SCOTUS Reports

Tag: Military Retirement

  • Chamberlin v. Commissioner, 78 T.C. 1136 (1982): Deductibility of Moving Expenses for Military Personnel Upon Retirement

    Chamberlin v. Commissioner, 78 T. C. 1136 (1982)

    Military personnel can deduct moving expenses for moves pursuant to military orders incident to retirement, but only for the move to the location where they are still on active duty.

    Summary

    In Chamberlin v. Commissioner, Alton Chamberlin, a retiring Air Force officer, moved from Hawaii to California and then to New Mexico. The issue was whether he could deduct his moving expenses under section 217 of the Internal Revenue Code. The Tax Court held that Chamberlin could deduct expenses for the move from Hawaii to California, where he was on active duty, but not for the subsequent move to New Mexico, where he did not commence work. The decision clarified that the commencement-of-work requirement applies to retiring military personnel, but they are exempt from time and distance limitations under section 217(g).

    Facts

    Alton E. Chamberlin, an Air Force officer, was stationed in Hawaii in 1976 when he decided to retire. Unsure of his post-retirement residence, he requested and received orders to transfer to Travis Air Force Base in California for processing. He moved to California, stayed for one week on active duty, and then moved to Roswell, New Mexico, upon retirement. Chamberlin incurred unreimbursed moving expenses of $1,576. 50 from Hawaii to California and $1,662. 55 from California to New Mexico. He claimed a deduction for these expenses on his 1976 tax return, which the Commissioner disallowed in full.

    Procedural History

    The Commissioner of Internal Revenue determined a deficiency in Chamberlin’s 1976 federal income tax and disallowed his moving expense deduction. Chamberlin petitioned the United States Tax Court for a redetermination of the deficiency. The Tax Court heard the case and issued its decision on June 23, 1982.

    Issue(s)

    1. Whether Chamberlin can deduct moving expenses under section 217 for the move from Hawaii to California and the subsequent move from California to New Mexico.
    2. Whether the commencement-of-work requirement of section 217(a) applies to retiring military personnel.

    Holding

    1. Yes, because Chamberlin was on active duty at Travis Air Force Base in California, he can deduct the moving expenses from Hawaii to California. No, because Chamberlin did not commence work in New Mexico, he cannot deduct the moving expenses from California to New Mexico.
    2. Yes, because section 217(g) does not exempt retiring military personnel from the commencement-of-work requirement of section 217(a).

    Court’s Reasoning

    The court applied section 217(a), which allows a deduction for moving expenses incurred in connection with the commencement of work at a new principal place of work. The court found that section 217(g) exempts military personnel from the time and distance limitations under section 217(c) but not from the commencement-of-work requirement. Chamberlin was still on active duty and paid for his services in California, thus satisfying the commencement-of-work requirement for the move from Hawaii to California. The court rejected the argument that the moves should be treated as one continuous move, as California was Chamberlin’s new principal place of work. The court noted that section 217(i), which could have applied to Chamberlin’s situation, was not effective until after 1977 and did not apply to moves from within the United States. The court also distinguished this case from Nico v. Commissioner, where the taxpayers had commenced work at both locations.

    Practical Implications

    This decision clarifies that military personnel can deduct moving expenses for moves made pursuant to military orders incident to retirement, but only for the move to the location where they remain on active duty. Attorneys advising military clients should ensure that clients document their active duty status at the new location to support a deduction. The decision also highlights the importance of distinguishing between multiple moves and ensuring that the commencement-of-work requirement is met at each location. Subsequent cases have cited Chamberlin for its interpretation of section 217(g) and the treatment of multiple moves by military personnel. Practitioners should be aware that changes in tax law, such as section 217(i), may affect the deductibility of moving expenses for retirees in the future.

  • Cleary v. Commissioner, 60 T.C. 133 (1973): Exclusion of Military Retirement Pay from Gross Income Due to Subsequent VA Disability Rating

    Cleary v. Commissioner, 60 T. C. 133 (1973)

    Military retirement pay cannot be retroactively excluded from gross income based on a subsequent VA disability rating without a timely waiver of retirement pay.

    Summary

    Fred K. Cleary, a retired Army officer, sought to exclude portions of his retirement pay from 1967 and 1969 from his gross income after the Veterans Administration (VA) awarded him a 20% disability rating retroactive to his retirement date. The Tax Court ruled that Cleary’s retirement pay was not excludable under IRC sections 104(a)(4) or 105(d) because he had not waived any portion of his retirement pay until after receiving the VA rating, and thus could not retroactively exclude previously received retirement pay. The decision underscores the necessity of a timely waiver to apply VA compensation rules to military retirement income.

    Facts

    Fred K. Cleary retired from the U. S. Army on September 30, 1967, due to longevity after over 22 years of service and began receiving retirement pay. On the same day, he applied for VA disability compensation, which was initially denied in May 1968. After an appeal, the VA awarded him a 20% disability rating effective from October 1, 1967, but notified him in January 1970. Cleary waived a portion of his retirement pay equal to the VA compensation on January 24, 1970, and started receiving disability payments from April 1970. He sought to exclude portions of his 1967 and 1969 retirement pay from his gross income based on this VA award.

    Procedural History

    Cleary filed joint federal income tax returns for 1967 and 1969 and an amended return for 1967. After receiving the VA disability rating, he claimed exclusions on his returns, resulting in refunds. The Commissioner of Internal Revenue determined deficiencies for those years, leading Cleary to petition the U. S. Tax Court. The court held in favor of the Commissioner, ruling that no portion of Cleary’s retirement pay for 1967 and 1969 was excludable from gross income.

    Issue(s)

    1. Whether Cleary is entitled to exclude from gross income, pursuant to IRC section 104(a)(4), any portion of his Army retirement pay for 1967 and 1969 based on a subsequent VA disability rating.
    2. Whether Cleary is entitled to exclude from gross income, pursuant to IRC section 105(d), any portion of his Army retirement pay for 1967 and 1969 not excluded under IRC section 104(a)(4).

    Holding

    1. No, because Cleary did not waive any portion of his retirement pay until January 24, 1970, after he had already received the retirement payments for 1967 and 1969, and thus could not retroactively exclude them from gross income under IRC section 104(a)(4).
    2. No, because Cleary’s retirement pay was not received under an accident or health insurance plan, nor was it received for a period during which he was absent from work due to personal injury or sickness, as required by IRC section 105(d).

    Court’s Reasoning

    The court reasoned that under IRC section 104(a)(4), only amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service can be excluded from gross income. Cleary’s retirement pay was based on longevity, not disability, and he did not waive any portion of it until after receiving the VA rating. The court emphasized that the statutory framework requires a waiver of retirement pay to receive VA compensation, and such a waiver could not retroactively affect previously received retirement payments. Regarding IRC section 105(d), the court found that Cleary’s retirement pay did not qualify as wages or payments in lieu of wages for absence due to illness or injury, as he continued working after retirement and was not incapacitated. The court also noted the annual basis of tax liability and the absence of legal principle allowing retroactive transformation of retirement pay into VA compensation.

    Practical Implications

    This decision clarifies that military retirees cannot exclude their retirement pay from gross income based on a subsequent VA disability rating unless they waive a portion of their retirement pay at the time of receiving VA compensation. It emphasizes the importance of timely action in filing waivers to apply VA compensation rules to military retirement income. For legal practitioners, this case highlights the need to advise clients on the tax implications of VA disability ratings and the necessity of coordinating retirement pay waivers with VA compensation claims. It also has broader implications for understanding the interplay between military retirement benefits and VA disability compensation, influencing how similar cases are analyzed and how veterans plan their financial and tax strategies.