FDA Issues First New Rules under the Food Safety Modernization Act

The U.S. Food and Drug Administration (FDA) today issued the first rules under the FDA Food Safety Modernization Act (FSMA). As we previously reported, President Obama signed the FSMA in January of this year to help ensure the safety and security of foods in the United States. The first rule gives the FDA the ability to administratively detain food for up to 30 days. The second rule requires that food importers declare whether the food products, including food for animals, have been denied entry into any other country. The final rules will become effective July 3, 2011. Interested persons may submit comments by August 3, 2011.

The first interim final rule issued under the FSMA gives the FDA the ability to administratively detain food the Agency believes has been produced under insanitary or unsafe conditions. Once the rule becomes final, the FDA will be able to detain food products that it has reason to believe are adulterated or misbranded for up to 30 days. The products will be kept out of the marketplace while the FDA determines whether an enforcement action, such as seizure or federal injunction against the distribution of the product in commerce, is necessary.

Previously, the FDA only had the authority to detain food products when it had credible evidence that a food product presented was contaminated or mislabeled in such a way that it presented a threat of serious adverse health consequences or death to humans or animals. In order to pursue enforcement, the FDA would often work with state agencies to embargo a food product under the states legal authority until federal enforcement action could be initiated in federal court.

Under the second interim final rule, anyone importing food into the United States will be required to inform the FDA if any country has refused entry to the same product, including food for animals in addition to any other information already required. The new requirements in this notice allow the FDA the ability to better identify imported food shipments that may pose safety and security risks to consumers in the United States. This new reporting requirement will be administered through the FDAs prior notice system for incoming shipments of imported food established under the Public Health Security and Bioterrorism Preparedness and Response Act of 2002.

In a press release issued by the FDA, FDA Deputy Commissioner for Foods Mike Taylor said, “[t]he new information on imports can help the FDA make better informed decisions in managing the potential risks of imported food entering the United States.” According to Taylor, “[t]hese rules will be followed later this year and next year by a series of proposed rules for both domestic and imported food that will help the FDA continue building the new food safety system called for by Congress.”

Fuerst Ittleman will continue to monitor new rules issued by the FDA under the FSMA. For more information regarding the new rules, please contact us at contact@fidjlaw.com or (305) 350-5690.

Two Pharmaceutical Companies File Lawsuits in Response to FDA’s DESI Decisions

We recently reported the U.S. Food and Drug Administrations (“FDAs”) announcement of its intent to remove approximately 500 unapproved cold, cough, and allergy drugs from the United States market. As a result, on April 29, 2011, ECR Pharmaceuticals (“ECR”) and Laser Pharmaceuticals, LLC (“Laser”) filed Petitions for Review with the U.S. Court of Appeals for the District of Columbia Circuit pursuant to 21 C.F.R. § 514.235(b) and 21 U.S.C. § 355(h), which permits a direct appeal to an appellate court within 60 days after the entry of a relevant FDA order. The Petitions for Review requested the court to review and set aside the two final orders of March 3, 2011 that certain marketed unapproved cold, cough, and allergy drug products are not Generally Recognized as Safe and Effective (“GRASE”). The first order announced that all outstanding hearing requests pertaining to oral prescription drugs offered for the relief of cough, cold, or allergy symptoms had been withdrawn and any shipment of those products not approved under a new drug application (“NDA”) or abbreviated new drug application (“ANDA”) (other than an over-the-counter (“OTC”) product that complies with an applicable OTC monograph) is unlawful. In the second order, the FDA announced that it would take enforcement action against unapproved and misbranded oral cold, cough, and allergy prescription drugs and the persons who manufacture or cause the manufacture of those drug products.

As background, many of the drug products covered by the March 3, 2011 orders contain active ingredients that were originally introduced into the United States marketplace without a prior review as to effectiveness. The Federal Food, Drug, and Cosmetic Act (“FDCA”), as originally enacted, required the sponsor of a new drug demonstrate that the product was safe. New drugs did not have to demonstrate effectiveness. In 1962, Congress amended the FDCA and required new drugs to be proven effective, as well as safe. The amendment also require the FDA to conduct a retrospective evaluation of effectiveness for all drugs approved as safe between 1938, the year the FDCA was enacted, and 1962. To assist with the evaluation of effectiveness for over 3,400 products, the FDA contracted with the National Academy of Sciences/National Research Council (“NAS/NRC”). The NAS/NRC submitted reports to the FDA that were then published in the Federal Register. The FDAs implementation of the NAS/NRC reports was called the Drug Efficacy Study Implementation (“DESI”). Many of the active ingredients in the March 3 orders were reviewed for effectiveness through the DESI process.

