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    What is the IRS 90% Rule and how does it relate to IIAS requirements?

    In IRS Notice 2007-02 and the subsequent Notice 2008-104, the IRS provides that drug stores/pharmacies (MCC's 5912 and 5122), which have 90% or more of gross sales that are Rx/prescriptions or over-the-counter Eligible Health Care Products, can be viewed as "health care merchants" by plan administrators in the debit card programs. Plan administrators are permitted to approve FSA/HRA card transactions at a drug store/pharmacy that meets the 90% Rule, if the drug store/pharmacy doesn't support an IIAS. The text of the IRS rulings are shown below:

    IRS Notice 2007-2

    Accordingly, 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 approval system as described in Notice 2006-69, 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 Section 213(d) (including nonprescription medications as described in Rev. Rul. 2003-102, 2003-2 C.B. 559).

    IRS Notice 2008-14- Transition Relief

    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.

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