IRS Explains High Standards for Substantiating FSA Claims

The IRS recently released a Chief Counsel Advice (“CCA”) which addressed numerous situations regarding the substantiation of claims under a health flexible spending account (“FSA”) and a dependent care FSA. A CCA is issued by the IRS’s Office of Chief Counsel generally to an IRS field office in response to a request for assistance related to a taxpayer. While a CCA cannot be used or cited as precedent, it provides useful information on the Office’s position on tax issues. Specifically, the IRS concluded in the CCA that when any expense of an employee is reimbursed by an FSA
without being properly substantiated, the amount of the reimbursement is included in the gross income of such employee, including situations of:
• Expenses only self-certified by the employee;
• Substantiation only by random sampling;
• De minimis reimbursements without substantiation;
• No substantiation of charges from favored providers; and
• Advance substantiation for dependent care FSA expenses

For more information, please click on the following link.  IRS Explains High Standards For Substantiating FSA Claims – 051623I