Deadline for Tax Refunds for Combat-Injured Disabled Veterans

The Internal Revenue Service, in a much appreciated move, alerted combat-injured disabled veterans that they have a limited amount of time to claim a refund for lump sum disability severance payments received after 1991which were included as income on their income tax return. Congress passed the Combat-Injured Veterans Tax Fairness Act in 2016 which exempted these payments from income tax.

Eligible combat-injured disabled veterans should have received a letter from the Department of Defense with information on how to claim the refund. If a veteran did not receive such a letter and believes he or she is eligible, the veteran should visit this DFAS page  or the IRS alert page for information on how to claim the refund.

Veterans must make their claim by the later of one of these dates:

• 1 year from the date of the Department of Defense notice
• 3 years after the due date for filing the original return for the year the disability severance payment was made
• 2 years after the tax was paid for the year the disability severance payment was made

For many veterans, one year from the DOD notice is the latest date which means the veteran needs to act quickly.

To claim the refund Veterans are supposed to file an Amended Tax Return, Form 1040X. This is problematic since some payments were made as long ago as 1991, and the veteran may not have the 1991 Income Tax Return any longer. A copy of old tax returns can be requested, but takes time to receive and costs $50 for each copy. Newer tax returns (the current year and prior 3 years) can be obtained online at no cost. Therefore, the IRS has proposed a simplified method in which the veteran can choose to claim a standard refund amount instead of the actual refund amount. The standard refund amount is set as follows:

• $1,750 for tax years 1991-2005
• $2,400 for tax years 2006-2010
• $3,200 for tax years 2011-2016

To claim a refund, the veteran must file a Form 1040X for the appropriate year and write "Veteran Disability Severance" across the top of page 1 of the Form 1040X. To find the correct form, simply put Form 1040X and the year in your search engine. The veteran must attach the following documentation:

• Documentation showing the amount of and reason for the disability severance payment (DD214 

OR

• a notice mailed to the veteran by DOD or DFAS explaining the severance payment at the time of the payment) or a determination that your injury or sickness was caused by: 1) direct result of armed conflict, 2) simulated war exercises, 3) an instrumentality of war, or 4) extra -hazardous service. If the veteran has died, the surviving spouse or heir may file the claim and must attach Form 1310.

Mail the completed 1040X to:

Internal Revenue Service

333 W. Pershing Street, Stop 6503, P5

Kansas City, MO 64108

These directions are found in IRS Publication 3 on page 7.

Questions? Please call us at (928) 778-3113 or contact us at Team@PrescottTax.com.