Flex Spending Account Medical

[Guest kabmaxx]

Question I'm hoping someone can help us with. Can we hold a former employee (terminated during a reduction in staff) responsible for money paid in excess of her contributions to the medical spending account? Our administrator paid the claims because they were incurred during her employment and were toward her annual contracted amount. Any assistance is greatly appreciated.

[GBurns]

No you cannot hold the employee responsible for the "excess". That is the risk sharing factor that allows FSAs in the first place.

See Proposed treasury regulations 1.125-2 Q&A 7(a) and (B)(2).

[Guest kabmaxx]

Thank you for your response. Can I ask a naive question - how precisely would I review this treasury regulation?

Thanks again.

[GBurns]

Now you have a problem. You will have to visit your local public library or Law School library. I have mine in hard copy. Proposed Treas. Regs are not readily available with any of the law schools internet linkks or GPO Access because they are merely proposed and not really law.

[Guest Nancy Cullins]

IRS Regulations prohibit employers from seeking overpayment from plan participants at termination due to the risk-shifting characteristics which must exist with a medical reimbursement account. Additionally, it is also stated that even if the participant wanted to repay the monies, this also should not be done, even if they are willing to state in writing that it is their choice.

[Guest Laura Browne]

I've read the above referenced proposed treasury regulations 1.125-2 Q&A 7(a) and (B)(2) and find no reference to Nancy's statement about participant repayment. Where can I find that statement?

[GBurns]

I suggest that you read the Regs again or have someone else read it and give you their opinion. In 1.125-2 Q&A 7(2) there are examples that explain.

[Guest Laura Browne]

I'm looking for specific reference to "it's also stated that even if the participant wanted to repay the monies, this also should not be done, iven if they are willing to state in writing that it is their choice"

[Greg Judd]

Originally posted by GBurns

Now you have a problem. You will have to visit your local public library or Law School library. I have mine in hard copy. Proposed Treas. Regs are not readily available with any of the law schools internet linkks or GPO Access because they are merely proposed and not really law.

Is this the proposed regulation in question? proposed regulation

If so, please all tip a cap to Mr. Baker once again. He's provided some pretty effective search tools for us - worth getting acquainted with.

If not, I'm slinking back to my cave....

[GBurns]

I did not understand your post.

[Greg Judd]

Originally posted by GBurns

I did not understand your post.

What's to understand? Click the links (the underlined words); they take you to what look like 1.125-2 Q&A 7(a) and (B)(2) revisions that pertain to the topic. Found via benefitslink's search tools.

Of course, if the linked pages aren't what's under discussion, I'll head back to the peanut gallery.

[GBurns]

The link takes me to a January 10, 2001, Federal Register Notice that withdraws a section of 1.125-2 Q&A 6 and amends 1.125-1 Q&A 8 as a result of 1.125-4 which as you should know mainly relates to election changes.

Nothing in the Notice provided by your link is relevant to the issue and DEFINITELY NOT what is under discussion.

But please stick around, To err is human etc etc.

[Greg Judd]

Originally posted by GBurns

...stick around, To err is human etc etc.

GB - I swung - & missed completely! So badly, I think my bat went into the stands. Other than referencing Section 125, & those irrelevant Q&A's, all I did was distract the unwary.

Still, it's curious that something so basic would be made available so haphazardly (some proposed stuff available, some not).

[GBurns]

The reason is not surprising.

If you read any proposed reg. it states that the taxpayer may rely on it. The law that allows them to issue regs states that the service cannot rely on it and cannot use it against a taxpayer who does not rely on it. It therefore is binding on the IRS not the taxpayer. Only after public input etc etc can it be made final ot temporary, other than that it is just proposed.

There have been numerous court cases that have pointed out the status of Proposed Regs versus Temporary and Final Regs culminating in US Supreme Court cases such as the recent Mead case.

In general, "First, we note that although final regulations command our respect (Commissioner v. Portland Cement Co. of Utah), 450 U.S. 156, 169 (1981), proposed regulations carry no more weight than a position advanced on brief by respondent. Freese. v. Commissioner, 84 T.C. 920, 939 (1985), ...., quoting F.W. Woolworth Co. v. Commissioner, 54 T.C. 1233, 1265 (1970).......... We therefore decide this case by considering the evidence under the standards of the statute, not those of the proposed regulation." Laglia v. Commissioner, 88 T.C. 894 (1987).

The above is one of the gentler comments made by the Tax Court, the District Courts, Appelate Courts and the Supreme Court have been brutal in their comments and in one case referrred to them as "merely proposed". There have also been court criticism of the eventual validity of regulations that have stood proposed for in excess of 10 years.

It has always amused me that I have never heard a benefits "expert" legal or otherwise express any curiousity as to why the IRS has not issued any rulings on section 125 since pre 1989. If you look at most of the Rulings that are issued under the related UIL you will see the statement to the effect that they are not ruling anything regarding 125 in the ruling.

These same ruling also usually in item 1 of the conclusion usually state that the amount by which the employee elects to reduce their compensation is allowed under 106. They have never said that it is allowed under 125. Why?

You cannot issue rulings under Proposed Regulations.

In addition every year since before 1989 th IRS issues their "No Rule" position. This year it was in IRB 2001-3. In it they state that they are not able to rule on whether or not the amount by which the employee reduces his salary is really tax free.