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2. Section 104(b)(4)
Finally, petitioners rely on section 104(b)(4), which
provides that in the case of an individual described in section
104(b)(2) (i.e., an individual who is in one of the classes of
persons who remain eligible for the section 104(a)(4) exclusion)
the amounts excludable under section 104(a)(4) “shall not be less
than the maximum amount which such individual, on application
therefor, would be entitled to receive as disability compensation
from the Veterans’ Administration.”16 On the basis of this
16 The Veterans’ Administration provides compensation for
service-connected disability. See 38 U.S.C. sec. 1110 (2000)
(providing compensation for disability resulting from personal
injury suffered or disease contracted in line of duty, or for
aggravation of a preexisting injury suffered or disease
contracted in line of duty, in the active military, naval, or air
service, during a period of war); id. sec. 1131 (providing
compensation for disability resulting from personal injury
suffered or disease contracted in line of duty, or for
aggravation of a preexisting injury suffered or disease
contracted in line of duty, in the active military, naval, or air
service, during other than a period of war); see also Sidoran v.
Commissioner, 640 F.2d 231, 233 (9th Cir. 1981) (“The Veterans
Administration’s disability benefits program is intended to
compensate a veteran for impairment resulting from service-
connected injuries.”), affg. T.C. Memo. 1979-56. In general,
monthly compensation for service-connected disability is paid on
the basis of a rating of the claimant’s disability, which is in
turn based on a schedule of ratings of reductions in earning
capacity from specific injuries or combination of injuries. See,
e.g., 38 U.S.C. secs. 1114, 1134, 1155 (2000); 38 C.F.R. secs.
4.1-4.150 (2003).
Payments of Veterans’ Administration benefits are tax
exempt. 38 U.S.C. sec. 5301 (2000); Porter v. Aetna Cas. & Sur.
Co., 370 U.S. 159, 160 (1962) (“Since 1873, it has been the
policy of the Congress to exempt veterans’ benefits from creditor
actions as well as from taxation.”).
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