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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12663
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I am having difficulty getting the IRS to recognize and pay

Customer Question

I am having difficulty getting the IRS to recognize and pay the retroactive tax on my Combat Related Special Compensation (CRSC). In my case, it is retroactive to 2011 and I sent IRS that amended tax return in October, 2014, and the others in February of 2015. I included the USAF, DFAS and VA letters confirming my CRSC and disability. I have talked to the IRS several times and they recently sent me a letter asking for amended 1099Rs, which DFAS will not provide. The last time I talked to an IRS lady, she said she had been there for 10 years and had never heard the term, "Strickland Decision." I have cancer related to Agent Orange exposure from my PCS in Vietnam. I am pretty much at my wits end. I am thinking that I may need to go to my congressman to get action. If anyone has a course of action short of that, I would appreciate knowing about it.
Wits End.
Submitted: 2 years ago.
Category: Tax
Expert:  Lane replied 2 years ago.
Hi,
This is typical.
I think this can best be handled through what's called a claim of right (IRC section 1341).
Are you saying that you paid tax on pension income during the time the CRSC was being processed and then the pension was paid back, making that and future income being NON-taxable?
Give me a little more detail and we can go from there ...
Lane
Expert:  Lane replied 2 years ago.
P.S.
I just found this in the Internal Manual of IRS.
Combat Related Special Compensation (CRSC) and Concurrent Receipt of Disability Pay (CRDP) are programs managed by the Army, Navy, Air Force or Marines for retired veterans. CRSC payments are non-taxable ... The taxpayer must attach the Defense Finance and Accounting Service (DFAS) Letter and the appropriate copies of the Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRA's, Insurance Contracts, etc., to claim a refund of taxes paid on the excludable amount, before adjusting the military retirement pay from taxable to non-taxable.
Note that this says nothing about an AMENDED 1099-R.
I had a client that had what I think is a similar issue. OAS would NOT amend the 1099-R to say nothing was distributed from the pension ... BUT the did put an asterisk on the 1099-R that said that the client had the credit AGAINST this income available, under Section 1341.
IRS front lines also kicked this back, and she ended up going to the taxpayer advocate and presenting this under section 1341, and eventually three years of refund were generated.
She was able to get hold of someone in the Legal area of IRS and was made aware of the ability to do this... Later when trying to get it done, the front lines told here that Legal was only there for certain months of the year, and that the credit could only be done in the year paid back (rather than applying retroactively to the three years she had paid tax on the pension while the disability claim was being processed).
But by preparing the case and pushing it through both appeals and the taxpayer advocate service she was refunded the tax paid on that pension, because the pension was paid back by the department issuing the disability payments (because it was retroactive)
Again let me know if I've understood your questions correctly and we can go from there...
Lane
Customer: replied 2 years ago.
Thanks, Lane.
I am getting a disability pension which is non-taxable back to March 1, 2011 when I first received the VA ruling of cancer caused by Agent Orange. This Combated Related Service Compensation (CRSP) and the Strickland Ruling allow me to retroactively count that amount as non-taxable back to that 2011 date. Thus, I have submitted the three (2011, 2012 and 2013) 1040Xs with attached documentation. I appreciate the information that you sent me about a lady who was able to get the IRS to finally act using the advocate. I have the advocate phone number (from the IRS) and there is one in Denver, where I live. I will make that contact and see where it goes. This area of VA compensation and disability is so complex that not even the Defense Finance and Accounting Service (DFAS) or the IRS really understand it unless you talk to someone who has worked with it in the past. I am going to try the advocate. In the mean time, If you have any additional suggestions, please email me at***@******.***. Thank you so much.
Expert:  Lane replied 2 years ago.
I will... In a meeting right now but this is SOMEWHAT similar, in that there IS a facility for this being changed to non-taxable .. Let me do a little homework and I'll send an an email with what I find I the manual about changing this to non taxable ...I'm really thinking that this is an advocate and possibly an appeals issue.
The folks in the collections division (front lines) wren' really equipped
Lane
Customer: replied 2 years ago.
Thanks, ***** ***** will get back to you with any progress.
Dale
Expert:  Lane replied 2 years ago.
Thanks.
Go here:
http://www.irs.gov/irm/part21/irm_21-006-006r.html
This is the IRS "internal" manual
Search for CRSC
One of the things you'll see is this:
Combat Related Special Compensation (CRSC) and Concurrent Receipt of Disability Pay (CRDP) are programs managed by the Army, Navy, Air Force or Marines for retired veterans. CRSC payments are non-taxable and CRDP payments are taxable. The taxpayer could be eligible for both payments, they must elect which payment they want since payment of both benefits is prohibited by law. The taxpayer must attach the Defense Finance and Accounting Service (DFAS) Letter and the appropriate copies of the Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRA's, Insurance Contracts, etc., to claim a refund of taxes paid on the excludable amount, before adjusting the military retirement pay from taxable to non-taxable.
If you feel I've helped so far ... would appreciate a positive rating using the stars or faces on your screen.
That's the ONLY way they will crdit me for the efforts here.
Thanks,
Lane