All drugs covered by the DESI review are “new drugs” under the FDCA. If the FDA DESI decision classifies a drug as ineffective for one or more indications, that drug product and those drugs that are identical, related, or similar (“IRS”) to it can no longer be marketed for those indications and are subject to enforcement actions as an unapproved new drug.

In ECR Pharmaceuticals v. Commissioner of Food and Drugs, Case No. 11-1120, ECR states that its Lodrane® products are “identical, related, or similar (“IRS”) to the antihistamine/decongestant reformulation of Dimetapp Extentabs containing 12 mg of brompheniramine maleate and 75 mg of phenylpropanolamine hydrochloride in a controlled-release form.” ECRs Lorane® products are extended-release drug products that contain brompheniramine maleate alone or in combination with pseudoephedrine hydrochloride and are indicated as either an antihistamine or an antihistamine/decongestant drug product.

Laser Pharmaceuticals, LLC v. Commissioner of Food and Drugs, Case No. 11-1121, involves methscopolamine nitrate. According to the Petition for Review, The FDA has concluded that methscopolamine nitrate is not GRASE. In addition, the FDA has determined,

that products containing the active moiety in methoscopolamine nitrate that are marketed for the relief of cold, cough, or allergy symptoms are new drugs within the meaning of § 201(p) of the Federal Food Drug and Cosmetic Act, and therefore require approved new drug applications or abbreviated new drug applications prior to marketing. [FDA] further states that it intends to take immediate enforcement action against persons who market methscopolamine nitrate, as well as against those who manufacture the product or cause it to be manufactured or shipped in interstate commerce.

Both ECR and Laser cases were preceded with April 1, 2011 Petitions for Reconsideration/Petitions for Stay of Action. ECRs Petition for Reconsideration/Petition for Stay of Action asked the FDA to review and reverse its determination that ECRs Lodrane® products are not GRASE. If the FDA maintains its position, ECR ask the FDA to stay the effective dates for action for six months. ECRs Petition further adds that FDA has not appropriately considered all of the evidence and its actions fail to provide ECR with “the procedural protections in accordance with due process of law.” In Lasers Petition for Reconsideration/Petition for Stay of Action (CREATE A HYPERLINK), Laser requests that the FDA “delay any enforcement action against [Laser] for the manufacture of drug products containing methscopolamine nitrate until January 1, 2012, and delay any enforcement action for the shipment of such products until February 28, 2012.

The FDA has not responded to either Petition for Reconsideration/Petition for Stay of Action.

U.S. Patent and Trademark Office Grants Patents for Methods of Making Stem and Regenerative Cell-Enriched Fat Grafts

The U.S. Patent and Trademark Office recently granted a patent (U.S. Patent No. 7,901,672) for a method of enriching a patients own fat with their own adipose derived stem and regenerative cells (ADRCs) to create a cell-enriched fat graft. The patent is broad in that it does not limit the method of obtaining stem and regenerative cells or the way the fat is enriched with the cells. The patent covers both manual and automated methods of making cell enriched fat grafts. For example, the patented method covers the collection of cells that have been collected from the fat tissue by enzymatic digestion or mechanical force and cells concentrated by density, filtration, or centrifugation. Under this patent, the cell-enriched fat graft many be prepared manually or in a device.

Sherley V. Sebelius: Federal Appeals Court Vacates Preliminary Injunction on NIH Funding for Embryonic Stem Cell Research

Today, the United States Court of Appeals for the District of Columbia overruled, 2-1, a district court judges preliminary injunction on federal funding of research using embryonic stem cells (ESCs). Two scientists brought this suit to enjoin the National Institute of Health (NIH) from funding research using ESCs pursuant to the NIHs 2009 Guidelines. Opinion ( Opin.) at 2.

