Dale C. and Jacqueline L. Holt - Page 2




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          issue which the Court must decide is whether a disability                    
          percentage rating issued by the Veterans' Administration entitles            
          petitioners to exclude any portion of a "length of service                   
          military retirement pension" (service pension) under section                 
          104(a)(4).  If the exclusion is denied, then, due to the                     
          resultant increase in income, petitioners' Schedule A limitation             
          must be adjusted by the amount of $234 in accordance with                    
          respondent's determination in the notice of deficiency.                      
          (Petitioners did not contest this issue at trial or on brief.)               
                                   FINDINGS OF FACT                                    
               Some of the facts in this case have been stipulated and are             
          so found.  Petitioners resided in Arlington, Texas, at the time              
          they filed their petition.  They filed a joint Federal income tax            
          return for 1995.                                                             
               In 1987, petitioner Dale C. Holt (petitioner) retired from              
          the United States Air Force (Air Force) as a Colonel.  Petitioner            
          served on active duty from January 1957 until August 1987.  He               
          received a retirement pension for his length of service and not              
          for any disability.                                                          
               After retirement, petitioner applied for nontaxable                     
          disability benefits from the Veterans' Administration (VA).                  
          Petitioner executed a VA form, Veteran's Application for                     
          Compensation or Pension.  In doing so, petitioner waived that                
          portion of his service pension from the Air Force which was equal            





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