Guest Article

(From the October 10, 2011 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

IRS Information Letters Address Unique Qualifying Medical Expenses

The IRS recently addressed unique taxpayer questions regarding whether certain expenses qualify as medical expenses under Code § 213 and whether those expenses could be reimbursed from a health care flexible spending account or medical reimbursement account.

Excess Cost of Special Foods May Qualify as Medical Expense

In Information Letter 2011–0035, a taxpayer asked if the cost of special foods purchased to treat a medical condition would qualify as deductible medical expenses under Code § 213(a). The Service noted that taxpayers can deduct expenses paid for the "medical care" of the taxpayer, spouse or dependent to the extent the expenses exceed 7.5 percent of adjusted gross income—and that "medical care" refers to amounts paid for "the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting a structure or function of the body." Expenses that are merely beneficial to the general health of the individual are not deductible under this definition. In terms of special food, the Service explained:

The Service went on to explain that, if the item is one that is ordinarily used for personal, living, and family purposes, the excess of the cost over the normal cost is a medical expense under Code § 213. In terms of special foods, if the taxpayer can establish the medical purpose of the diet, the excess cost is a medical expense under Code § 213.

FSAs and MRAs Are Not Required to Pay All Types of Medical Expenses

In Information Letter 2011–0055, the Service addressed whether hearing aid repair expenses are qualified medical expenses under a health care flexible spending account (FSA). It explained that, although such expenses generally qualify for FSA purposes, an FSA can limit its payment or reimbursement to only certain medical expenses (i.e., there is no requirement for an FSA to pay or reimburse all qualified medical expenses). The FSA document should identify the medical expenses it will pay. However, individuals can deduct qualified medical expenses subject to the 7.5 percent adjusted gross income limitation, the Service explained.

Similarly, in Information Letter 2011–0027, the Service addressed whether "medical concierge" fees are reimbursable from a medical reimbursement account (MRA). The taxpayer pays the annual concierge fees to a medical practice for heightened access to physicians, a comprehensive annual physical, minimum half hour doctor visits, and access to dietitians and exercise therapists. The Service explained that, to be reimbursable from an MRA, the expenses must be medical expenses that are both paid during the taxable year and expenses that the MRA will reimburse. As with an FSA, an MRA can limit payment or reimbursement to only certain medical expenses, so the MRA plan should be examined to determine the expenses it will pay.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.220.2692, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2011, Deloitte.