The district court had granted the plaintiffs motion for a preliminary injunction, reasoning that the scientists would likely prevail in demonstrating that the NIH Guidelines violated the Dickey-Wicker Amendment. The Dickey-Wicker Amendment is an appropriations rider that the NIH from funding:

  • (1) The creation of a human embryo or embryos for research purposes; or
  • (2) research in which a human embryo or embryos are destroyed, discarded, or knowingly subjected to risk of injury or death greater than that allowed for research on fetuses in utero under 45 C.F.R. 46.204(b) and section 498(b) of the Public Health Service Act (42 U.S.C. 289g(b)).

Opin. at 4.

The plaintiffs in this case, Dr. Sherley and Dr. Deisher, are scientists who conduct research using only adult stem cells. These scientists assert that the NIH violated the Dickey-Wicker Amendment by funding ESC research projects. Id. The plaintiffs had originally filed suit with several other individuals and organizations in August 2009. As we previously reported, the district court granted the Governments motion to dismiss due to a lack of standing. However, the plaintiffs appealed and the federal appeals court held that the doctors alone had standing because they competed with ESC research for funding from the NIH. Opin. at 7.

On remand, the district court granted the doctors motion for a preliminary injunction “providing Ëœthat defendants and their officers, employees, and agents are enjoined from implementing, applying, or taking action whatsoever to the [2009 Guidelines], or otherwise funding research involving human embryonic stem cells as contemplated in the Guidelines.” Id.

The Government appealed the district court decision. The appeals court found that the NIH reasonably concluded that government funding for ESC research pursuant to the 2009 Guidelines is not prohibited by the Dickey-Wicker Amendment. The Court reasoned that barring funding would be detrimental to ESC research by preventing new research projects and hindering projects that are currently underway. Circuit Judge Ginsburg, writing for the Court, reasoned that the NIH Guidelines accounted for the Dickey-Wicker Amendment by making distinctions between stem cells and embryos. Opin. at 6. Additionally, Judge Ginsburg reasoned that the Guidelines allow for federal funding of research on ESCs that are already in existence or have been created by private funding. The Guidelines state that federal funding cannot be used to fund the derivation of new cells lines which are obtained through the destruction of embryos.

The courts analysis turned on the ambiguity of the Dickey-Wicker Amendment, specifically, a lack of definition for the word “research.” Opin. at 13. The court determined that the present tense of the Amendment, with no reference to embryos that “were destroyed,” implied that the Amendment did not ban ESC research on stem cell lines in existence at the time of the Amendments enactment. Opin. at 11. Judge Ginsburg also pointed out that Congress has continued to leave the Dickey-Wicker Amendment unchanged every year since 1996 even though Congress has had “full knowledge” that the Department of Health and Human Services has been funding ESC research since 2001. Opin. at 16.

For now, the courts decision to vacate the preliminary injunction means that federal funding can continue while pending lawsuits challenging the expansion of ESC research continue.

HCC Insurance Holdings, Inc. Reaches Settlement With OFAC Over Alleged Violations of Iranian Transactions Regulations.

On April 26, 2011, the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury announced that it had reached a settlement with HCC Insurance Holdings, Inc. (“HCC”) over alleged violations of the Iranian Transactions Regulations (“ITR”). The ITR, which are found at 31 C.F.R. part 560, were promulgated pursuant to the International Emergency Economic Powers Act and are administered by OFAC. General information regarding economic sanctions against Iran can be found at OFACs website here.

The settlement agreement and alleged violations of the IRT highlight the breadth and complexity of the sanctions on trade with Iran. OFAC alleged that HCC, a wholly-owned insurance subsidiary of Houston Casualty Company, violated 31 C.F.R. §§ 560.206 and 560.208 of the IRT by participating in the hull portion of a hull and liability aviation insurance policy that covered commercial flights operating in Iran from April 2005 to April 2006. 31 C.F.R. § 560.206 prohibits U.S. persons from “financing, facilitating, or guaranteeing” goods, technology or services to Iran. Additionally, 31 C.F.R. § 560.208 prohibits U.S. persons from approving, financing, facilitating, or guaranteeing any transaction by a foreign person where the transaction performed would be prohibited under the IRT if performed by a U.S. person.

