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Answers to Questions May Help Joint Endeavor Troops at Tax Time

American Forces Press Service

WASHINGTON, July 24, 1996 – Knowing answers to basic questions will help troops deployed to Operation Joint Endeavor prepare their income taxes.

DoD's office of compensation and the Internal Revenue Service have compiled questions and answers about the Military Tax Relief Act President Clinton signed March 20. The act provides tax benefits to service members deployed to Joint Endeavor and Operation Able Sentry. Some aspects also apply to military and civilian personnel supporting the peacekeeping mission from Italy and Hungary and aboard ships in the Adriatic Sea.

Defense officials said these questions and answers should provide those deployed most of the information they need when filing their 1995 and 1996 federal income tax returns.

Those having further questions can call the IRS tax hotlines. In the United States, those with questions can call IRS at (800) 829-1040 or send e-mail questions to oje@ccmail.irs.gov.

IRS also has offices in Rome and Bonn, Germany, to assist overseas taxpayers with federal income tax questions. Contact the Rome office by calling 39 6 4674-2560 or via fax at 39 6 4674-2223. The IRS-Bonn branch is at 49 228 339-2119 or via fax at 49 228 339-2810.Military Pay Exclusion

Q: Which geographic areas does the new law include in the qualified hazardous duty area?

A: The qualified hazardous duty areas are Bosnia-Herzegovina, Croatia and Macedonia.

Q: I am a member of the U.S. armed forces assigned to perform peacekeeping services in Bosnia-Herzegovina. Is any part of my 1996 military pay for serving in this qualified hazardous duty area excluded from gross income?

A: Yes. If you serve in a qualified hazardous duty area as an enlisted person for any part of a month, all your military pay received for military service that is month tax-free. Commissioned officers have a similar exclusion, but limits exemptions to the maximum enlisted amount per month (currently about $4,250). Amounts excluded from gross income are not subject to federal income tax.

Q: I earned military pay in Bosnia during 1995. Is that pay excluded from gross income?

A: Yes. The law is retroactive to Nov. 21, 1995, so the same military pay exclusion rules apply.

Q: How do I exclude the military pay for service in the qualified hazardous duty area during November and December 1995?

A: The Army, Navy, Air Force, and Coast Guard will issue Form W-2c -- Statement of Corrected Income and Tax Amounts. All U.S. military personnel serving in the qualified hazardous duty area on or after Nov. 21, 1995, will receive the form. Once received, troops may file 1995 federal individual income tax returns. Those who already filed will need to file an amended return, Form 1040X.

Q: My spouse and I are both enlisted personnel serving with the armed forces in the qualified hazardous duty area. Are we both entitled to the income tax exclusion for military pay?

A: Yes.

Q: I am an armed forces member stationed in Italy. I fly patrols over Bosnia-Herzegovina in direct support of the military operations there, for which I receive hostile fire-imminent danger pay. Is any part of my military pay exempt from gross income?

A: Yes. Under the law and regulations in effect prior to the law, you serve in the qualified hazardous duty area. You are a service member in direct support of military operations in the area.

Q: Is any of my military pay exempt from gross income if I become injured and hospitalized while serving in the military in the qualified hazardous duty area?

A: Yes. Military pay received by hospitalized enlisted personnel as a result of injuries sustained while serving in the qualified hazardous duty area is excluded from gross income.Commissioned officers have a similar exclusion.

Q: My wife is on active duty currently serving in the qualified hazardous duty area. She will be eligible for discharge when she returns home. If she separates upon her return, will the payment for the annual leave that she accrued during her service in the qualified hazardous duty area be excluded from gross income?

A: Yes. Annual leave payments to enlisted members at separation are not part of the gross income -- provided the leave earned was while the member served in the qualified hazardous duty area.

If your wife is a commissioned officer, only a portion of the annual leave payment she receives for time in the qualified hazardous duty area may be exempt. The leave payment cannot be exempt if the amount exceeds the maximum enlisted amount for the month of service.

