We all have combat disabled Veterans as clients. Some of my clients were Agent Orange Disabled Vietnam Veterans. It took some of these Veterans as much as 30 years after the war was ended to get their disabilities recognized by the United States Army.
One of my clients is an 80% service related disability from Agent Orange used in Vietnam. After over 30 years he was granted 80% disability converting his Command Master Sergeant retirement pay to non taxable disability pay under section 104(a)(4), but denying the Veteran the same disability treatment for all returns that had gone beyond statute.
Anything that puts the light of day on the conditions of our returning Veterans of Foreign Wars is a good thing. Hopefully these men get better treatment at the hands of a government that is being watched more closely by its voting public. It would be nice if these service related injuries were resolved fairly.
In David D. Robinson, Sr. et. sec. v. Commissioner the IRS reminded these service related Veterans that a service related disability that leads to a Civilian Disability Retirement is taxable even though the service related disability retirement income from the Armed Forces is not taxable. It does not seem logical but the court affirmed that this is the law.
In this case Rose v. Commissioner played a role. It was apparently the policy of the IRS in its kinder and gentler days to overlook that section 104(a)(4) did not apply to a service related disability leading to a civilian disability pension. This is apparent since the Internal Revenue Service issued previous closing letters allowing the exclusion of the civilian disability pension from taxable income in previous years.
Either these prior years slipped through the cracks or the policy of allowing these exclusions from civilian disability retirements arising from a military service related disability has changed. The court decided that "disability benefits from the Civil Service Retirement Act (the veteran worked for the post office from 1980 to 1992) were not designed to compensate for military injuries."
I would assume that this decision would apply to any civilian based retirement. The decision seems to be unnecessarily stringent. But when you consider that the United States needs money to operate in this recession turned depression, the government has to look to taxpayers to make up the difference in revenue.