More specifically, OFAC alleged the violations occurred when: 1) a foreign insurance broker insured a foreign-owned commercial airline with a hull and liability policy of which HCC was a part; 2) the foreign-owned commercial airliner then leased aircraft covered by this policy to an air charter company that operated in Iran. As a result of this arraignment, HCC received $113,921 in premiums. HCC voluntarily disclosed the violation and OFAC announced that HCC paid $38,448 in penalties for its violations. According to OFAC enforcement guidelines, the base penalty associated with such a violation is $56,960. However, this penalty was lowered because HCC cooperated with OFAC in its investigation and it had not been subject to prior OFAC penalties or administrative actions. A copy of OFACs announcement can be read here.

For more information regarding OFAC and strategies on maintaining compliance with federal regulations, please contact Fuerst Ittleman at 305-350-5690 or contact@fidjlaw.com.

Court Dismisses Drug Manufacturer’s Suit Against FDA Challenging Bioequivalence Regulations For Lack of Standing

On April 15, 2011, Judge Ellen Segal Huvelle of the United States District Court for the District of Columbia granted the FDAs motion to dismiss a lawsuit brought by ViroPharma, Inc. (“ViroPharma”) under the Administrative Procedure Act (“APA”) challenging the FDAs Abbreviated New Drug Application (“ANDA”) bioequivalent regulations. A copy of the Courts opinion can be read here.

The case centered on the various methods by which a generic drug manufacturer can establish the bioequivalence of its generic drug to an already FDA-approved brand name drug. Under 21 U.S.C. § 355 (j), prior to marketing a generic version of a brand name or “reference listed drug” (“RLD”), a generic drug manufacturer must submit an ANDA. Within the ANDA a generic drug manufacturer must demonstrate that the generic is the “bioequivalent” of the RLD, i.e. the new generic drug can be expected to have the same therapeutic effect as the RLD when administered to patients. There are two standard methods by which bioequivalence is determined, in vivo, (human testing) and in vitro, (laboratory testing). However, under 21 U.S.C. § 355(j)(8)(C), where a drug is not intended to be absorbed into the bloodstream, the FDA may establish “alternative, scientifically valid methods to show bioequivalence if the alternative methods are expected to detect a significant difference between the drug and the [RLD] in safety and therapeutic effect.”

The lawsuit stems from a citizen petition filed in 2007 by another brand name drug manufacturer, in which it petitioned the FDA to require all ANDAs for generics of its drug include in vivo bioequivalence studies. In response to that petition, the FDA asserted that, based on 21 U.S.C § 355(j)(8)(c) and 21 C.F.R. § 320.24, it had discretion to accept in vitro studies if those studies are determined to be scientifically valid methods of showing bioequivalence.

In its Complaint, ViroPharma, a drug manufacturer of the brand name drug Vancocin, alleged that 21 C.F.R § 320.21 established a general requirement that bioequivalence be demonstrated through in vivo testing unless the drug product meets the waiver criteria in 21 C.F.R. § 320.22. ViroPharma alleged that, by announcing that it had discretion to accept in vitro or in vivo testing, the FDA amended its regulations regarding bioequivalence by “interpreting the list of bioequivalence methods provided in 21 C.F.R. § 320.24 as a separate and sufficient basis for waiving in vivo bioequivalence requirements independent of 21 C.F.R. § 320.22.” As a result, ViroPharma alleged that the FDA violated the Administrative Procedure Act by effectively amending its ANDA regulations without engaging in notice and comment rulemaking.

In the Courts Opinion granting the FDAs motion, Judge Huvelle found that ViroPharmas lawsuit must be dismissed because ViroPharma lacked standing, a basic requirement to bringing a case. Put simply, standing is the right of a person to bring a case. In order to establish standing, a plaintiff must demonstrate: 1) that it has suffered an injury in fact, which is an actual or imminent invasion of a legally protected, concrete and particularized injury; 2) causation, i.e. the alleged injury must have been caused by the defendants conduct at issue; and 3) redressability, i.e. the court can provide a remedy to rectify the injury. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-561 (1992). Additionally, in the context of a procedural rule challenge, such as in this case, a plaintiff must “show not only that the defendants acts omitted some procedural requirement, [here a lack of notice and comment as required by the APA], but also that it is substantially probable that the procedural breach will cause the essential injury. . . .” Crt. For Law & Educ. V. Dept of Educ., 396 F.3d 1152, 1157 (D.C. Cir. 2005).

