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If I understand the question correctly, the FSA is irrelevant. The employer has been deducting an amount from the employee's wages for the partial cost of the health insurance. There is no written plan for the health insurance deduction, and yet they have been treating this as a deferral of income not subject to FICA, FWT, Medicare, etc. A section 125 plan should be in place for this to be tax deferred. Are the employees actually signing an election for the amount withdrawn for health insurance? That is a written document, although I don't believe it is what is typically meant by a plan document. I am wondering if the election the employees' have signed can be formalized as a plan document and if a determination letter could be requested from the IRS that would clarify this and perhaps eliminate the need to change 15 years worth of W2s and other employment tax documents. If the only benefit under this 125 plan is health insurance, no 5500 is required if I remember correctly. i do agree that this forum might not be the best place to seek a definitive answer. And perhaps I have misunderstood some nuance of the question.

Never mind, I got it. When is this season going to be over ???

This is too cute! I think people have Pygmy Goats as pets, they must be like dogs. I once had a goat, sort of. My friend George who owns a Greek restaurant in the Berkshires said to me, Bill I bought you a goat. Yeah right, what am I going to do with a goat? He takes me to a farm that sells goat cheese among other things and I meet my goat that he paid $40 for 2 goats. He had beautiful eyes and distinctive coloring, I felt a connection and named him Billy Goat. George said the farmer would keep the goat for the season to mow the grass with the other goats and then we will have goat stew in the winter. What? So I went back to the farm and asked the farmer what it would cost to make the goat a permanent resident. Farmer wasn’t really receptive because he had too many goats. After I offered him $100 he agreed to keep the goat away from George. I would visit him every time I bought goat cheese. I finally found him another home with someone who had a horse. George did make goat stew with his goat, tasted like lamb. Maybe that’s the reason I became a vegetarian.

Schedule C house painter. He has estimated his business mileage, but does not keep a log, would take him too long to reconstruct, and said to just forget it. But wait, there's more...by forgoing the mileage expense, it increases his EITC. So do I include the mileage, because it was an expense, even though he does not written evidence as required? Or leave it off and increase his EITC. Not talking big money, less than $500.

jasdim, it is a tax issue, but it's the kind of issue that very few of the members on this forum have dealt with. I suspect that most of us who have been practicing for a number of years have had issues pop up with business clients where the client has mishandled some significant tax issue for many years. All we can do is make sure our client understands what are the rules and regulations and what impact and potential penalties apply and what needs to be done to bring our client back into compliance. Example, what if you picked up a new white table cloth restaurant and you fairly quickly noticed that your new client hadn't been reporting tips? Very few clients will agree to amend the payroll reports and employee W 2s for multiple years. If your client agrees to fix the problem going forward, is that good enough? After all we can only advise our clients what needs to done to be in compliance, what reports need to be amended etc. We can prepare amended returns, but our client decides whether or not they will sign and file these amended returns.

Ask your congressman to ask IRS? They made this mess when they wrote the law and the regs. /s/ (I think "/s/" is how you say "sarcasm") Tom Longview, TX

It's all fun and games until you come out and find a dozen goats standing on your car.

Baby goats are about the cutest critters to watch, I think. A friend raises them and posts videos from time to time; always entertaining. How do they jump so much? Thanks for the smiles today!