Q: My brother, who is a civilian in the merchant marine, is on a ship that transports military supplies between the United States and the qualified hazardous duty area. Does he qualify for the military pay exclusion?

A: No. Those serving in the merchant marine are not members of the U.S. military. The qualified hazardous duty area military pay exclusion applies only to service members. The U.S. armed forces include all regular and reserve components of the uniformed services that are under the control of the secretaries of Defense, Army, Navy and Air Force, as well as the Coast Guard.

Q: My husband is a service member performing services as part of Operation Joint Endeavor in Germany. He is not receiving hostile fire or imminent danger pay. Is he eligible for the military pay exclusion?

A: No. U.S. armed forces personnel serving outside the qualified hazardous duty are not eligible for the military pay exclusion. The only exception is if they serve in direct support of military operations in the qualified hazardous duty area. For a more detailed discussion of the tax treatment of military personnel, see Publication 3 -- Tax Information for Military Personnel (Including Reservists Called to Active Duty).

Q: My daughter is serving in the qualified hazardous duty area. She calls me here in the United States. Are these calls exempt from the federal excise tax on toll telephone service?

A: Yes. Telephone calls that originate within the qualified hazardous duty area made by service members deployed there are exempt from the federal excise tax on toll telephone service.

If receiving a calling card or collect call, a certificate of exemption must go to the telephone service provider receiving payment for the call. Troops should sign and date the exemption certificate -- available through telephone service providers. It should also contain the following: cost, time and date of the call, the person called, and a statement verifying the service member's deployed status.

Q: If we paid the federal excise tax on the toll telephone service, can we obtain a refund?

A: Yes. Obtain your refund from either the telephone service provider that collected the tax or from the IRS by filing Form 8849, Claim for Refund of Excise Taxes.

Q: How will my military pay for active service in the U.S. armed forces in the qualified hazardous duty area be listed on my 1996 Form W-2, Wage and Tax Statement?

A: Military pay credited to service in the qualified hazardous duty area will not show on your 1996 Form W-2 in the box marked "Wages, tips, other compensation." However, military pay for such service is subject to Social Security and Medicare taxes. The data will be on your 1996 Form W-2 in the boxes marked "Social Security wages" and "Medicare wages and tips."

Q: I am an officer serving in the qualified hazardous duty area. I have made monthly contributions to an individual retirement account for 1996. In view of the military pay exclusion for my service in the qualified hazardous duty area, I may have little or no taxable compensation for 1996. I also may not be eligible to make an IRA contribution for 1996. If my taxable compensation is less than $2,000, should I withdraw the portion of my contributions that exceed my taxable compensation?

A: Yes. Any amount contributed to your IRA that is more than the smaller of your taxable compensation or $2,000 is an excess contribution. You must withdraw funds to avoid a 6 percent excise tax.

Once you are sure that your taxable compensation will be less than $2,000, you should withdraw the portion of your contributions that exceeds your taxable compensation. The IRS will tax the distributed amount if you receive the distribution on or before the deadline for filing your 1996 federal return after applying the deadline extension provisions.

You may not take a deduction with respect to these distributed contributions. You must also withdraw the amount of net income attributable to the distributed contributions while they were assets of the IRA. Any of that net income counts as part of your gross income for 1996. For further information, see Publication 590, Individual Retirement Arrangements.

Q: How will the financial institution that distributes my 1996 IRA contributions to me report this distribution?

A: The financial institution will report the entire amount of the distribution (1996 distributed contributions and attributable net income) on Form 1099-R, Distribution From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. However, it should report only the amount of any net income attributable to the distributed contributions as the "taxable amount" on Form 1099-R.

Q: I have been serving in Croatia since March 1, 1996. I understand I can get extensions to tax deadlines as a result of my service. On what date did these deadline extensions begin?

A: The deadline extension provisions apply to most tax actions on or after Nov. 21, 1995, or the date you began serving in the qualified hazardous duty area, whichever is later. In your case, the date the deadline extensions began is March 1, 1996.