In this case, ViroPharma alleged that as a result of the FDA allowing in vitro bioequivalence studies to be submitted by generic drug manufacturers, it has or would in the future suffer two injuries: 1) future lost profits from generic competition and 2) current harm to its ongoing business operations. However, the Court rejected both of these arguments. The Court found that it was not substantially probable that the FDAs actions in declaring that it had the discretion to accept either in vivo or in vitro bioequivalence studies caused any injury in the form of lost profits. The Court reasoned that ViroPharma has not and will not suffer any injury to lost profits as a result of the FDAs announcement unless and until: 1) the FDA actually approves a ANDA for generic versions of Vancocin and 2) such approval must be based upon an in vitro bioequivalence study that does not qualify for a waiver under 21 C.F.R. § 320.22. However, until such time as the FDA actually relies upon the challenged interpretation of 21 C.F.R § 320.24, the Court ruled that ViroPharma has not suffered an injury.

The Court also found that ViroPharma could not establish standing based on current harms to its business. The Court found that the alleged harms were too vague and not sufficiently “concrete and particularized” to establish an injury in fact. Additionally, the Court went on to find that even if such harms could establish an injury in fact, ViroPharma failed to demonstrate a causal connection between these harms and the FDAs announcement because “ViroPharma elected to take [these actions] in response to its own predictions about what the FDA may do in the future. . . .” As a result, ViroPharma could not establish the causation element necessary for standing.

For more information regarding the ANDA generic drug approval process or for any questions regarding how your company can maintain FDA regulatory compliance, please contact us at contact@fidjlaw.com.

FDA Modification to Dietary Supplement Qualified Health Claims Remanded by Federal Court

During the first week in April, a federal judge granted the U.S. Food and Drug Administration (FDA) summary judgment in a federal case brought by dietary supplement manufacturers challenging good manufacturing practices (GMPs) for dietary supplements. During the second week in April, in a separate case, the win went to the dietary supplement manufacturers. On April 13, the U.S. District Court for the District of Columbia ruled that the FDAs decision requiring qualifying language for antioxidant claims for dietary supplements was unconstitutional under the First Amendment.

Dietary supplement formulators and industry organizations brought the lawsuit, Alliance for Natural Health US v. Sebelius, No. 09-1546 (D.D.C. April 13, 2011) (“Alliance II”), challenging an FDA decision to deny a petition for authorization of certain qualified health claims regarding dietary supplements containing vitamin C and vitamin E. The plaintiffs claimed that the FDA decision violated their First Amendment Rights and sought a declaratory judgment that the FDAs final order denying the petition was invalid. The plaintiffs also sought a permanent injunction enjoining the FDA from “taking any action that would preclude the Plaintiff from placing [their proposed] health claims on the labels and in the labeling of their dietary supplements.” Complaint at 36.

The health claims at issue in this case concerned the relationship between vitamins C and E and the risk for certain types of cancer. The FDA refused to approve these claims. A “health claim” is “any claim made on the label or labeling of a food, including a dietary supplement, that expressly or by implication, characterizes the relationship of any substance to a disease or health-related condition.” The FDA allows two types of health claims to appear on dietary supplement labeling: 1) authorized health claims; and 2) qualified health claims. A “qualified health claim” is a health claim that is supported by some scientific evidence but less evidence than an authorized health claim. The FDA requires that qualified health claims be accompanied by a disclaimer explaining the level of scientific evidence supporting the relationship between the dietary ingredient and the disease or health-related condition.

In Alliance II, the FDA required qualification of the following health claims:

  • Vitamin C may reduce the risk of gastric cancer. The scientific evidence supporting this claim is persuasive, but not conclusive.
  • Vitamin E may reduce the risk of bladder cancer. The scientific evidence for this claim is convincing, but not conclusive.

