YOUR MILITARY RETIREMENT PAY
IS NOW SAFE FROM IRS!!

CONGRESS FINALLY MOVES
TO
PROTECT THOSE WHO SERVED!!

IRS CAN NO LONGER LEVY
MILITARY RETIREMENT PAY!

Research by: Information Resource Associates

 

In 1991 the National Defense Authorization Bill included a significant change which when coupled with the Uniformed Services Former Spouse Protection Act prevents the IRS from levying the income of retired service personnel. The effect of this Act has a great impact on the lives of many retired military employees who have discovered that they are not required to file returns and has simplified the process of defeating IRS actions to seize property.

 

74TH CONGRESS 1935

 

An Act of Congress in the first Section, CH 531 of August 14, 1935 entitles military personnel to the benefits of retired pay. Such assignment is under Section 208 which states that None of the moneys paid or payable or rights existing under this title shall be subject to execution, levy attachment, garnishment, or other legal process... The rights existing under this title pertain to military retirement pay, and at first glance it might appear that such pay is off-limits to the IRS. This is not the case, only because a closer examination of the terms Disposable retired or retainer pay reveals that they do not include amounts which are owed to the government in the form of money which is required to be withheld. Therefore the definition of retired pay consists only of the total monthly pay less...amounts which are owed to the federal government...(i.e. taxes).

Under Title 10, United States Code, Section 1408 this definition also provides for that amount less taxes which are required by law, including federal state and local withholding tax. So on closer examination it appears that even with the provisions of the Act of the 74th Congress, retired pay would still be subject to levy if taxes were owed, and the definition of retired pay would not include those amounts which were owed to the government in the form of income taxes, etc. Of course we know that no requirement of withholding exists and that the inclusion of these amounts confuses the issues and creates an arguable point of contention.

 

The issue is that, if October 12, 1992 the IRS says this individual owes the tax, and the individual actually owes the tax, then the retirement pay would be subject to levy. In other words the legal battleground would be no less complex. Of course if that were the case there would be no reason to write this article!

 

 THE FORMER DEFINITIONS

 

Amounts specifically to be excluded from retirement pay were listed in Section 1408, subparagraph (4)(A), (B), and (C). The old and new laws are reproduced here. For example, under subparagraph (A) any amounts that "are required to be deducted from the retired pay of such member, including...federal employment taxes" are not to be considered part of retirement pay immune from levy. Also under subsection (B) any amounts that "are properly withheld for Federal, State, or local income tax purpose..." cannot be included in the definition of retirement pay for purposes of immunity. If we look at subsection (D) we find that any amounts that are "withheld under Section 3402(i) of the Internal Revenue Code of 1986" cannot be considered part of retirement pay, etc. Therefore the assignment under the 74th Congress providing that the right to such pay could not be transferred at law or equity and preventing money due to an individual from becoming attached through levy or other legal process would not hold for income taxes. That is until 1991!

 

TITLE 10--ARMED FORCES

Section 1408 (Old Version)

 

(4) "Disposable retired or retainer pay" means the total monthly retired or retainer pay to which a member is entitled less amounts which"

 

(A) are owed by that member to the United States;

 

(B) are required by law to be and are deducted from the retired or retainer pay of such member, including fines and forfeitures ordered by courts-martial, Federal employment taxes, and amounts waived in order to receive compensation under title 5 or title 38;

 

(C) are properly withheld for Federal, State, or local income tax purposes, if the withholding of such amounts is authorized or required by law and to the extent such amounts withheld are not greater than would be authorized if such member claimed all dependents to which he was entitled;

 

(D) are withheld under section 3402(i) of the Internal Revenue Code of 1986 (26 U.S.C. 3402(i)) if such member presents evidence of a tax obligation which supports such withholding.

 

 

TITLE 10--ARMED FORCES

Section 1408 (New Version)

 

(4) "Disposable retired or retainer pay" means the total monthly retired or retainer pay to which a member is entitled less amounts which"

 

(A) are owed by that member to the United States [just] (for previous over payments of retired pay and for recoupments required by law resulting from entitlement to retired pay) [and not for the taxes now deleted below];

 

(B) are deducted from the retired pay of such member as a result of forfeitures of retired pay ordered by a court-martial or as a result of a waiver of retired pay required by law under Title 5 or Title 38.

[changed]

(C) are properly withheld for Federal, State, or local income tax purposes, if the withholding of such amounts is authorized or required by law and to the extent such amounts withheld are not greater than would be authorized if such member claimed all dependents to which he was entitled [now deleted].

