In Notice 2008-104 the IRS has granted a 6-month extension on the December 31, 2008 deadline that had been established in IRS Notice 2007-2 as the last day drugstores and pharmacies could accept debit cards linked to Flexible Spending Accounts (FSA) if they did not have an inventory information approval system (IIAS). The new deadline is June 30, 2009.
Notice 2007-2 had said that after December 31, 2008, health FSA and HRA debit cards could 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% of the store’s gross receipts during the prior taxable year consisted of items which qualify as expenses for medical care
For transactions using debit cards at stores that meet the 90% rule described above, the IRS said that 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.
Notice 2008-104 is online at http://www.irs.gov/pub/irs-drop/n-08-104.pdf