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earlier, the entirety of the withheld taxes was reflected on the
information return sent to Mr. Simon.
Petitioners presented two arguments. First, because
respondent, in 1987, held administratively that petitioner's
retirement benefits were not includable in gross income for 1981,
1984, and 1985, the same position should apply for the year at
issue, and, second, if the retirement benefits are includable in
gross income, the amount withheld as Federal income tax by DFAS
as to those benefits should be allowed to petitioners as a
credit.
Petitioners do not dispute the fact that Texas is a
community property State, that military retirement benefits
accrued or earned during marriage are community property, owned
in indivision by each spouse in equal proportions, and that
retirement benefits are compensation for services rendered over
the course of employment and are not a gift or gratuity. Denbow
v. Commissioner, T.C. Memo. 1989-92. Moreover, in the event of a
divorce or a division of the community property, the retirement
or pension payments are gross income to the party who owns the
right to those payments pursuant to the division of the parties.
Weir v. Commissioner, T.C. Memo. 2001-184; Eatinger v.
Commissioner, T.C. Memo. 1990-310.
Addressing petitioners' first contention, the law is well
settled that respondent is not bound or estopped by prior
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