CCA 200948054: The all-events test for rebate liabilities depends on the contract terms

Plain-English summary

This Chief Counsel Advice considers when a taxpayer's liability for a rebate becomes fixed under the all-events test of IRC § 461. Counsel explains that when the obligation is based on a contract, the contract terms are relevant to identifying the event that fixes the liability. Whether filing a rebate claim is a ministerial act is therefore a factual question. Because the request did not describe the contract or the type of rebate, Counsel could not determine the issue and referred to prior analysis of Medicaid rebates.

Ruling snapshot

• Question: When does a contractual rebate liability become fixed under the all-events test of IRC § 461?
• Outcome: Advice given
• Key authorities: IRC § 461; all-events test; ASG on Medicaid Rebates

Full text (IRS public release)

ID: CCA_2009102715060357 Number: 200948054
Release Date: 11/27/2009
Office: ------------
UILC: 461.00-00

From: ------------------
Sent: Tuesday, October 27, 2009 3:06:09 PM
To: --------------------
Cc: ----------------------------------
Subject: RE: RR Issue

-------- -- because I do not work on section 461 issues, I forwarded your email to the persons who do and below is their response.

It appears that you are arguing that the all events test is not met until the claim for a rebate is filed under the theory that the filing of the claim is not a ministerial act. Where a taxpayer's obligation to pay expenses is based on a contract, the terms of the contract are relevant to determine what event fixes the right to the liability. Thus, whether the filing of a claim is ministerial or not is a factual inquiry that depends upon the contractual terms. Because your email does not describe the contract terms or what type of rebate is at issue, we cannot make this determination.

We suggest that you look at the ASG on Medicaid Rebates, which analyzed the 461 arguments in the Medicaid Rebate situation. The ASG reversed an earlier CIP which held that the manufacturer's liability wasn't fixed until a later point in time--the year in which the quarterly claim for reimbursement (utilization report) is sent by the State and received by the manufacturer.

Also, ----------------------------------------------------- will be happy to talk to you about this issue. She may be reached at ---------------------.

-----------------