n-08-104.pdf

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NOT – 147804-08

Part III – Administrative, Procedural and Miscellaneous

Section 105 - Amounts Received Under Accident and Health Plans

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 mer-
chant 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 ap-
proval 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) (in-
cluding 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 ser-
vice 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.

EFFECT ON OTHER DOCUMENTS
Notice 2007-2, 2007-1 C.B. 254 is modified.

DRAFTING INFORMATION
The principal author of this notice is Stephanie L. Caden of the Office of Division
Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further in-
formation regarding this notice, contact Ms. Caden at (202) 622-6080 (not a toll-free call).