Since 1991, the Secretary of Defense has unlawfully taxed combat-related disability severance pay for nearly 14,000 wounded veterans to the tune of approximately $78 million. New legislation will require the Department of Defense to identify these cases and notify each individual with instructions on how to procure a refund. It appears that the likely mechanism for recovery will be to file amended tax returns with the IRS within some specified period after receiving notice.
Aside from the obvious that the money never should have been withheld in the first place, Congress deserves some credit for taking steps to rectify the error. But the legislation portends problematic issues for some affected vets. For whatever reason, the law does not require the IRS to autonomously issue refund checks, which would seem to be the common sense approach. Instead, the burden is placed on the aggrieved veteran to take steps to recover the unlawfully withheld money upon receiving notice from DoD. Because this issue stretches back nearly twenty-five years, the seemingly benign issue of accurate contact information may preclude some from receiving the notice upon which they’re required to act. Further, the task of filing an amendment with the IRS may confer an undue burden on some veterans with lesser means and capabilities.
It will be interesting to see how this all unfolds.