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Lev
Lev, Tax Advisor
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Experience:  Taxes, Immigration, Labor Relations
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I am a disabled retired Army Veteran. Last year I applied for

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I am a disabled retired Army Veteran. Last year I applied for CRSC pay and was approved retroactive to Mar 01, 2005. It was my understanding that I could file an amended tax return using IRS for 1040X. The local H&R Block office prepared the amended Federal and State returns for the years 2008, 2009, and 2010. I have already received the State of Nebraska refunds and today got letters from the IRS. One says "We are unable to process your claim for the tax period(s) shown above.
In Accordance with Section 61 of the IRS Code, gross income means all income from whatever source derived. Accordingly, income is taxable unless specifically excluded by law. You received a 1099R indicating that $32,389.00 from Defense Finance was taxable. We cannot consider your claim without a corrected 1099R from the payer indicating that your distribution is non-taxable."
The second IRS letter says: "Thank you for your amended return.
We have adjusted your account as you requested."
My questions are: 1. How far back can I request an amended return?
2. Must I contact DFAS and ask for corrected 1099Rs for each year back to my CRSC start date?
Please do not suggest I go to the local IRS office for help as I did that already and they never heard of CRSC pay and did not think I was entitled to file an amended return.
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.

Hi and welcome to Just Answer!

Please see for reference IRS publication 525 page 17 right column - http://www.irs.gov/pub/irs-pdf/p525.pdf

If you receive a lump-sum disability severance payment and are later awarded VA disability benefits, exclude 100% of the severance benefit from your income. However, you must include in your income any lump-sum readjustment or other non disability severance payment you received on release from active duty, even if you are later given a retroactive disability rating by the VA.

Special statute of limitations. In most cases, under the statute of limitations a claim for credit or refund must be filed within 3 years from the time a return was filed. However, if you receive a retroactive service-connected disability rating determination, the statute of limitations is extended by a 1-year period beginning on the date of the determination. This 1-year extended period applies to claims for credit or refund filed after June 17, 2008, and does not apply to any tax year that began more than 5 years before the date of the determination.

 

Generally you should be able to claim the money back from DFAS if you timely act before 31 December in the year you receive the severance payment.
As you did not do that - your only option to request the tax money back from the IRS.
When you prepare your 1040X form - subtract the lump-sum disability payment from your taxable income and make a reference to Publication 525 page 17 as above.

Attach copies of the following documents (do not send originals!):
--VA award documentation
--Separation orders
--DD Form 214 stating your severance pay amount before taxes
--W-2 from the year the taxes were paid.
--your original federal tax return from that year.

On the top of each page write: your name, SSN and the phrase "St. Clair vs. the United States."
If you do not feel comfortable dealing with the IRS - you may use any tax preparation service.

However - there should not be any issues if you act on your own.

 

Let me know if you need any help.

Customer: replied 2 years ago.
There was no lump sum disability severance. CRSC (Combat Related Special Compensation) is the government entity paying my non taxable income in place of DFAS paying me taxable Army retirement pay.
Expert:  Lev replied 2 years ago.

If that was nontaxable income - it should not be reported as taxable.

If it was reported as taxable to the IRS - on form 1099R box 2a - you may contact the payer and ask for correction.

However - it is very unlikely that DFAS will agree to issue a corrected form.

Thus - if you want to claim that compensation as not taxable - you may apply to the IRS as I suggested above.

Let me know if you need any help.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22982
Experience: Taxes, Immigration, Labor Relations
Lev and 5 other Tax Specialists are ready to help you

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