Bill would remedy improper taxation of disabled vets’ severance

Department of Defense logo is shown. (Thinkstock)

WASHINGTON — A veteran and lawyer says the federal government has wrongfully and knowingly taken about $80 million from combat disabled veterans over the past 25 years, and he’s hoping to get a new law passed to fix the problem.

Tom Moore, a veteran and a lawyer with the National Veterans Legal Services Program, says the money was basically stolen from about 14,000 vets. Moore says that the lump-sum severance payment for disabled combat veterans is not supposed to be taxed according to federal law, but has been since 1991.

“When we researched the issue we realized that it was a long-term systemic problem. And that the government has been aware of (this) for a couple decades,” Moore says.

Moore says the Department of Defense claims the severance pay was taxed because their automated payment system is only set up to take taxes out.  But Moore says even though the government knew about the problem, it never fixed it.

Moore says his group asked Sens. Mark Warner, D-Virginia and John Boozman, R-Arkansas, to help because they are strong supporters of veterans and veterans’ issues.

“We went to them and said, ‘Look — this is an egregious error ….  Can you help us by sponsoring this bill?’”

The Combat-Injured Veterans Tax Fairness Act of 2016 was introduced last week, with both senators as co-sponsors.

The bill would stop the taxing of this severance in the future and would return the taxed money to the affected veterans. Moore is hoping that the bipartisan nature of the legislation will inspire Congress to quickly pass it.

“It’s really not just a deserving group of veterans that this legislation is for; it’s money that’s theirs. This was money that was wrongfully taken by the government when it should have been in [the veterans’] pockets in the first place,” Moore says.

“It’s unbelievable that Congress has to act in order to ensure that the law is followed and that veterans who have already sacrificed so much receive every penny of their severance,” Warner said in a statement.

Boozman added in his own statement, “DOD has unjustly withheld taxes despite clearly written federal law and a court opinion to the contrary. We have a responsibility to right this wrong and ensure that our nation’s wounded veterans receive the benefits they are rightfully due.”

The bill is retroactive: Moore says it will cover all those who have been medically separated with combat-related disabilities back to 1991, allowing them to file amended tax returns despite IRS rules which only allow for an amended tax return to be filed within three years.

Moore says, the bill also requires the Defense Department “to make sure that the systemic problem has been fixed.  And that they will no longer take taxes out of future disability severance payments made to combat vets.”

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