The IRS disallowed my severance pay recoupment

Ccarro63

Ccarro63

PEB Forum Regular Member
I was medically discharged in Oct 2011. I received my disability severance at 20% for 14 years of service. But, my disability claim with the VA finally came through at 90% back at the beginning of August.

I filed a 1040x with the IRS w/ my DD form 214, separation orders, original W-2's, a copy of 2011 tax forms, and ALL of my VA award documentation immediately after I received my disability award. However, today I got a letter in the mail stating that my claim was disallowed because DFAS reported my "retirement" income as taxable on form 1099R. I don't understand this, since I have never received a 1099R, and I never received retirement since I was discharged at 20%. I'm extremely confused about where to go with this. I obviously want to appeal their decision, but how do I go about proving them incorrect? Has anyone else had this issue? Who can I turn to for assistance?

Thank you in advance for guidance.
 
Ccarro63 said:
I was medically discharged in Oct 2011. I received my disability severance at 20% for 14 years of service. But, my disability claim with the VA finally came through at 90% back at the beginning of August.

I filed a 1040x with the IRS w/ my DD form 214, separation orders, original W-2's, a copy of 2011 tax forms, and ALL of my VA award documentation immediately after I received my disability award. However, today I got a letter in the mail stating that my claim was disallowed because DFAS reported my "retirement" income as taxable on form 1099R. I don't understand this, since I have never received a 1099R, and I never received retirement since I was discharged at 20%. I'm extremely confused about where to go with this. I obviously want to appeal their decision, but how do I go about proving them incorrect? Has anyone else had this issue? Who can I turn to for assistance?

Thank you in advance for guidance.
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Did you remember to request corrected W2s from DFAS?
 
I was specifically told by a DFAS representative that a corrected W-2 could not be issued since it is no longer in the same calendar year as when the severance was paid. Is this not true? To be honest it sounded like bull when I heard it, too. Maybe there is a better number to call to get a corrected W-2 than the one I used. I'm not even sure I still have that number anywhere because the individual was so useless. If a corrected W-2 is indeed required, how do I go about getting one? And why does the IRS claim to have a 1099R for retirement when I've never received retirement. Thus, I can not provide a corrected 1099R as they are requesting. <<<mass confusion>>>
 
Ccarro63 said:
I was specifically told by a DFAS representative that a corrected W-2 could not be issued since it is no longer in the same calendar year as when the severance was paid. Is this not true? To be honest it sounded like bull when I heard it, too. Maybe there is a better number to call to get a corrected W-2 than the one I used. I'm not even sure I still have that number anywhere because the individual was so useless. If a corrected W-2 is indeed required, how do I go about getting one? And why does the IRS claim to have a 1099R for retirement when I've never received retirement. Thus, I can not provide a corrected 1099R as they are requesting. <<<mass confusion>>>
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There is a slightly obscure step once you get back your VA rating within the first 12 months. After you receive the VA rating back, you must make a request to DFAS to issue corrected W2s prior to submitting the new 1040x. This process is called a "Tax protest." That individual told you bad info.
 
I am extremely grateful for your replies. It's too bad, other internet information also confirmed that a corrected W-2 was not required (such as this link http://www.ar15.com/mobile/topic.html?b=1&f=77&t=826508 ). This is the reason I hesitantly believed what the DFAS rep stated. Now I guess I need to appeal the IRS decision (only have 30 days to file the appeal) and work on getting an amended W-2 from DFAS as quickly as possible. I've been doing an internet search to see if there is a specific phone number to call to start the tax protest. So far I haven't been able to find a reliable number that is specifically for this purpose. When I do I will share it here for anyone with a similar situation.
 
To do a "Tax protest," you need the following:

  • VA award documentation (within 12 months of separation)
  • Separation Orders
  • DD Form 214
I was told to fax this and a letter to 317-275-0281 to the Attention:Tax Protest.

Letter may read something like this:

Dear Sir/Ma'am:

I was medically discharged from the U.S. Army/ARNG, on________. I was awarded severance pay in the amount of $__________. My disability severance pay was taxed. This money was withheld for payment to the IRS.

I have now received a disability rating from the Veterans Affairs(VA) for the same disability for which the Army compensated me, and in the same calendar year that I received my severance pay. Therefore , under the provisions of 26 U.S.C § 104(b)(2), I am eligible for refund of the taxes withheld, and I request a corrected W2 for the TAX YEAR tax year.