The FDA prohibited the claims as they appear above and would only allow the claims to appear in the following forms:

  • One weak study and one study with inconsistent results suggest that vitamin C supplements may reduce the risk of gastric cancer. Based on these studies, FDA concludes that it is highly uncertain that vitamin C supplements reduce the risk of gastric cancer.
  • One small study suggests that Vitamin E supplements may reduce the risk of bladder cancer. However, two small studies showed no reduction of risk. Based on these studies, FDA concludes that it is highly unlikely that vitamin E supplements reduce the risk of bladder cancer.

The plaintiffs brought their claims under the First Amendment to the Constitution. The Court reasoned that it “has the authority to examine and rule on any actions of a federal agency that allegedly violate the Constitution,” apart from the power of review granted by the Administrative Procedure Act (APA). Alliance for Natural Health USI v. Sebelius, 714 F. Supp. 2d 48 (D.D.C. 2010) (citations omitted) (“Alliance I”). However, the APA “also provides for the Courts to make an independent assessment of constitutional issues,” and the role of the Court is the same “whether the plaintiff sues directly under the Constitution or under [the APA].” Id. (citations omitted). Relying on the analysis set forth by Pearson v. Shalala, 164 F.3d 650 (D.C. Cir. 1999) (“Pearson I”) and by Alliance I, the Alliance II court reasoned that it “is obligated to conduct an independent review of the record and must do so without reliance on the [FDAs] determinations as to constitutional questions, it must also give deference to an agency assessment of scientific or technical data within its areas of expertise.” Id. at 16 (quoting Alliance I).

The Court described the appropriate inquiry in this matter to be “whether the FDA properly determined that there was no “credible evidence” supporting the plaintiffs claims.” Alliance II at 22. The Court stated that it would “limit its consideration of this question to an assessment of whether the FDAs evaluation was inconsistent with its own standards, irrational, or arbitrary and capricious. Id. The Court evaluated the FDAs 2009 Guidance Document stating that it uses an “evidence-based review system” to evaluate the strength of the evidence supporting a health claim and held the factors the FDA uses, as enumerated in the Guidance Document, to be reasonable and consistent with the FDAs regulatory authority. See id. at 24-25. However, when the Court evaluated the modifications applied to the plaintiffs qualified claims, the Court held that the FDA did not draft “precise disclaimer[s] designed to qualify plaintifss claim[s] while adhering to the ËœFirst Amendment preference for disclosure over suppression, as mandated.” Id. at 35 (citing Alliance I).

Ultimately, the Court held that the FDAs modifications to the claims were unconstitutional under the First Amendment. The FDA did not employ the least restrictive means available to regulate the speech at issue in this matter. The Court held that “health claims that are supported by some credible evidence, and which are therefore only potentially misleading, are protected commercial speechPearson I teaches that empirical evidence of the inefficacy of using disclaimers is required for the FDA to ban a health claim that is only potentially misleading “ i.e., a claim that is based on some credible evidence. Alliance II at 20.

The Court ruled that the FDA “has replaced plaintiffs claims entirely,” and that the claim “qualification effectively negates any relationship between cancer risk and vitamin intake. The FDAs rewordingmakes it difficult to tell what the original health claims are and appears to disavow the FDAs own conclusions that those claims are supported by credible evidence.” Alliance II at 13. The Court remanded the claims regarding the relationships between vitamin C and gastric cancer and vitamin E and bladder cancer to the FDA for further action.

Companies Still Grappling with UTP Reporting Issues

Several months ago, we reported on the Internal Revenue Service (IRS) promulgating its final guidance for corporations required to file uncertain tax position (UTP) statements. The initial deadline for corporations with total assets equal to or exceeding $100 million to file its 2010 taxes with Schedule UTP, “Uncertain Tax Position Statement,” is fast approaching. Yet despite this formal guidance, IRS answers to FAQs, and a blogosphere full of information from tax practitioners, PricewaterhouseCoopers LLP (PwC) reports that companies are still facing major uncertainties with respect to their UTP reporting issues.

In a Practitioner webcast on March 21, 2011, PwC Tax Partner Ken Kuykendall stated that there is “a lot of uncertainty in these rules,” and reported that companies are hoping for more guidance from the IRS on reporting guidelines before the first Schedules must be filed.