Q: My son is serving in the qualified hazardous duty area. Is he eligible for an extension of time for filing and paying his federal income taxes? Is there an assessment or collection deadline extension?

A: For both questions, the answer is yes. The IRS extends deadlines for the period on or after Nov. 21, 1995, plus 180 days thereafter. During this extension period, the IRS will extend assessment and collection deadlines. It will not charge interest or penalties during this extension period.

Q: Would he still have an extension for filing and paying his federal individual income taxes if he has unearned income from investments?

A: Yes. The extension applies without regard to the source of your son's income.

Q: Will the deadline extension provisions continue to apply if hospitalization from an injury sustained in the qualified hazardous duty area occurs?

A: Yes. The deadline extension provisions will apply for the period of continuous hospitalization outside the United States as a result of injuries in the qualified hazardous duty area. For hospitalization inside the United States, the extension period cannot be more than five years.

Q: Do the deadline extension provisions apply only to members of the armed forces serving in the qualified hazardous duty area?

A: No. The deadline extension provisions also apply to individuals serving in support of the U.S. armed forces. These people include Red Cross personnel, accredited correspondents, and DoD civilian personnel supporting U.S. forces.

Q: My son is a civilian explosives specialist who is in Macedonia training U.S. troops serving in the qualified hazardous duty area. Do the deadline extension provisions apply to my son?

A: Yes. The deadline extension provisions apply to your son because he is serving in the qualified hazardous duty area in support of the U.S. military.

Q: My spouse is in private business working in Bosnia on nonmilitary projects. Do the deadline extension provisions apply?

A: No. Other than military personnel, the only individuals working in the qualified hazardous duty area who will receive the deadline extension provisions are those serving in support of the U.S. armed forces.

Q: I am serving in the qualified hazardous duty area. Do the deadline extension provisions apply to my spouse who is in the United States?

A: Yes. The deadline extension provisions also apply to members' spouses, with two exceptions.

First, if you enter a hospital in the United States as a result of injuries received while serving in the qualified hazardous duty area, the deadline extension provisions would not apply to your spouse. Second, the deadline extension provisions for your spouse does not apply for any tax year beginning more than two years after the date of the termination of the qualified hazardous duty area designation.

Q: Will my spouse have to file a joint tax return in order to benefit from the deadline extension provisions?

A: No. The deadline extension provisions apply to both spouses whether you file joint or separate returns. A returning spouse who chooses to file a separate return will have the same extension of time to file and pay taxes that you have.

Q: My husband serves in the qualified hazardous duty area. In 1995, our son, who is 12, received $700 of interest income. Our daughter, who is 17, received $2,000 of earned income from part-time work and $900 of interest income. We claim both children as dependents on our federal income tax return. Do we need federal individual income tax returns for our children while my husband is in the qualified hazardous duty area?

A: No. The IRS does not require federal individual income tax returns for your dependent children while your husband is in the qualified hazardous duty area. The IRS considers these returns timely if filed on or before the under the deadline extension provisions. The services will provide your husband with instructions on how to notify the IRS of your children's eligibility to receive this extension of time to file. Since your older children may receive a tax refund, they may want to file their tax returns and obtain their refund.

Q: I am a soldier serving in Croatia. My spouse and our three children live in our home in the United States. During 1995, a child care provider took care of our children in our home. We must file a Household Employment Taxes Form as an attachment to our federal tax return. Do the deadline extension provisions apply to the filing of Schedule H as an attachment?

A: Yes. The deadline extension provisions apply to all schedules and forms filed as attachments to the federal income tax return.

Q: I served in the qualified hazardous duty area from Dec. 10, 1995, through May 15, 1996. When will I have to file my federal individual income tax return for 1995?

A: You must file your 1995 federal individual income tax return on or before Feb. 25, 1997 -- 286 days after you left the qualified hazardous duty area. The deadline extension period consists of the sum of the following:

(1) 180 days from the date you left the area;

(2) The number of days remaining (as of the date you entered the area) to perform the required act (in your case, filing your 1995 federal individual income tax return, 1/1/96 to 4/15/96)

Q: My wife is a soldier serving in the qualified hazardous duty area. Can she make a contribution for 1995 to her individual retirement account after April 15, 1996?