Enclosed are copies of the following documents to support my request:


Please contact me if your require additional information. My current phone # is ************. My current address is *******************.


Sincerely,
 
You are a life saver! Thank you so very much for your assistance! I will get working on this right away!
 
Ccarro63 said:
You are a life saver! Thank you so very much for your assistance! I will get working on this right away!
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Np, I am working a getting a corrected W2 now from DFAS for myself.
 
I notice in your example letter, it states that the disability rating from the VA was received within the same calendar year as the severance. In my case it was not since I received my severance in November of 2011, and my disability rating from the VA at the beginning of August 2012. Will this make a difference in the process? I am wondering if maybe this is why the DFAS representative stated that I could not receive a corrected W-2.
 
Ccarro63 said:
I notice in your example letter, it states that the disability rating from the VA was received within the same calendar year as the severance. In my case it was not since I received my severance in November of 2011, and my disability rating from the VA at the beginning of August 2012. Will this make a difference in the process? I am wondering if maybe this is why the DFAS representative stated that I could not receive a corrected W-2.
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The wording might need to be altered a bit to adjust for your particular issue. However, I do not believe this will make a difference, as DFAS should be looking at ratings received withing 12 months of separation from service.
 
Ok, thanks. I was just worried that there might be something in the regulation about a calendar year cutoff since so many people mention the December 31st date for DFAS severance pay tax recoupment. I will reword the letter as needed and see what happens.
 
I found this information here on the boards...

http://www.pebforum.com/site/threads/severance-pay-tax-info.10116/

(3) The request, with all necessary documentation,must be received at DFAS by 31 December of the year in which you received your separation paycheck. If your requestdoes not meet this deadline, DFAS cannot provide you with any refund. DFAS has indicated they will not provide you a corrected W-2 if you do not meet the same calendar year deadline.

If this is true, DFAS will not grant a corrected W-2 if the request is not made prior to December 31st of the calendar year in which the severance was received. I really wish there wasn't such conflicting information on this topic. I am still going to try for a corrected W-2, but it sure seems like this has been made into an impossible task to accomplish. The government has clearly set up a method to unjustly take veterans money away, and then put dozens of road blocks in place to prevent us from getting the money back.
 
Ccarro63 said:
I found this information here on the boards...

http://www.pebforum.com/site/threads/severance-pay-tax-info.10116/

(3) The request, with all necessary documentation,must be received at DFAS by 31 December of the year in which you received your separation paycheck. If your requestdoes not meet this deadline, DFAS cannot provide you with any refund. DFAS has indicated they will not provide you a corrected W-2 if you do not meet the same calendar year deadline.

If this is true, DFAS will not grant a corrected W-2 if the request is not made prior to December 31st of the calendar year in which the severance was received. I really wish there wasn't such conflicting information on this topic. I am still going to try for a corrected W-2, but it sure seems like this has been made into an impossible task to accomplish. The government has clearly set up a method to unjustly take veterans money away, and then put dozens of road blocks in place to prevent us from getting the money back.
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Note: You are not asking DFAS for a refund of the severance. But, merely a correct W2 for disability severance in question. However, the only thing I can tell from my stand point is to file anyways with DFAS. Let them determine if they can issue the corrected W2 in the audit process, as long as you submit all supporting evidence.
 
I agree, and I will definitely be attempting to request a corrected W-2. But, the way that line reads about the calendar year deadline makes it sound as if they won't issue one, even separate from the refund process. I guess I will just keep my fingers crossed. I feel as though there must be something else I can do in the meantime in case I don't get the corrected W-2 from DFAS. There has to be another route to explore.
 
I found this Disability Severance Pay Tax Refund that site founder Jason Perry posted in another thread. After reading through this wonderful information, my confusion has not been cleared.

I am specifically referring to this information...

"The request, with all necessary documentation, must be received at DFAS by 31 December of the year in which you received your separation paycheck. If your request does not meet this deadline, DFAS can only provide you with a corrected IRS Form W-2 (There can be no corrected W-2 if the VA rating is not awarded in the same calendar year as the issuance of the severance pay). To obtain a corrected IRS Form W-2, you must contact DFAS at Separation and Reenlistment Division, DSN 699-7731/7027/6129/6142 or commercial 317-510-7731/7027/6129/6142, fax 317-510-7915. This form helps to demonstrate to the IRS that you overpaid your taxes in the year that you received your severance pay. You will then need to petition the IRS for a refund."

