The Treasury Department sent a letter to Senator Charles Grassley (R-Iowa), Senate Finance Committee Chair, claiming that it lacks "sufficient legal authority" to change the regulations under § 125, which provide that amounts from a salary reduction agreement to fund a heakth care flexible spending account ("FSA") which are not used to reimburse medical expenses incurred in a calendar year are forfeited and may not be carried forward to reimburse expenses incurred in later years.  Senator Grassley yesterday issued a press release critical of the Treasury’s position:

I’m glad the Treasury Department is looking at ways to improve the use-it-or-lose-it rule, but I’m disappointed that the department seems reluctant to make changes to a proposed rule that’s never been finalized. That rule doesn’t pass the common sense test, and it’s hurt taxpayers for more than 20 years. I also don’t understand the argument that the Treasury Department and the IRS don’t have the power to change the rule. If they wrote it, surely they have the power to change it. Regardless, I want to resolve this issue, and I’m looking for the best way to do that. Americans need every possible tool to meet their health care expenses. I hope they don’t have to wait another 20 years before someone writes a more common sense rule.

For press coverage, see Tom Herman, A Setback For a Popular Health Benefit; Treasury Rejects Effort to Ease ‘Use-It-Or-Lose-It’ Provision Of Flexible-Spending Accounts, Wall Street Journal, Jan. 5, 2005, at D1.