Leveraging Your Health Savings Account (HSA) Funds to Pay for Your Forensic Audit.
Forensic Medical Bill Audits As Ancillary Medical Expenses
Let u.s. Tax Law work for you
Read the Basics and Download the HSA Expenditure Tax Memo Below.
213(d)Qualified Medical Expenses are Deductible on a Federal Tax Return
Only Forensic Audits Can Demonstrate that 213(d) Care was Delivered
Out-of-pocket HSA Contributions are Tax Deductible without itemization
The IRS relies on a “but-for” Policy to evaluate Medical Expense Deductibility
Using your HSA Funds on “But-For” Ancillary Medical Care Expenses reduces your audit cost
learn the Process from A to Z and Leverage the Power of Your HSA by reading our memo below
Process
Complete How-To Information
The following information and tax-memo with white paper explains how to use your HSA to pay for your forensic audit.
Your contributions were made before taxes were calculated on your paycheck, meaning you never paid federal income tax or FICA on that money. When you use those funds to pay your audit fee, the distribution is tax-free under IRC § 223(f)(1) because the audit qualifies as a medical expense under IRC § 213(d). No additional deduction is available at tax time because the tax benefit was already realized when the money was withheld from your paycheck. Your net result: the audit fee was paid with dollars that were never taxed.
You contributed after-tax dollars directly to your HSA. At tax time, claim a deduction for that contribution on Form 8889, which flows to Schedule 1 of your Form 1040 as an above-the-line deduction — meaning it reduces your adjusted gross income whether or not you itemize. When you use those funds to pay your audit fee, the distribution is also tax-free under IRC § 223(f)(1). Your net result: you received a deduction for the contribution and paid the audit fee with tax-free dollars.
Step 1 – Pay the audit fee from your personal bank account or credit card account (bonus points gained).
Step 2 – Reimburse yourself (bank account or credit card) from your HSA by logging into your HSA account and initiating a distrubution to the account you used to pay the audit fee. This is a qualified medical expense distrubution under IRC § 223(f)(1) and is tax-free.
Step 3 – Retain your documentation; keep your audit receipt, forensic audit report, and our tax memo to substantiate the HSA distrubution if questioned by the IRS. Additionally, if you use a tax-preparer, accountant, or tax attorney to prepare and file your income taxes provide our tax memo to them.
The Math at a 22% Federal Tax Bracket
For a post-tax HSA contributor claiming the above-the-line HSA deduction under IRC § 223(a):
- Audit fee paid: $500.00
- HSA contribution deduction reduces taxable income by: $500.00
- Federal tax saved at 22%: $110.00
- Effective out-of-pocket cost of the audit: $390.00
For a pre-tax payroll contributor the $500 was never taxed to begin with, so the effective cost depends on your combined federal and FICA rate — typically producing a similar or greater benefit.
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The below regulatory memo and white paper from Medical Bill Forensics LLC establishes the statutory position and case law basis under which this audit fee qualifies as a medical expense under IRC § 213(d); this memo was delivered to your client along with their forensic audit and they were instructed to provide it to you. Medical Bill Forensics LLC is in the process of workign with a tax attorney to present the informaton within the memo and white paper to the federal government for incorporation into tax law; updates will be posted as they become available.