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Several legal principles may allow a taxpayer to exclude from income an amount the taxpayer is reimbursed or paid and must remit to another party.

Chief Counsel Advice (CCA) 202132009 considers whether a taxpayer (remitting taxpayer) that pays the branded prescription drug fee (pharma fee) and is reimbursed by members of the taxpayer’s controlled group may exclude the reimbursement from gross income simply because the liability for the fee is joint and several. The CCA concludes that joint and several liability is not determinative of whether the remitting taxpayer must include the reimbursement in income, holds that whether the remitting taxpayer has income depends on whether it benefits from the payment, and describes several nondispositive factors for determining whether there is a benefit.

The IRS had previously ruled in PLR-115083-18, that a reimbursement to a taxpayer by members of the taxpayer’s controlled group for the taxpayer’s payment of the pharma fee to the US government did not result in gross income to the taxpayer because the remitting taxpayer was merely a conduit for paying the liability of the other group members.