December 22, 2006
Transitional Relief for Debit Cards Used at Certain Merchants
The IRS has provided new transitional relief with respect to the use of debit cards for medical expense reimbursement. This new transitional relief provides that merchants that do not have a health care related merchant category code (“MCC”) are deemed to be a medical care provider for debit card transactions that occur on or before December 31, 2007. The guidance applies to all supermarkets, grocery stores, discount stores, and wholesale clubs, as well as all mail-order and web-based vendors that sell prescription drugs. After December 31, 2007, debit cards may not be used at any merchant that does not have a health care related MCC unless the merchant has implemented an inventory information approval system.
The new guidance also imposes future restrictions on stores with a “drug stores and pharmacies” MCC. After December 31, 2008, debit cards may not be used at stores that have a “drug stores and pharmacies” MCC unless: (1) the store uses an inventory information approval system; or (2) 90% of the store’s gross receipts during the previous taxable year (determined on a store-location-by-store-location basis) consisted of items that qualify as medical expenses under Code § 213(d).
If you are considering implementing a debit card system, or need assistance revising documentation of your current debit card system, please contact us.
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The information contained in this ALERT is intended for general information purposes only and does not constitute legal advice relative to a specific situation.