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(2) A member who has received separation pay under
this section, or severance pay or readjustment pay
under any other provision of law, based on service in
the armed forces shall not be deprived, by reason of
his receipt of such separation pay, severance pay, or
readjustment pay, of any disability compensation to
which he is entitled under the laws administered by the
Department of Veterans Affairs, but there shall be
deducted from that disability compensation an amount
equal to the total amount of separation pay, severance
pay, and readjustment pay received. Notwithstanding
the preceding sentence, no deduction may be made from
disability compensation for the amount of any
separation pay, severance pay, or readjustment pay
received because of an earlier discharge or release
from a period of active duty if the disability which is
the basis for that disability compensation was incurred
or aggravated during a later period of active duty.
[10 U.S.C. 1174(h)(2) (Supp. IV 1992); emphasis added.]
Under the recoupment statute, separation pay is subject to
total recoupment when the recipient is subsequently awarded
disability compensation by the Department of Veterans Affairs.
Although it may seem unfair to petitioner that taxable separation
pay is recouped by withholding nontaxable disability
compensation, total recoupment without tax relief was clearly
intended by Congress.
Prior to the enactment of 10 U.S.C. sec. 1174(h), separation
pay recoupment was governed by 10 U.S.C. sec. 687(b)(6) (as
enacted by Pub. L. 89-718, sec. 6, 80 Stat. 1115, 1116 (1966)
(repealed 1981). The prior statute required the Veterans'
Administration (now the Department of Veterans Affairs) to recoup
75 percent of the separation pay when withholding disability
compensation. 10 U.S.C. sec. 687(b)(6) (repealed 1981).
Recoupment of only 75 percent of the separation pay was to
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