                        T.C. Memo. 1996-154



                     UNITED STATES TAX COURT



        RONALD NEIL AND MAKBULE ROBINSON, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14951-94.                     Filed March 26, 1996.



     Ronald Neil Robinson and Makbule Robinson, pro se.

     John R. Voeller, for respondent.


                        MEMORANDUM OPINION

     COHEN, Judge:   Respondent determined a deficiency of $4,315

in petitioners’ Federal income tax for 1992 and an accuracy-

related penalty pursuant to section 6662(a) of $863.    The parties

have settled the issues reflected in the notice of deficiency.

We address here an overpayment issue raised in an amended

petition, to wit, whether petitioners are entitled to exclude
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from income a $99,434 lump-sum payment received by Ronald Neil

Robinson (petitioner) from the United States Army.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the year in issue, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.

     Sometime before October 1990, petitioner was diagnosed with

depression and began receiving medical treatment for that

condition.   On September 30, 1992, petitioner was released from

active duty in the United States military due to his

participation in a “VOLUNTARY INCENTIVE PROGRAM-SSB”.     Petitioner

received $99,434.30 in a lump-sum payment.

     By letter dated July 29, 1993, the Department of Veterans

Affairs notified petitioner that his claim for disability

compensation for neurosis had been approved.    Petitioner’s claim

for disability compensation payments was approved as follows:

                Monthly Rate             Effective Date

                    $83                        11/1/92
                     85                        12/1/92

The disability award was made subject to the recoupment of

$99,434.30 that petitioner had received due to his separation

from service with the military.

     Petitioners included $99,434 in their gross income on their

Form 1040, U.S. Individual Income Tax Return, for 1992.    On an

amended return received by the Austin Service Center on March 20,
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1995, petitioners decreased their gross income by $99,434,

stating their reason as follows:

     IN JULY, 1993, TAXPAYERS WERE INFORMED THAT $99,434.30
     OF GROSS WAGES ORIGINALLY REPORTED IN 1992 WOULD BE
     RECLASSIFIED FROM SEVERANCE PAY TO DISABILITY PAY.
     1992 GROSS WAGES, WHICH ORIGINALLY INCLUDED THIS
     AMOUNT, SHOULD BE REDUCED BY THIS NON TAXABLE
     DISABILITY INCOME.

Petitioner argues that, when the Department of Veterans Affairs

determined he was entitled to disability compensation, the lump-

sum distribution received from the voluntary incentive program

was reclassified as disability pay and, thus, was not includable

in gross income pursuant to section 104(a)(4).

     The Special Separation Benefits Program, 10 U.S.C. sec.

1174a (Supp. IV 1992), in which petitioner participated was

enacted by Pub. L. 102-190, title VI, sec. 661(a)(1), 105 Stat.

1394 (1991).    Its purpose was to “give a reasonable, fair choice

to personnel who would otherwise have no option but to face

selection for involuntary separation” due to military strength

reductions.    H. Conf. Rept. 102-311, at 556 (1991), 1991

U.S.C.C.A.N. 1042, 1111-1113.

     While 10 U.S.C. sec. 1174a does not address the effect of

Department of Veterans Affairs disability payments on separation

benefits, 10 U.S.C. sec. 1174(h)(2) (Supp. IV 1992) (the

recoupment statute) applies to the Special Separation Benefits

Program.   10 U.S.C. sec. 1174a(g) (Supp. IV 1992).   The

recoupment statute provides:
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          (2) A member who has received separation pay under
     this section, or severance pay or readjustment pay
     under any other provision of law, based on service in
     the armed forces shall not be deprived, by reason of
     his receipt of such separation pay, severance pay, or
     readjustment pay, of any disability compensation to
     which he is entitled under the laws administered by the
     Department of Veterans Affairs, but there shall be
     deducted from that disability compensation an amount
     equal to the total amount of separation pay, severance
     pay, and readjustment pay received. Notwithstanding
     the preceding sentence, no deduction may be made from
     disability compensation for the amount of any
     separation pay, severance pay, or readjustment pay
     received because of an earlier discharge or release
     from a period of active duty if the disability which is
     the basis for that disability compensation was incurred
     or aggravated during a later period of active duty.
     [10 U.S.C. 1174(h)(2) (Supp. IV 1992); emphasis added.]

