HRA substantiation

[EB]

Looking for experiences with HRA substantiation audits.  Specifically, have plans that suspend HRA debit cards where participants fail to send requested substantiation, send 1099s for unsubstantiated claims, and after 1099s issued “turn on” HRA debit cards and let participants use again.  Does this violate substantiation rules by creating systematic failure?

[Chaz]

My two cents is that plans tend to go the route of treating the amount unsubstantiated as taxable income far too often and should be first using other correction methodologies.

I must point out that if these other methodologies are unsuccessful, an employer would typically need to recognize the unsubstantiated amounts as income on a Form W-2, NOT a Form 1099. 

I am not aware of any IRS guidance regarding turning cards back on.