In general
If, at any time during the testing period, the employee is not an eligible individual, then the amount of the qualified HSA distribution—
(i)#
shall be includible in the gross income of the employee for the taxable year in which occurs the first month in the testing period for which such employee is not an eligible individual, and
(ii)#
the tax imposed by this chapter for such taxable year on the employee shall be increased by 10 percent of the amount which is so includible.