- 3 -
1995, petitioners decreased their gross income by $99,434,
stating their reason as follows:
IN JULY, 1993, TAXPAYERS WERE INFORMED THAT $99,434.30
OF GROSS WAGES ORIGINALLY REPORTED IN 1992 WOULD BE
RECLASSIFIED FROM SEVERANCE PAY TO DISABILITY PAY.
1992 GROSS WAGES, WHICH ORIGINALLY INCLUDED THIS
AMOUNT, SHOULD BE REDUCED BY THIS NON TAXABLE
DISABILITY INCOME.
Petitioner argues that, when the Department of Veterans Affairs
determined he was entitled to disability compensation, the lump-
sum distribution received from the voluntary incentive program
was reclassified as disability pay and, thus, was not includable
in gross income pursuant to section 104(a)(4).
The Special Separation Benefits Program, 10 U.S.C. sec.
1174a (Supp. IV 1992), in which petitioner participated was
enacted by Pub. L. 102-190, title VI, sec. 661(a)(1), 105 Stat.
1394 (1991). Its purpose was to “give a reasonable, fair choice
to personnel who would otherwise have no option but to face
selection for involuntary separation” due to military strength
reductions. H. Conf. Rept. 102-311, at 556 (1991), 1991
U.S.C.C.A.N. 1042, 1111-1113.
While 10 U.S.C. sec. 1174a does not address the effect of
Department of Veterans Affairs disability payments on separation
benefits, 10 U.S.C. sec. 1174(h)(2) (Supp. IV 1992) (the
recoupment statute) applies to the Special Separation Benefits
Program. 10 U.S.C. sec. 1174a(g) (Supp. IV 1992). The
recoupment statute provides:
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