Ralph P. Waterman - Page 1

                                   110 T.C. No. 9                                     

                               UNITED STATES TAX COURT                                

                          RALPH P. WATERMAN, Petitioner v.                            
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 9201-95.                 Filed February 9, 1998.            

               P accepted an offer for an early separation which                      
               had been made to him by the U.S. Navy pursuant to a                    
               downsizing program.  At the time of acceptance, P was                  
               in a combat zone and had served over 14 years, the vast                
               majority of which were not in a combat zone.  P would                  
               not have been entitled to a pension until he had served                
               20 years.  The amount of P's severance payment was                     
               calculated on the basis of his length of service.  Sec.                
               112, I.R.C., provides that compensation received for                   
               active service in a combat zone is excludable from                     
               gross income.  The regulations under sec. 112 emphasize                
               that the right to the income must accrue during service                
               in a combat zone, but the payment may be received after                
               the combat service.  R determined that none of the                     
               payment received by P was excludable under sec. 112.                   
               On brief, R conceded that an apportioned amount of the                 
               severance payment attributable to the time in a combat                 
               zone over total time served would be excludable.  P                    
               argues that the entire severance payment is excludable                 
               because his right to the payment arose at the time of                  

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