Mistake in Fact - Revocation of Elections

[rocknrolls2]

I have heard that the IRS has informally permitted cafeteria plan elections to be revoked in certain cases after the plan year in question has begun. If anyone has any experience with this, I have the following questions: (1) under what circumstances did the IRS consider it a mistake of fact warranting revocation? (2) how far into the plan year did the participant go before requesting to revoke his/her electio? (3) How far did the revocation reach -- was the participant permitted to get a refund of amounts previously deducted from his/her paychecks? Was the participant able to prospectively cease future payroll deductions? Or both?

Thank you for your assistance on this. I have a live situation where this is the crux of the issue.

[papogi]

Depends on facts and circumstances. If you could share some details, that would help. One example that the IRS has used (informally) is when someone elects a DC account thinking that it is for HC expenses for dependents, and the person doesn't even have any dependents in daycare. An employer would then be allowed to move that money from the DC account to the HC account, for instance.

[Mary C]

I believe the guidance connected with mistake of fact elections cited someone enrolling in dependent care who did not have eligible dependents. That's the scenario we have allowed cancellations for and although the regs don't give guidance on any refunds, we have refunded all mistaken contributions.

[rocknrolls2]

The example is that the participant signed up for the dependent care FSA for both 2006 and 2007 and s/he has no eligible dependents. I am willing to consider 2006 as off limits. As far as 2007, although the prior posts indicated that this could work for someone in this situation, I am very concerned about the fact that more than 2/3 of the plan year (it is a calendar year) has elapsed before this individual has brought this to our attention. I would think the timing of notification would be a critical factor in deciding whether there has been a mistake in fact.