I think that people have a fundamental misunderstanding of how FSAs work. For one, the government is not paying for this stuff, you are. What the government is doing is allowing you to write off purchases related to medical expenses. The money that you put into your FSA belongs to you and if you do not use it by the end of the year then you lose it. This money does not go to the IRS or any other government agency, it goes to your place of employment. Your workplace offers these programs because they cost your employer nothing out of pocket on account they are taking your money to pay for your purchases. Your place of employment actually makes money off of these programs because any money that is not used up by the end of the year goes back to them.
Now when it comes to the end of the year, I get several emails from my FSA provider telling me, "You have a balance in your FSA account, if you do not use it by the end of the year, you will lose that money. Here is a link to our FSA store which includes all of the approved items you can buy (including adult diapers). Please go here and spend your money so you don't lose it." I'm paraphrasing of course but that is the gist of it. I can't tell you how many times that I've bought, condoms, bandaids, a TENS machine, a UV light for treating acne...etc Were those things medically necessary? No, but that doesn't mean that I'm not permitted to purchase them with my FSA or that it is wrong of me to do so. Tax write-offs are available to everyone, whether or not you use them is up to you. If you are audited, I highly doubt that the auditor is going to ask if all of those bandaids were used for cuts (my kids seem to think that they're tattoos) or heaven forbid, if you've ever jacked off in your condom rather than using it to prevent pregnancy or getting an STD.
The main objective of an IRS audit is to make sure that you're paying the correct amount of taxes, not investigate you for fraud. If during an audit the auditor finds that you had taken tax deductions that you were not permitted to take, they will give you the option to square your bill with them. That cost would be the cost of taxes that you failed to pay according to the IRS. What they want to be sure of is that you are not knowingly defrauding the government such as buying adult diapers tax free and then turning around and selling them for a profit.
I use my FSA mainly to pay for copays for Dr's visits and to pay for prescriptions etc but if at the end of the year I have a balance, you can bet I'm going to use that money to buy adult diapers which are a legitimate purchase according to the guidelines of my FSA provider. As I have already shown by providing my FSA account guidelines, a letter of medical necessity is NOT required for purchasing adult diapers which tells me that like bandaids, they do not have to be medically necessary to be an eligible purchase. This includes buying ABDL diapers, if it was against the rules, the IRS would not allow ABDL businesses to accept FSA payments. I do not see this as a grey area and I feel it is clear in the guidelines that the government does not care what you do with them as long as they are for personal use which they are.