A: Yes. Your wife can make a timely qualified retirement contribution for 1995 to her IRA on or before the extended deadline for filing her 1995 income tax return under the deadline extension provisions.

Q: My brother, an airman who served in the qualified hazardous duty area from December 1995 through February 1996, did not make his fourth estimated tax payment for 1995. Will my brother be liable for estimated tax penalties?

A: No. The deadline extension provisions protect your brother. He will not be liable for any penalties if he files and pays any tax due by his extended filing due date. DoD will provide your brother with instructions on how to notify the IRS of his eligibility to receive tax relief.

Q: My son, an Army specialist, was on an installment payment plan with the IRS for back taxes before he deployed to the qualified hazardous duty area. What can we do now that he is in the qualified hazardous duty area?

A: Contact the IRS office where your son was making payments. Because your son is serving in the qualified hazardous duty area, he will not have to make payments on his past-due taxes. This lasts for his period of service in the qualified hazardous duty area plus 180 days. The IRS will charge no penalties or interest during the deadline extension period.

Q: My son, serving in Bosnia, will file his 1995 federal income tax return after April 15, 1996. It will be before the end of the deadline extension for filing that return. He expects to receive a refund. Will the IRS pay interest on the refund?

A: Yes. The IRS will pay interest from April 15, 1996. The military will provide your son with instructions on how to notify the IRS of his eligibility to receive tax relief.

Q: My husband and I sold our home on March 1, 1994, and we have not bought a replacement home yet. He has been in the qualified hazardous duty area since Dec. 1, 1995. Do the deadline extension provisions apply to the period we have to replace our old residence to defer gain on that residence?

A: Yes. The deadline extension period that applies to you is the time your husband is in the qualified hazardous duty area, plus 180 days after he leaves. In addition, because your husband is overseas on extended active duty (more than 90 days), you will have an additional replacement period of at least one year after the 180 days described above. However, that replacement period may not exceed eight years after the date you sold your old residence plus the deadline extension period.

Q: Do the deadline extension provisions apply to other federal individual income tax returns?

A: Yes, federal estate and gift tax returns. However, they do not apply to other federal tax and information returns, such as those for corporate income tax or employment taxes.

Q: I am a soldier who deployed to Germany to perform services as part of Operation Joint Endeavor. My permanent duty station is in the United States, where my spouse resides. Does the deadline extension provision for filing and paying our federal individual income taxes apply?

A: Yes. Any service member deployed to Operation Joint Endeavor qualifies for the deadline extension for filing and paying federal individual income taxes. The deadline extension provisions also apply to that member's spouse.

Q: My Air Force spouse is at his permanent duty station in Germany performing services as part of Operation Joint Endeavor. Do the deadline extension provisions apply?

A: No. Military personnel serving at their permanent duty station outside the qualified hazardous duty area are not eligible for the deadline extension provisions. For a more detailed discussion of the tax treatment of military personnel, see Internal Revenue Service Publication 3 -- Tax Information for Military Personnel (Including Reservists Called to Active Duty).

Q: I am a DoD civilian employee stationed in Hungary away from my permanent duty station in the United States. I am performing services as part of Operation Joint Endeavor. Do the deadline extension provisions apply to me?

A: Yes. The deadline extension provisions apply to you. Although you are not serving in the qualified hazardous duty area, you are a DoD civilian employee performing services away from your permanent duty station as part of Operation Joint Endeavor.

Q: My spouse and I are civilian employees of defense contractors. I work in the United States and my spouse temporarily works in Germany. Our jobs involve the production of equipment used by the armed forces for Operation Joint Endeavor. Do the deadline extension provisions apply to either of us?

A: No. The extension provisions apply to civilian employees of defense contractors only if they are serving in the qualified hazardous duty area in support of the U.S. armed forces.

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