 

THE UNIFORMED SERVICES

FORMER SPOUSE PROTECTION ACT

 

The Act was amended on November 5, 1990 by Section 555 of Public Law 101-510 adding at the end, the following new sentence... "A court may not treat retired pay as property in any proceeding to divide or partition any amount of retired pay of a member..." Although the intent of this particular section related to spousal rights, it leads us to subsection (A) which had formerly allowed for retired pay to exclude all amounts which were owed to the United States government. Under the redefinition of "retired pay" the Act struck out the semicolon at the end of subparagraph (A) and inserted additional text thereby limiting the exclusion to... "those amounts owed to the federal government for previous overpayments of retired pay, and for recoupments required by law resulting from entitlements to retired pay."

 

This broad provision having been eliminated, paragraph (B) was rewritten to eliminate the exclusion related to taxes altogether. Where it once said "including fines and forfeitures ordered by court martials, federal employment taxes, and amounts waived in order to receive compensation under title 5... "it is now limited to amounts including only "forfeitures of retired pay ordered by a court martial or as a result of a waiver of retired pay required by law under Title 5..." (Mention of any federal tax has been eliminated).

The Act further eliminated any provision for levy of retirement pay by excluding any withholding taxes from the definition by "striking out subparagraphs (C) and (D)" altogether.

 

PUBLIC LAW 101-510-NOV. 5, 1990

104 STAT. 1569

 

Sec. 555. Amendments to the Uniformed Services Former Spouses' Protection Act.

 

(a) Prohibition for Certain Retroactive Court Orders, Subsection (c)(1) of section 1408 of title 10, United States Code, is amended by adding at the end the following new sentence: "A court may not treat retired pay as property in any proceeding to divide or partition any amount of retired pay of a member as the property of the member and the member's spouse or former spouse if a final decree of divorce, dissolution, annulment, or legal separation (including a court ordered, ratified, or approved property settlement incident to such degree) affecting the member and the member's spouse or former spouse (A) was issued before June 25, 1981, and (B) did not treat ( or reserve jurisdiction to treat) any amount of retired pay of the member as property of the member and the member's spouse or former spouse".

 

(b) Reductions Allowed for Determination of Disposable Retired Pay-Subsection (a)(4) of such section is amended.

 

(1) by striking out the semicolon at the end of subparagraph (A) and inserting in lieu thereof "for previous overpayments of retired pay and for recoupments required by law resulting from entitlement to retired pay;"

 

(2) by striking out subparagraph (B) and inserting in lieu thereof the following: (B) "are deducted from the retired pay of such member as a result of forfeitures of retired pay ordered by a court-martial or as a result of a waiver of retired pay required by law in order to receive compensation under title 5 or title 38;";

 

(3) by striking out subparagraphs (C) and (D); and

 

(4) by redesignating subparagraphs (E) and (F) as subparagraphs (C) and (D), respectively.

 

LEVIES ELIMINATED

 

While the previous definitions allowed for the misconception regarding any requirement to pay taxes to generate an exclusion which would allow for the seizure of property, the new definitions effectively negate any action based on that misconception. With a definition of retired pay which does not include money owed to the IRS, such pay becomes untouchable.

 

HOW TO USE THIS INFORMATION

 

As we all know, the IRS ignores small details which stand in their way. This is nothing new, and it is a foregone conclusion that there are former military personnel who will continue to experience problems. However, armed with this information a retired military person may find the task of defeating the IRS a little bit easier, especially since the service itself may be able to help.

 

For example, since this news was first reported by the Afterburner, an Air Force publication, we can only assume that they will be looking into the matter very closely. The Air Force has published their acknowledgement of the effects of this law via the article entitled From the Top, stating that "the Act redefines disposable retired pay to exclude taxes and other levies," and they suggest that retired military personnel experiencing any problems with the IRS should contact the base legal officer.

 

We suspect that many of these officers will have to be educated, but the fact that the Air Force has admitted this exclusion applies to tax levies will simplify the task, and pave the way for our retired military members to shift the burden (and legal costs) of defending against any IRS action to the legal office of their respective service.

 

FROM THE TOP

Reprint

 

The Air Force Former Spouse Protection Act as anticipated and FY 1991 National Defense Authorization Bill includes two significant changes affecting the Uniform Services Former Spouse Protection Act. It prohibits reopening divorce cases completed before June 25, 1981 (the date of the McCarty vs. McCarty Supreme Court decision) and also prevents division of veterans disability, compensation by court divorce actions. It also redefines disposable retired pay to exclude taxes and other levies.

 

This information is not meant as legal advice, it is for informing and education of the reader only. 

MORE: Comments by Devvy Kidd...


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