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not argue that the severance payment is a pension or a form of
retirement pay. Therefore, the question we consider is whether
the severance payment is "compensation received for active
service * * * in a combat zone".
By means of regulations, compensation excludable from gross
income under section 112 has not been limited to active duty pay
while in a combat zone. In particular, section 1.112-1(b)(5),
Example (5), Income Tax Regs., provides:
In July, while serving in a combat zone, an enlisted
member voluntarily reenlisted. After July, the member
neither served in a combat zone nor was hospitalized
for wounds incurred in the combat zone. In February of
the following year, the member received a bonus as a
result of the July reenlistment. The reenlistment
bonus can be excluded from income as combat zone
compensation although received outside of the combat
zone, * * * [because] the member completed the
necessary action for entitlement to the reenlistment
bonus in a month during which the member served in the
combat zone.
This regulation, to a limited extent, may expand upon the
statutory language "compensation received for active service"
because reenlistment bonuses could be to secure future service
which is not served in a combat zone.4
Example (5) indicates that the time and place of payment are
irrelevant when considering whether compensation is excludable
under section 112. More importantly, the example contains a
variation from the section 112 language to the extent that there
4 We note that neither party has challenged the validity of
the regulations under consideration.
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