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Compass
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IRS Clarifies Rules for Correcting Improper Payments from Health FSAs (PDF)
Buck [Guidance Overview] May 6, 2014
"Once the debit card is deactivated, the correction procedures generally may be applied in any order, as long as application is consistent for all participants. However, forgiveness of improper payments as uncollectible business debts is generally permitted only after the other correction methods have been pursued.... An employer cannot simply choose to 'forgive' the improper payment. If it typically pursues legal action to recover other business debts above a certain dollar threshold as part of its business practice, it may have to similarly take legal action if the amount of improper payment exceeds that threshold."
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