On December 5, 2012, The Internal Revenue Service promulgated final regulations and guidance (Notice 2012-77) for the Taxable Medical Device excise tax (Internal Revenue Code § 4191), established as part of President Obama’s signature healthcare reform. The new tax, which takes effect January 1, 2012, is a 2.3% excise on the sale price of certain medical devices intended for use in humans. alliantgroup’s Dean Zerbe provided written comments when the proposed regulations were issued. Some of our suggestions found their way into the final guidance, such as the need for an exception to the tax when medical devices are donated to charitable healthcare providers, and clarification of the “retail” exception to the tax.

The final regulations did not, however adopt one crucial alliantgroup suggestion: clarification on the treatment of warranties sold with taxable medical devices. Certain warranties on medical devices, such as service or training, may be exempt from the I.R.C. § 4191 excise. alliantgroup urged clarification on the point, but the final regulations regarding warranties leave the question a grey area for taxpayers to navigate.

For more information on the latest tax updates click here to visit alliantgroup’s Tax Controversy Services.