Originally published on Forbes.com.
Always root for the disabled veteran. That is one of my principles in reading Tax Court decisions. This required me to do some digging in the case of Gregory Bruce. Absent my root for the disabled veteran principle Mr. Bruce, whose friends call him Chief, did not really have any case at all. The story behind the story is much more interesting but we should take care of the Tax Court decision first.
The reason that Mr. Bruce’s friends call him “Chief” is that he is a retired Chief Warrant Officer. He was an Army helicopter pilot. A friend of mine who was a commissioned officer flying helicopters told me that he often wished that he had been a warrant officer. That would have allowed him to just fly helicopters rather than have to rotate onto staff jobs. Mr. Bruce’s army service is at the heart of the case and the related story.
Amount Of Tax Could Not Be Argued
The Tax Court decision is pretty simple. If you don’t file a return or the IRS doesn’t like the return you filed, the IRS may send you a statutory notice of deficiency in which an additional assessment of tax is proposed. That is called a ninety day letter, because you have ninety days to file a petition to Tax Court. Mr. Bruce did not file a return for 2011, because he thought that he did not have any taxable income. The IRS disagreed and sent him a notice of deficiency, but he did not file in Tax Court in response to the ninety day letter.
If you don’t pay your taxes, the people in IRS collections can take your stuff, by levy. Before they do that though, they send you a notice that allows you to request a collection due process hearing. You can work something out to pay the assessment over time or, if you are good, convince them that they can’t get blood from a stone in which case they will classify you currently not collectible. After ten years you are olly olly oxen free. (That ten year clock has some stops and starts in it. Even the IRS has trouble figuring out when time is up.)
You can appeal the determination you get from the collection due process hearing to the Tax Court. There is one big caveat. In an appeal of a collection due process hearing result, you don’t get to talk about whether the tax is right or wrong. That ship has already sailed.
And whether the tax was right or wrong was all Mr. Bruce, who was pro se, wanted to talk about. The assessment was based on $19,770 of social security of which $8,500 was determined to be taxable and an Army pension of $28,822 all of which was taxable yielding adjusted gross income of $37,322, taxable income of $27,822 and a tax of $3,728. With penalties the tab was $5,112.42. Mr. Bruce thought the Army pension should have been exempt.
Practical tip here. If you have income that is arguably taxable that you think is exempt, it is better if you file and claim the income as exempt. Two advantages. First, it cuts the penalty exposure. Second, and don’t tell anybody I was the one who told you, you are more likely to get away with it. If you pay homage to the IRS document matching computer gods, an actual human has to look at your return to assess you. If you just don’t file there is no need for human intervention in order to assess you. (That’s my impression anyway)
Anyway, Mr. Bruce feels very strongly about his Army pension being exempt.
Petitioner argues that his Army pension should be considered nontaxable. Emphasizing that this Court’s mission is to serve as a national forum to resolve disputes between taxpayers and the IRS, he disagrees with respondent that the sole issue in this case is the Government’s compliance with CDP procedures. ……
Petitioner urges this Court to deny respondent’s motion for summary judgment and to find that petitioner’s Army pension is nontaxable. In the alternative, petitioner requests that this Court issue an order suspending any collection actions by respondent against petitioner until the Supreme Court and the Department of Justice have disposed of his ongoing claims and appeals.
Not surprisingly the Tax Court was no help to Mr. Bruce.
We have determined as a matter of law that respondent did not abuse his discretion in sustaining the FNIL in this case and thus is entitled to summary adjudication on that point. Petitioner sought to challenge the underlying tax liability, but the time to have done so passed when he did not timely petition this Court for redetermination of his deficiency. We do not have general equitable jurisdiction ….
Versus The Army
I spoke to Mr. Bruce last week. He seems to generally do OK, although he is rather stressed in his role as a pro se litigant. As it turns out it was me who was breaking the news to him that he lost in Tax Court. Mr. Bruce takes great pride in his military service. Several of his siblings also served some of them a full twenty-year hitch. He has some grievances with the way he was treated, which is why he has been suing the Army. His dispute with the IRS is kind of collateral damage from his dispute with the Army. It brought to my mind the scene in From Here to Eternity where Donna Reed scorns Montgomery Clift for loving the Army despite how poorly it has treated him. He responds – Just because a man loves a thing, doesn’t mean it has to love him back “. There is a not quite Big 4 accounting firm that has a relationship like that with me.
At any rate Mr. Bruce, who flew for the 101st Airborne during Desert Storm, or as I call it the First Gulf War, was involuntarily retired from the Army in 2000. His beef is that he was not considered for medical retirement, even though the Veterans Administration rated him 100% disabled not long after retirement. There is more to it than that as you will see if you read his complaint in the United States District Court Northern District of Georgia. Here is what I think is the heart of his complaint. Discussing the mandatory vaccinations for the Desert Storm deployment and the drug Pyridostigmine Bromide (used as an ant-nerve gas agent):
Plaintiff is informed, believes and thereupon alleges that the aforementioned “experimental drug” (PB), and toxic vaccinations administered to him prior to, and while on deployment in the Persian Gulf, between August 1990 and April 1991, were responsible for the disabilities he developed, to include, but not limited to, the fatal birth defects in his first-born and only biological child.
