nerves set in. Perhaps it’s human nature to fear the IRS. I kept reminding myself that there was no reason to worry, but I couldn’t ignore the knot forming in my gut.

I rode to the ap

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

pointment with my accountant. She said that the IRS was increasing the number of random audits it performs. She had another client who was also going through the process and unfortunately, the client was facing her third meeting with an auditor. During her first meeting the auditor

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

Combination pro

discovered a rather large personal expense on her business credit card. That set off all kinds of red flags and spurred a series of meetings to further analyze her receipts.

My appointment was scheduled to last a whopping four hours—this is standard operating procedure. The auditor

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

greeted us just minutes after we arrived. Much to my surprise, she didn’t look like an ogre that lives under the stairs. She was a personable woman who was clearly focused on the business at hand yet not afraid to offer a friendly smile.

We sat down at the auditor’s desk in a stan

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

dard office cubicle in the local IRS office. She asked me a series of questions about my citizenship and related items, and then launched into the spot checking process. With my 2005 tax return in front of her, she asked to see a detailed report of expenses. My accountant handed ove

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

r a print-out from QuickBooks.

As the auditor reviewed the details, she would periodically point to an expense and ask to see it on the associated credit card statement. My accountant had all of my statements filed by date in a binder so she was able to quickly flip through and poi

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

nt at each line item when asked. This impressed the auditor and she commented that she wished more clients came as prepared for these meetings.

After about an hour of spot checking and answering questions about charitable contributions, the auditor announced that she would not make

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

any adjustments to my returns. She said that I would receive a letter stating the same and that I was cleared to go home.

Of course it was a great relief to survive the audit experience. Now I won’t worry if I ever get called in again because I know I’m on the right track. If you’r

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

Following aspects would a

e ever faced with the same fate, here are some things you can do to prepare:

*Keep your business and personal finances completely separate. Using separate bank accounts and separate credit cards will keep things clean.

*It can actually be beneficial to charge most of your business

dd to the challenges in developing combination products:

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

expenses to a credit card and then pay off the balance each month. This way you have an organized record of your business expenses.

*Keep your accounting practices consistent. During the spot check process, the IRS is looking for patterns. If you’re asked to show an expense and it

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

turns out that it’s for a personal item, you can count on having to dig even deeper into your records. But if you show a consistent pattern with your expenses, there won’t be reason to require further investigation. For example, if you travel an average of 150 miles each month for

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

business, then a month in which you claim 700 miles will get attention. Make sure you can justify such a dramatic difference.

*New regulations require receipts for all charitable donations—even for the $10 you drop in the Salvation Army’s collection can during the holidays.

*If yo

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

u donate goods such as furniture or clothing, your receipt must state “Received in good condition.” Not all charities are following this policy so make sure you ask since ultimately it’s your responsibility.

*You are only allowed to place a reasonable resale value on items that you

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

Professional from academic institutions, pharmaceutical industries, health care indust

donate. The IRS agent suggested that it’s best to consider what the item would sell for at a garage sale. She also uses a chart of prices provided by the Salvation Army which you can access on their Web site: http://www.salvationarmyusa.org

*Ask your accountant what records she ke

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

eps. If you’re lucky like me, yours will keep copies of all of your statements in an orderly fashion.

*If your accountant isn’t doing it for you, make sure your records are in order. Ideally your statements should be filed together by year either in a folder or a binder. This will

.

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

save a tremendous amount of time if you get the audit call.

One last bit of advice: don’t sweat it. This may be easier said than done, but if you’re following the law and keeping good records, there is no reason to fear an IRS audit. And even if this is the case and the auditor fin

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

Companies that provide selfless information through particip

ds an error, consider the worst case scenario. Unless your error amounts to tens of thousands of dollars (which is unlikely), in most cases minor errors will simply mean that owe some additional money. And an error could also be in your favor—you could end up getting some money back

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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