IRS audit of governmental HRAs

[Everett Moreland]

I would appreciate any background on the following from the IRS's FY 2008 Federal State, and Local Governments Work Plan:

"In FY2007, FSLG completed 17 examinations of Health Reimbursement Arrangements (HRAs) that did not meet the requirements of the Code. All 17 examinations involved the same provider. FSLG entered into a closing agreement with the provider in lieu of employment and income tax to resolve similar HRAs provided to more than 500 government entities. Based on the facts it was determined that a section 6700 examination of the provider was not necessary. FSLG has identified several additional providers of other HRAs that do not appear to meet the requirements of the Code. FSLG will conduct additional examinations to investigate these programs. Upon completion of these examinations, FSLG will also consult with Counsel to determine whether a section 6700 examination should be conducted with regard to the promoters of the HRAs."

[GBurns]

I have also been trying, with no success as yet, to find out who this HRA provider is or any of the governmental entities involved.

It is disturbing that even if the IRS, for whatever reason, thinks it prudent and proper to protect this provider of what seems to be either illegal or abusive transaction promoting, they should, at the least, state what was wrong with the plan design or plan operation. How else will the public know what to avoid?

To compound the issue, there seems to be other providers of such improper plan designs. How many of these were simply cloning the initial larger provider? Or are there other plan designs that are also improper?

Without giving more details, the IRS is simply fostering more such plan designs or copying.

[GBurns]

It seems that this particular HRA promoter is very large and very well connected and so is being protected from disclosure.

So far, everyone that I have spoken to, at the IRS, has taken the same position that the closing agreement etc prohibits them from disclosing the name or geographic area etc of the promoter.

It is strange that they took a very different approach with KPMG, E&Y, BDO etc when going after BOSS, Son of BOSS and those other tax shelters. In these cases not only were the details of the agreements made public, but even some clients were conveniently disclosed. The COLI cases were also similarly treated.

They do admit that there are clones of that promoter's plan design, but seem unwilling to issue warning press releases about the investigations etc as they did so very often regarding not only the above mentioned, but also about the double-dipping arrangements that caused RR 2002-3, 2002-80 and subsequent prosecution. I find it very questionable behaviour.

[Everett Moreland]

George: Thank you for that information.

[GBurns]

While I was asking, someone at The IRS said that most involved municipalities using a VEBA and so if I searched their minutes I would see mention of the issue. At that time nothing was showing using search tems such as "IRS HRA city" or "IRS HRA VEBA city" etc. But this week the situation seems to be changing as Google etc starts indexing those pages.

So try a search on Google. Minneapolis and Anaheim seem to have been among the affected.