Enter Johnnie Cochran
It is the fate of Baby Gregory Bryant-Bruce, the son of Mr. Bruce and his then spouse, who was an Army physician, that most tears at him. Baby Bruce was the subject of a large lawsuit against Vanderbilt University Medical Center that Johnnie Cochran of O.J. Simpson fame took an interest in. In Mr. Bruce’s view, the Army’s treatment of him is related to the VUMC lawsuit.
Plaintiff is informed, believes and thereupon alleges that due to the high profile nature and enormous publicity of the multi-million dollar VUMC lawsuit, and the Plaintiff’s postulation of a “Gulf War Syndrome” (GWS) nexus regarding his infirmities and the birth defects in his son, the Army establishment, motivated by and fearful of the potential, motivated and fearful of the potential for a GWS lawsuit being filed against the Army by Johnnie Cochran, intentionally conspired to deprive the Plaintiff of a Medical Evaluation Board, Physical Evaluation Board, Retirement Physical Examination and any processing or possibility of a disability retirement.
Mr. Bruce’s fate in District Court was similar to Tax Court. They tell him that his claim around not getting medical retirement should have been taken to the Court of Claims. Other claims are dismissed under sovereign immunity or for failure to exhaust administrative remedies. The Eleventh Circuit upheld the District Court in May 2016. Mr. Bruce told me that his appeal to the Supreme Court had been sent back, because of some sort of formatting problem. Such are the trials and tribulations of the pro se litigant. But he is not giving up.
What Are The Stakes?
Much as I admire him, I think that maybe he should consider dropping this particular struggle. This might be a case of Reilly’s Second Law of Tax Planning – Sometimes it’s better to just pay the taxes. Mr. Bruce told me that in addition to his pension and social security, he is also receiving payments from the Veterans Administration.
I got some help understanding the situation from Thomas Moore program manager and staff attorney of the National Veterans Legal Service Program. As he explained it to me you can be medically retired or retired based on length of service. Someone medically retired might just get a lump sum, but if the disability is severe enough they will get a pension based on their last thirty six months of compensation and how disabled they are. Someone who retires based on time served gets a pension based on their last thirty six months of compensation and length of service (2.5% per year). A medical retirement is tax exempt. A time in service retirement is not.
But military retirees are, of course, veterans. It used to be that you could not get both a military retirement and VA disability payments, but that changed after Mr. Bruce retired. Now “concurrent receipt” of VA benefits and military retirement based on time in service is allowed. So it is possible that Mr. Bruce’s current deal is as good as it gets. There is also Combat-Related Special Compensation. If he qualified for that he would be ahead with a medical retirement. So maybe the game is still worth the candle.
Mr. Moore told me that the National Veterans Legal Service Program does help veterans sort these things out and can sometimes find them pro bono representation through a program called Lawyers Serving Warriors. NVLSP strikes me as a pretty solid organization, based on admittedly cursory review. They were instrumental in the passage of the Combat-Injured Veterans Tax Fairness Act which will help veterans claim refund of taxes erroneously withheld from lump-sum severance payments for combat injuries.
Keep Rooting
Back to Mr. Bruce. In discussing all this with him I got the sense that he might think his IRS problems are more persecution. I dropped my ace reporter role and told him that he probably shouldn’t take that personally. If the Army sends the IRS a form saying he has taxable income, it is pretty much on auto-pilot from there. What I think I feel with him though is a frustration that the merits of his claims are never addressed. The courts he has dealt with have not told him that he is wrong. Rather they have told him that he is asking for relief in the wrong place.
The pain that Mr. Bruce had to go through with the loss of his child is unimaginable. Money will never make up for it. The grateful nation has not left Mr. Bruce destitute. Back of the envelope, he gets over $70 grand a year about half of it taxable. Not a fortune, but better than getting poked in the eye with a sharp stick. I think continued litigation will likely just create more frustration for him, but I will keep rooting for him.
Other Coverage
I picked up this story from Lew Taishoff, who titled his piece Tax Reform.
Now, lest this become a rant, I will merely confine my remarks to the need for reform of the taxation of military benefits and pensions. There needs to be a unitary system for establishing eligibility for favorable taxation of pensions and benefits; either the military departments (Army, Navy, Air Force, or Homeland Security (for the Coast Guard)) or the VA as to disability. There needs to be an update to Section 104 to deal specifically with taxability of veterans’ disability pensions. There needs to be an update to Subchapter B of Title 26 to deal specifically with veterans’ pensions.
As I said, I do not want this to become a rant. I want to walk into tonight’s meeting of my American Legion Post (NY Post 2001, 9/11 Memorial) in a calm frame of mind.
Bryan Camp had something on the TaxProf Blog – Contesting Tax Liability In A Collection Due Process Hearing.