So my question remains...Since VA ratings take close to a year or more to complete, what are veterans suppose to do to get a corrected W2? For instance my severance was paid in Nov 2011, and my disability claim with the VA took until the beginning of August 2012. The disability claim back paid me to December 1st 2011. What are veterans in this situation suppose to do???

I've already sent a copy of my Individual Tax Return for 2011, original IRS Form W-2, 1040x to the IRS with my DD Form 214, Separation Orders, VA Disability Award Documentation, and a letter explaining the situation (referencing St. Clair vs the United States). Somehow the IRS is disallowing the refund because of some 1099R from DFAS stating that the disability severance was taxable. Why on Earth do they have a 1099R in the first place?!?!
 
Ccarro63 said:
I found this Disability Severance Pay Tax Refund that site founder Jason Perry posted in another thread. After reading through this wonderful information, my confusion has not been cleared.

I am specifically referring to this information...

"The request, with all necessary documentation, must be received at DFAS by 31 December of the year in which you received your separation paycheck. If your request does not meet this deadline, DFAS can only provide you with a corrected IRS Form W-2 (There can be no corrected W-2 if the VA rating is not awarded in the same calendar year as the issuance of the severance pay). To obtain a corrected IRS Form W-2, you must contact DFAS at Separation and Reenlistment Division, DSN 699-7731/7027/6129/6142 or commercial 317-510-7731/7027/6129/6142, fax 317-510-7915. This form helps to demonstrate to the IRS that you overpaid your taxes in the year that you received your severance pay. You will then need to petition the IRS for a refund."

So my question remains...Since VA ratings take close to a year or more to complete, what are veterans suppose to do to get a corrected W2? For instance my severance was paid in Nov 2011, and my disability claim with the VA took until the beginning of August 2012. The disability claim back paid me to December 1st 2011. What are veterans in this situation suppose to do???

I've already sent a copy of my Individual Tax Return for 2011, original IRS Form W-2, 1040x to the IRS with my DD Form 214, Separation Orders, VA Disability Award Documentation, and a letter explaining the situation (referencing St. Clair vs the United States). Somehow the IRS is disallowing the refund because of some 1099R from DFAS stating that the disability severance was taxable. Why on Earth do they have a 1099R in the first place?!?!
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I don't know what to tell you other than to make the attempt to protest this issue, as I did. To give you some background, I just learned about the ability to have severance pay become tax exempt. However, I was separated in 2007 and now it is 2012. I have to petition DFAS through a Tax Protest to issue a corrected W2. Thus, the information I have provided you with through my discussion with a DFAS representative. It is now up to their audit process to determine based upon the evidence I submitted to approve or deny. But, at least I am making the effort.
 
The more I think about it, the more I feel this is an error on the IRS's part. With the documentation I sent them, it should be more than obvious the portion of my income I indicated on the 1040x should not be taxable. Plus, why on earth are they denying my claim over a 1099R that shouldn't even exist. I think they are confused.

I am going to be ringing a lot of phones on Monday! I will write back here to let everyone know what I can dig up.
 
Ccarro63 said:
The more I think about it, the more I feel this is an error on the IRS's part. With the documentation I sent them, it should be more than obvious the portion of my income I indicated on the 1040x should not be taxable. Plus, why on earth are they denying my claim over a 1099R that shouldn't even exist. I think they are confused.

I am going to be ringing a lot of phones on Monday! I will write back here to let everyone know what I can dig up.
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I called the IRS also, and they told me I needed to file a 1040x to amend this error. I further question the IRS representative about the required documents. It was during this conversation were the issue of the corrected W2 came up. I had informed him that DFAS had not issue this document yet. So, it was on me at this point to file the documents with DFAS in an attempt to get the corrected W2. This is what I have learned from the calls I have made. I don't discourage you from doing your homework on this. However, I want to share my experience to date with this issue.
 
I agree. I'm just covering my bases if for some reason DFAS says I'm SOL on getting a corrected W-2. I just want to be prepared to attack this from both sides.
 
I thought I would post an update to this since it has been a long while. In November 2013 I finally received a corrected W2 from DFAS after doing the tax protest as detailed above. Since then I've sent in a 1040x, corrected W2, original W2, Disability award documentation, and Original tax return for the year the severance was paid. The IRS accepted the amendment and it takes 8-12 weeks for the process to start after they have received it. Now I'm waiting on the IRS and I think things should be ok now that they have the corrected W2. This has been an extremely long process (as with anything disability related it seems). I'll post more info as it becomes available. These forums have provided a great deal of support for me over the years. Thanks!
 
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