The tax law provides specific exemptions for eyeglasses, contact lenses, and hearing aids. The regulations provide additional safe harbors for certain devices identified by the FDA as over-the-counter (OTC) tests and devices; for DME, prosthetics, and orthotics for which Medicare Part B pays the purchase price; and for prosthetics and orthotics that do not require insertion by a medical professional.

The statute also provides a "retail exemption" for devices of a type that are generally purchased (from a store or by telephone and Internet sales) by the general public at retail for individual use. The regulations provide a facts and circumstances approach to determine whether a device meets the retail exemption, enumerating several factors—both positive and negative—for evaluating whether a medical device satisfies the retail exemption.

The positive factors include whether:

• Consumers who are not medical professionals can purchase the device through retail businesses that sell other, non-medical devices;
• Consumers who are not medical professionals can safely and effective use the device for its intended purpose with little or no medical training; and
• The FDA classifies the device as a physical medicine device.

The negative factors include whether:

• The device must be implanted, inserted, operated or administered by a medical professional;
• The device has a large cost that is not affordable for the average consumer;
• The device is durable medical equipment (DME), prosthetics, orthotics, and supplies for which payment is available exclusively as a rental under Medicare Part B, and is an item requiring frequent and substantive servicing.

The regulations provide 15 examples to illustrate the application of the retail exemption. The examples allow exemptions for non-sterile absorbent tipped applicators, adhesive bandages, snake bite kits, denture adhesives, pregnancy test kits, blood glucose monitors and test strips, certain knee shin systems and prosthetic legs, wheelchairs, portable oxygen concentrators, urinary ileostomy bags, and adjustable home use beds. The examples do not allow exemptions for mobile x-ray systems, nonabsorbable silk sutures, nuclear MRI systems, and powered flotation therapy beds.

As additional provisions gradually become effective under the Affordable Care Act's health reform measures, the IRS intends to issue further guidance.  It also forecasts requiring the need for greater resources within both its rulings and regulations staff and its enforcement units.