Announcement:
Per the IRS notice copied below, Drug Store and Pharmacies have been provided an additional 6 months to implement an IIAS solution or register for the 90% rule exception as appropriate for continued acceptance of FSA/HRA cards.

Drug Stores and Pharmacies that intend to implement an IIAS solution should do so as soon as possible to begin auto-substantiation of FSA/HRA transaction and to ensure continued acceptance after June 30, 2009.  The SIGIS 90% rule registration process is expected to be available mid-December and should be completed by applicable merchants prior to June 30, 2009.

IRS Notice 2008-104

PURPOSE
This notice provides additional transition relief with respect to the use of debit cards for medical expense reimbursements at stores with the Drug Stores and Pharmacies merchant category code.

BACKGROUND
Notice 2007-2, 2007-1 C.B. 254, provides that after December 31, 2008, health FSA and HRA debit cards may not be used at stores with the Drug Stores and Pharmacies merchant category code unless: (1) the store participates in the inventory information approval system as described in Notice 2006-69, 2006-2 C.B. 107, or (2) on a store location by store location basis, 90 percent of the store's gross receipts during the prior taxable year consisted of items which qualify as expenses for medical care under  §  213(d) (including nonprescription medications as described in Rev. Rul. 2003-102, 2003-2 C.B. 559). 

For transactions using debit cards at stores that meet the 90 percent rule described in (2) above, employers must treat all charges to the debit card as conditional (other than copayment matches, recurring expenses, and real-time substantiation as described in Rev. Rul. 2003-43, 2003-1 C.B. 935) pending substantiation of the charges through additional independent third-party information describing the goods or services, the date of the service or sale, and the amount of the charge. 

TRANSITION RELIEF
The deadline in Notice 2007-2 is extended by six months so that, after June 30, 2009, health FSA and HRA debit cards may not be used at stores with the Drug Stores and Pharmacies merchant category code unless the requirements of (1) or (2) above are satisfied.

For more information, please go to www.sigis.com.