Every year, the IRS clarifies areas of the law in which it will not provide guidance. For 2012, Revenue Procedure 2012-03 provides a good reminder of a few gray areas for health and welfare benefits.

Specifically, the Revenue Procedure identified 79 areas in which the IRS will not issue rulings or determination letters “because of the inherently factual nature of the problems involved, or for other reasons.” Four areas are of particular interest.

First, the IRS will not define gross misconduct as it relates to COBRA. Recall that a termination of employment involving gross misconduct is not a qualifying event. In the past, courts have differed on how to define this term. This will continue. Because gross misconduct is so murky, the usual recommendation is to offer COBRA to avoid daily penalties, excise taxes and self-insuring claims.

Second, the IRS will not review any health plan’s §105(h) nondiscrimination testing (NDT) to ensure that it complies with applicable law and regulations. That does not mean that plans are excused from this requirement. The IRS can always audit plan compliance, including NDT.

Third, the IRS will not clarify whether amounts used to provide group term life insurance, health benefits and dependent care FSAs are considered “wages” for FICA and FUTA purposes when these benefits are offered through a §125 cafeteria plan. The general assumption is that those benefits are excluded from taxable wages.

Finally, the IRS does not want to rule on when certain capital expenditures are qualified medical expenses that can be reimbursed under a Health FSA, HSA or HRA. Thus, plan administrators must determine – on a case-by-case basis – when these expenses have the primary purpose of medical care. Very often, administrators do this by requiring documentation of the expense and supporting information from the doctor.

How do you handle these gray areas? Have you ever dealt with a gross misconduct issue for COBRA? If so, how did you make that call?  Please comment below.