The primary questions identified by would-be Schedule UTP filers include the uncertainty surrounding the definitions of what it means to have “recorded a reserve for an uncertain position” and “position taken on a return.” Kuykendall added that issues such as how to handle net operating losses (NOLs) “ and other attributes that embed and carry forward uncertain tax positions into future years “ are also a source of substantial confusion for companies.

Finally, Kuykendall referred to additional UTP issues that are “lurking in the background.” These issues include uncertainty over the reporting of multi-year positions, foreign positions, purchase accounting, and affirmative claims and amended reserves. He added that the IRS must also provide additional guidance to companies regarding the determination of reserve amounts for the purposes of ranking UTPs, a requirement of the Schedule.

Luke Cherveny, PwC Tax Director also spoke at the Practitioner webcast and added that PwC foresees UTP compliance as a “multi-phase process” beginning with fostering internal communications to develop UTP-required information. Cherveny warned that companies will face “gaps” between the information that is currently available and that which needs to be reported. Without a plan as to how to bridge those gaps, he opined, companies are going to falter in their reporting obligations.

If your company is facing uncertainty over UTP reporting, let us assist you in meeting your needs and putting that uncertainty to rest. Our tax law practitioners can help identify your UTP reporting requirements and process the information you need to achieve compliance. Contact us for a consultation today at contact@fidjlaw.com.

United States Government Requests US District Court to Release Property Tax Records from California Board of Equalization

The United States Justice Department, on behalf of IRS, has asked a federal judge to issue a “John Doe” summons on the California Board of Equalization requiring the board to turn over records of property transfers for little or no consideration (In Re the tax liabilities of John Does, E.D. Cal., No. 2:10-mc-00130-MCE-EFB, filed 12/27/11).

In the gift tax area, this is the first reported time that the IRS has attempted to use John Doe summons to obtain information. The investigation relates to taxpayers who transferred real property between 2005 and 2010. “Based on information received from examinations across the country and information voluntarily disclosed by other states, the IRS has determined that taxpayers who transfer real property to a related party for little or no consideration frequently fail to file Form 709 and report this transfer, despite the fact that they are required to do so by the internal revenue laws,” wrote Josephine M. Bonaffini, Federal/State Coordinator of IRS Estate and Gift Tax Program in a declaration filed with the District Court. “Thus, the IRS has a reasonable basis to believe that a significant portion of the California taxpayers who have transferred property to their children or grandchildren (as reported to the BOE on forms for exclusion of reassessment) for little or no consideration have failed to report these transfers to the IRS.”

Because no statute of limitations applies to gift tax returns, the recipient of the gift will be liable to pay gift tax if the donor fails to do it. The IRS reportedly has teams in Florida, Nebraska, New York, North Carolina, Ohio, Washington, and Wisconsin working on gift tax compliance. Unsurprisingly, many states and counties have voluntarily disclosed their property transfer data. Public data reveals that 323 taxpayers have been examined for failing to File Form 709 and another 217 are currently under examination.

The attorneys at Fuerst Ittleman, PL have experience representing taxpayer in IRS audits and litigation before the U.S. Tax Court, U.S. District Courts, and U.S. Courts of Appeal. You can contact us by emailing:contact@fidjlaw.com.

Federal Prosecution of Tax Crimes up 25%

Federal prosecutors brought criminal charges in 1,250 tax cases in 2010, a 25.3% jump from 2001. Criminal tax prosecution recommendations by the Criminal Investigation Division of the IRS reached a high of 1,507, up 50.4% from 2001. The data is from Transactional Records Access Clearinghouse, a data research and distribution organization.

Part of the increase resulted from criminal charges in cases involving Swiss banking UBS. UBS agreed to assist the IRS by providing account data for 4,450 American clients. The U.S. Department of Justice recently disclosed in court documents that the IRS is investigating HSBC for assisting U.S. taxpayers hide accounts and income in India. Recently a New York woman plead guilty to filing a false 2008 income tax return that did not disclose that she owned multiple HSBC accounts in India that held $8.3 million. Additionally, the IRS recently opened field offices around the world including Australia, China, and Panama.

The attorneys at Fuerst Ittleman, PL have extensive experience in criminal and civil tax litigation, IRS audits, and federal tax compliance. You can reach an attorney by emailing us at: contact@fidjlaw.com.