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is acknowledgment that a portion of the reenlistment bonus in
that example will not be earned for service in a combat zone.
Sec. 1.112-1(b)(4), Income Tax Regs. Instead, it is sufficient
that the offer and acceptance of the reenlistment occur while the
member is serving in the combat zone. We note, however, that as
a matter of policy, the potential for continued service in a
combat zone exists where a person reenlists.
Petitioner wishes us to go a step further than Example (5)
and hold that the language of section 112, as interpreted in
section 1.112-1(b)(4), Income Tax Regs., would extend to a
severance payment, even though that payment is being made to
ensure that there would be no further service, in a combat zone
or otherwise. We do not find petitioner's argument to be
persuasive. Petitioner's proposed approach does not comport with
the statutory language and does not carry out the intent of the
statute.
Respondent makes no effort to distinguish Example (5), but
instead argues that Example (2) of the regulation is more
analogous. Section 1.112-1(b)(5), Example (2), Income Tax Regs.,
provides:
From March through December, an enlisted member became
entitled to 25 days of annual leave while serving in a
combat zone. The member used all 25 days of leave in
the following year. The member may exclude from income
the compensation received for those 25 days, even if
the member performs no service in the combat zone in
the year the compensation is received.
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Last modified: May 25, 2011