SABC Newsletter

  Southern Administrators and Benefit Consultants, Inc.

May, 2002

The IRS issued a ruling on April 2, 2002 approving obesity as an acceptable medical condition and permitting certain weight loss programs to qualify as a medical deduction.  In the past the IRS has not considered the treatment of obesity as an eligible deduction.   The revenue ruling, IR 2002-19, gives examples of two tax payers participating in weight-loss programs. One was diagnosed as obese and another suffering form hypertension.   Previously, the IRS had approved treatments for the medical condition other than obesity.  Because recent reports on obesity by the Food and Drug Administration have called it an "epidemic: the IRS approved the costs related to weight-loss programs for the treatment of obesity.

In order for the expense to be eligible for reimbursement through a participants unreimbursed medical account the participant must provide proper documentation. Claims must accompany a receipt from a physician stating the medical condition and treatment.

The ruling distinguished the cited cases from those in which taxpayers participation weight-loss programs to improve their general health or appearance, which is not an allowable expense.

The ruling approved the costs related to weight-loss programs to include the fees to join the program and to attend periodic meetings. The ruling specifically noted that the cost of purchasing diet food items in not allowed.  Also health clubs and spas are not viable treatment options under this ruling.

It is important that participants understand that claims cannot be paid unless they have a physician diagnosis. Participants that have previously sent claims for the treatment of obesity that were denied, should obtain a physician diagnosis and resubmit the claim.

IRS SUSPENDS REQUIREMENT TO FILE 5500 FOR MOST PLANS

Effective immediately, the Internal Revenue Service has indefinitely suspended the requirement to file Schedule F (Form 5500)."This effort will simplify tax administration and eliminate the filing of about 200,000 forms each year," said Larry Langdon, Commissioner of the IRS's Large and Mid-Size Business Division in the IRS Release IR-2002-43.

Plans with over 100 participants in unreimbursed medical will still have to   file Form 5500, but not schedule F. Governmental and church plans are exempt.

Therefore, if you have received our letter requesting 5500 reporting totals, please disregard the notice.  For those that are still required to file, you will be contacted for any information that is needed to complete your return.

QUESTION OF THE MONTH

At a recent meeting in Washington the IRS commented on several issues.

Can an employee change their unreimbursed  medical election if their elections was based on a drug that no longer   requires a prescription?  The IRS stated that no election change is permitted  in these circumstances. They noted that the employee's intent   when signing up for unreimbursed medical is not  relevant. The account remains available to reimburse other out-of-pocket expenses. The IRS also noted that in a similar situation, if an employee elected to participate in unreimbursed medical to pay     for Lasik surgery or orthodontia, but was unable to have the surgery  or orthodontia treatment for whatever reason, the employee cannot  change his or her election to decrease the amount.

WE WILL BE CLOSED MAY 27TH,  IN OBSERVANCE OF MEMORIAL DAY