In response to a request, the IRS detailed the rules relating to what Over-the-Counter (OTC) expenses qualify as “medical expenses” under Section 213(d) of the Code. While the contents of the IRS opinion are not surprising (it concluded that food is never a medical expense, personal items such a compression socks may be a medical expense, and items that no have other purpose than to treat a disease, illness or medical or physical defect are a medical expense), the application utilized in reaching its conclusion details a “pandora’s box” of problems for IRS auditors reviewing the expenses claimed as reimbursable from a Health Savings Account (HSAs).

Commentators have suggested that fiduciaries and other plan administrators of Flex Spending Accounts (FSAs) and Health Reimbursement Arrangements (HRAs) should understand the rationale behind the IRS’ decision so as to determine whether “dual-purpose” expenses are in fact medical expenses under Code section 213(d) entitled to reimbursement. Some of these decisions can be challenging for a disinterested fiduciary (Sunglasses with “blank” non-prescription lenses are generally not reimbursable but this expense could be reimbursable for an individual who has and eye condition - such as glaucoma - and must have protection from the sun’s UV rays). However, if an individual who maintains their own HSA is asked to make the same decision - there is little likelihood that any claim for reimbursement will not be paid. This fact will likely lead IRS auditors of an individual’s HSA to challenge reimbursements and apply the terms of this IRS opinion. This shifting of the responsibility from fiduciaries to IRS agents will likely result in tax-preferences for some very questionable expenses.