far - the issue is NOT with W2 reporting
Your employer correctly reported FSA Dependent Care contributions because that amount is NOT included into box 1.
That is not related to how that amount is used.
However - because of that reporting - you are required to use form 2441 with your tax return.
Most likely - you did not include that form - and the IRS "thinks" that amount might not used for designated purposes.
If my assumption is correct - you would need to amend your tax return (using form 1040X
) and add form 2441.
Most likely - there will not be any charges in tax calculations.
Here is form 2441 for 2012
Specifically for your situation - see line 14
Enter the amount, if any, you forfeited or carried forward to 2013. See instructions
So - the amount you forfeited $1950 - should be reported here.
That should correct the issue.
You need to reply to that letter with your amended tax return
- and explanation of facts - and that should address your issue with the IRS.
Let me know if that answered your question
If you need any clarification - be sure to ask.