Inventory Information Approval System

What is the Inventory Information Approval System? 

The Inventory Information Approval System (IIAS) standard is an Internal Revenue Service-approved inventory management standard that allows merchants such as grocery and drug stores to automatically identify whether a particular product in their inventory is a flexible spending account (FSA) or Health Reimbursement Arrangement (HRA)-eligible expense. When an employee uses a payment card at one of these merchants, the IIAS allows the card’s processing system to determine which item is eligible and automatically approves (“auto substantiates”) or declines the purchase of that item with FSA or HRA funds. The cardholder may have to substantiate purchases made with an FSA or HRA card that have not already been identified by an IIAS, as well as at merchants that have not implemented an IIAS. 

Why is the Inventory Information Approval System important to a small business? 

FSA- or HRA-enrolled employees can purchase eligible products from IIAS-certified merchants according to the IIAS standard. An FSA allows eligible employees to set aside pre-tax money through payroll deductions into a tax-free account and use these funds to pay for eligible healthcare expenses. Offering an FSA is a win-win for employers and employees since it: 

• Helps reduce the tax burden for both employer and employee
• Minimizes out-of-pocket spending on healthcare items for workers

An HRA account is an employer-funded health plan that reimburses employees for medical expenses that their standard healthcare insurance plan doesn’t cover. Employers fund the plan by making distributions, which are tax deductions for their business. 

What is the history of the Inventory Information Approval System? 

In 2007, the IRS mandated that an IIAS system be in place for the purchase of FSA and HRA-eligible products beginning January 1, 2008 for all retail stores that did not fall under the Merchant Category Codes that define usual drug stores and pharmacies. This impacted larger retailers, including supermarket and warehouse chains, that had to instate an IIAS system by January 1, 2008 or risk losing business to independent drug stores. The IRS then mandated that typical drug stores and pharmacies falling under MCC 5912 and similar codes have an IIAS system in place by January 1, 2009 if they wanted to continue to accept flexible spending cards. POS software providers and the pharmacy community were given a one-year grace period to implement a system meeting IRS requirements. 

Summary 

The IIAS is an IRS-approved inventory management standard that allows merchants such as grocery and drug stores to automatically identify whether a particular product in their inventory is an FSA- or HRA-eligible expense.