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disability compensation statutes qualify for exclusion under
section 104(a)(4).10 Specifically, in 1976, responding to
perceived abuses of the section 104(a)(4) exclusion, Congress
acted to severely restrict its availability. As stated in the
legislative history to the 1976 amendments of section 104:
Military personnel can exclude from income pensions for
personal injuries or sickness paid by the Department of
Defense (as well as all Veterans Administration
disability compensation).
* * * * * * *
The House bill * * * eliminates the exclusion for
non-combat related disability pensions for those who
joined the armed forces after September 24, 1975, but
continues the exemption for V.A. disability
compensation or an equivalent amount paid by the
Department of Defense. * * * [S. Conf. Rept. 94-1236,
at 432 (1976), 1976-3 C.B. (Vol. 3) 807, 836; emphasis
added.]
As a general principle, provisions granting special tax
exemptions are to be strictly and narrowly construed. See
Commissioner v. Schleier, 515 U.S. 323, 328 (1995); Helvering v.
Northwest Steel Rolling Mills, Inc., 311 U.S. 46, 49 (1940). We
believe this general principle has particular cogency in the
instant case: as previously discussed, in 1983 Congress reversed
10 One example of a disability compensation statute that is
designed, at least in part, to compensate individuals for
military injuries, is 10 U.S.C. sec. 1201 (2000). Under this
provision, military disability retirement pay is available for,
among other things, a disability that is the proximate result of
performing active duty, a disability that was incurred in the
line of duty in time of war or national emergency, or a
disability that was incurred in the line of duty after Sept. 14,
1978.
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