- 7 - 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.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
Last modified: May 25, 2011