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17, Your Federal Income Tax (1976) (Publication 17) that was
distributed for the preparation of 1975 tax returns. In 1992,
petitioners amended their returns for 1989, 1990, and 1991 in
accordance with their beliefs. Thereafter, they filed each
year's return in the same manner. Until the 1995 taxable year,
the IRS accepted these computations. On the 1995 return,
petitioners continued their course of action, but, as noted,
respondent disallowed the exclusion of $23,857 from their gross
income.
Petitioners argue that the VA 40 percent disability rating
gives them the opportunity under section 104(a)(4) to exclude
from their service pension an amount based on the 40 percent
disability rating for injuries resulting from active service in
the armed forces. Petitioners also assert that since they relied
on advice from IRS personnel who directed them to use Publication
17, respondent should not be allowed now to change position
regarding petitioners' use of this computation method.
Respondent's position is that service pensions based on length of
service are not excludable from gross income under section
104(a)(4).
Section 104(a)(4) provides an exclusion from gross income
for amounts received as a pension, annuity, or similar allowance
for personal injuries or sickness resulting from active service
in the armed forces of any country. Under section 104(b),
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