T.C. Memo. 1996-154
UNITED STATES TAX COURT
RONALD NEIL AND MAKBULE ROBINSON, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14951-94. Filed March 26, 1996.
Ronald Neil Robinson and Makbule Robinson, pro se.
John R. Voeller, for respondent.
MEMORANDUM OPINION
COHEN, Judge: Respondent determined a deficiency of $4,315
in petitioners’ Federal income tax for 1992 and an accuracy-
related penalty pursuant to section 6662(a) of $863. The parties
have settled the issues reflected in the notice of deficiency.
We address here an overpayment issue raised in an amended
petition, to wit, whether petitioners are entitled to exclude
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from income a $99,434 lump-sum payment received by Ronald Neil
Robinson (petitioner) from the United States Army.
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
Sometime before October 1990, petitioner was diagnosed with
depression and began receiving medical treatment for that
condition. On September 30, 1992, petitioner was released from
active duty in the United States military due to his
participation in a “VOLUNTARY INCENTIVE PROGRAM-SSB”. Petitioner
received $99,434.30 in a lump-sum payment.
By letter dated July 29, 1993, the Department of Veterans
Affairs notified petitioner that his claim for disability
compensation for neurosis had been approved. Petitioner’s claim
for disability compensation payments was approved as follows:
Monthly Rate Effective Date
$83 11/1/92
85 12/1/92
The disability award was made subject to the recoupment of
$99,434.30 that petitioner had received due to his separation
from service with the military.
Petitioners included $99,434 in their gross income on their
Form 1040, U.S. Individual Income Tax Return, for 1992. On an
amended return received by the Austin Service Center on March 20,
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1995, petitioners decreased their gross income by $99,434,
stating their reason as follows:
IN JULY, 1993, TAXPAYERS WERE INFORMED THAT $99,434.30
OF GROSS WAGES ORIGINALLY REPORTED IN 1992 WOULD BE
RECLASSIFIED FROM SEVERANCE PAY TO DISABILITY PAY.
1992 GROSS WAGES, WHICH ORIGINALLY INCLUDED THIS
AMOUNT, SHOULD BE REDUCED BY THIS NON TAXABLE
DISABILITY INCOME.
Petitioner argues that, when the Department of Veterans Affairs
determined he was entitled to disability compensation, the lump-
sum distribution received from the voluntary incentive program
was reclassified as disability pay and, thus, was not includable
in gross income pursuant to section 104(a)(4).
The Special Separation Benefits Program, 10 U.S.C. sec.
1174a (Supp. IV 1992), in which petitioner participated was
enacted by Pub. L. 102-190, title VI, sec. 661(a)(1), 105 Stat.
1394 (1991). Its purpose was to “give a reasonable, fair choice
to personnel who would otherwise have no option but to face
selection for involuntary separation” due to military strength
reductions. H. Conf. Rept. 102-311, at 556 (1991), 1991
U.S.C.C.A.N. 1042, 1111-1113.
While 10 U.S.C. sec. 1174a does not address the effect of
Department of Veterans Affairs disability payments on separation
benefits, 10 U.S.C. sec. 1174(h)(2) (Supp. IV 1992) (the
recoupment statute) applies to the Special Separation Benefits
Program. 10 U.S.C. sec. 1174a(g) (Supp. IV 1992). The
recoupment statute provides:
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(2) A member who has received separation pay under
this section, or severance pay or readjustment pay
under any other provision of law, based on service in
the armed forces shall not be deprived, by reason of
his receipt of such separation pay, severance pay, or
readjustment pay, of any disability compensation to
which he is entitled under the laws administered by the
Department of Veterans Affairs, but there shall be
deducted from that disability compensation an amount
equal to the total amount of separation pay, severance
pay, and readjustment pay received. Notwithstanding
the preceding sentence, no deduction may be made from
disability compensation for the amount of any
separation pay, severance pay, or readjustment pay
received because of an earlier discharge or release
from a period of active duty if the disability which is
the basis for that disability compensation was incurred
or aggravated during a later period of active duty.
[10 U.S.C. 1174(h)(2) (Supp. IV 1992); emphasis added.]
Under the recoupment statute, separation pay is subject to
total recoupment when the recipient is subsequently awarded
disability compensation by the Department of Veterans Affairs.
Although it may seem unfair to petitioner that taxable separation
pay is recouped by withholding nontaxable disability
compensation, total recoupment without tax relief was clearly
intended by Congress.
Prior to the enactment of 10 U.S.C. sec. 1174(h), separation
pay recoupment was governed by 10 U.S.C. sec. 687(b)(6) (as
enacted by Pub. L. 89-718, sec. 6, 80 Stat. 1115, 1116 (1966)
(repealed 1981). The prior statute required the Veterans'
Administration (now the Department of Veterans Affairs) to recoup
75 percent of the separation pay when withholding disability
compensation. 10 U.S.C. sec. 687(b)(6) (repealed 1981).
Recoupment of only 75 percent of the separation pay was to
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account for the differing tax treatments of the separation and
disability payments. See Berger v. Commissioner, 76 T.C. 687,
691-692 (1981) (quoting S. Rept. 1096, 87th Cong., 1st Sess.
(1961), 1961 U.S.C.C.A.N. 1783, 1786).
In 1980, Congress enacted the Defense Officer Personnel
Management Act, Pub. L. 96-513, 94 Stat. 2835, which amended the
separation pay recoupment statute, replacing the 75-percent
recoupment with total recoupment. See Pub. L. 96-513, Title I,
sec. 109(c), 94 Stat. 2870, 2871 (1980) (effective Sept. 15,
1981) (codified at 10 U.S.C. sec. 1174(h)(2)). No alternative
provision was established to relieve the imbalance of recouping
taxable separation pay with nontaxable disability compensation,
indicating that Congress’ intent was to eliminate the tax relief
for recoupment.
Petitioner’s being diagnosed with the disability during his
military service does not change the analysis under 10 U.S.C.
1174(h). Petitioner originally received taxable separation
benefits, and no provision for reclassifying the separation pay
is provided by any applicable statute. Therefore, the character
of the separation benefits remained taxable even after petitioner
became eligible for disability compensation. Petitioners must
include the $99,434.30 separation payment in income on their 1992
Federal income tax return.
Petitioner has asserted that he knows of two fellow
veterans, who were initially awarded separation pay and were
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later awarded disability compensation, who have filed amended
returns reclassifying the payments as disability pay and have
received refunds. We do not have before us evidence from which
we can determine whether or not petitioner’s case is
distinguishable from the situations he describes. Payment of a
refund claimed is neither an express or an implied approval by
the Internal Revenue Service of items reported on a return. See
Warner v. Commissioner, 526 F.2d 1 (9th Cir. 1975), affg. T.C.
Memo. 1974-243. In any event, a taxpayer is not entitled to
erroneous treatment, even if another taxpayer or the same
taxpayer in another year has received the benefit of an error.
As we stated in Malinowski v. Commissioner, 71 T.C. 1120, 1128
(1979):
It has long been the position of this Court that our
responsibility is to apply the law to the facts of the
case before us and to determine the tax liability of
the parties before us; how the Commissioner may have
treated other taxpayers has generally been considered
irrelevant in making that determination. * * *
See Davis v. Commissioner, 65 T.C. 1014, 1022 (1976); Estate of
Guenzel v. Commissioner, 28 T.C. 59, 63 (1957), affd. 258 F.2d
248 (8th Cir. 1958).
To reflect the agreement of the parties,
Decision will be entered
under Rule 155.