     Under the recoupment statute, separation pay is subject to

total recoupment when the recipient is subsequently awarded

disability compensation by the Department of Veterans Affairs.

Although it may seem unfair to petitioner that taxable separation

pay is recouped by withholding nontaxable disability

compensation, total recoupment without tax relief was clearly

intended by Congress.

     Prior to the enactment of 10 U.S.C. sec. 1174(h), separation

pay recoupment was governed by 10 U.S.C. sec. 687(b)(6) (as

enacted by Pub. L. 89-718, sec. 6, 80 Stat. 1115, 1116 (1966)

(repealed 1981).   The prior statute required the Veterans'

Administration (now the Department of Veterans Affairs) to recoup

75 percent of the separation pay when withholding disability

compensation.   10 U.S.C. sec. 687(b)(6) (repealed 1981).

Recoupment of only 75 percent of the separation pay was to
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account for the differing tax treatments of the separation and

disability payments.   See Berger v. Commissioner, 76 T.C. 687,

691-692 (1981) (quoting S. Rept. 1096, 87th Cong., 1st Sess.

(1961), 1961 U.S.C.C.A.N. 1783, 1786).

     In 1980, Congress enacted the Defense Officer Personnel

Management Act, Pub. L. 96-513, 94 Stat. 2835, which amended the

separation pay recoupment statute, replacing the 75-percent

recoupment with total recoupment.   See Pub. L. 96-513, Title I,

sec. 109(c), 94 Stat. 2870, 2871 (1980) (effective Sept. 15,

1981) (codified at 10 U.S.C. sec. 1174(h)(2)).   No alternative

provision was established to relieve the imbalance of recouping

taxable separation pay with nontaxable disability compensation,

indicating that Congress’ intent was to eliminate the tax relief

for recoupment.

     Petitioner’s being diagnosed with the disability during his

military service does not change the analysis under 10 U.S.C.

1174(h).   Petitioner originally received taxable separation

benefits, and no provision for reclassifying the separation pay

is provided by any applicable statute.   Therefore, the character

of the separation benefits remained taxable even after petitioner

became eligible for disability compensation.   Petitioners must

include the $99,434.30 separation payment in income on their 1992

Federal income tax return.

     Petitioner has asserted that he knows of two fellow

veterans, who were initially awarded separation pay and were
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later awarded disability compensation, who have filed amended

returns reclassifying the payments as disability pay and have

received refunds.   We do not have before us evidence from which

we can determine whether or not petitioner’s case is

distinguishable from the situations he describes.        Payment of a

refund claimed is neither an express or an implied approval by

the Internal Revenue Service of items reported on a return.       See

Warner v. Commissioner, 526 F.2d 1 (9th Cir. 1975), affg. T.C.

Memo. 1974-243.   In any event, a taxpayer is not entitled to

erroneous treatment, even if another taxpayer or the same

taxpayer in another year has received the benefit of an error.

As we stated in Malinowski v. Commissioner, 71 T.C. 1120, 1128

(1979):

     It has long been the position of this Court that our
     responsibility is to apply the law to the facts of the
     case before us and to determine the tax liability of
     the parties before us; how the Commissioner may have
     treated other taxpayers has generally been considered
     irrelevant in making that determination. * * *

See Davis v. Commissioner, 65 T.C. 1014, 1022 (1976); Estate of

Guenzel v. Commissioner, 28 T.C. 59, 63 (1957), affd. 258 F.2d

248 (8th Cir. 1958).

     To reflect the agreement of the parties,

                                            Decision will be entered

                                       under Rule 155.
