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Petitioners excluded from gross income the full amount of
the VA disability benefits, $5,926, and $23,857 of the service
pension income. Petitioners utilized the following formula.
Petitioners took their gross retirement pay of $55,195 and
divided it by 75 percent to reach $75,593. This $75,593 was then
multiplied by the VA 40 percent determined disability to reach a
disability exclusion of $29,437. This amount was adjusted by
subtracting the amount of retirement pay that had been waived due
to VA disability benefits of $5,580. The resulting $23,857 was
characterized as an "adjusted exclusion" by petitioners.
Petitioners then subtracted the $23,857 from Form 1099-R taxable
income of $45,847 to reach a calculated "taxable" amount of
$21,990.
Respondent determined that the total taxable pension from
the Defense Finance and Accounting Service Cleveland Center was
$45,847, which is the amount reported on the Form 1099-R from
that source. Respondent also determined that petitioners
underreported their service pension by $23,857.
OPINION
Petitioners believe that they were entitled to exclude the
service pension payments from their income based on conferences
with Internal Revenue Service (IRS) personnel that occurred in
1992 or 1993. From those conversations, petitioners thought that
they could follow a "Sergeant Jones" example from IRS Publication
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Last modified: May 25, 2011