Examine the tax consequences to veterans of the legally required offset of certain types of Department of Defense (DOD) separation pay and Department of Veterans Affairs (VA) disability compensation. Specifically, we requested that the Internal Revenue Service (IRS) determine whether veterans could (1) reclassify separation pay as disability compensation, or (2) deduct recouped separation pay from gross income. The IRS responded to our questions in two separate letters dated June 23, 1995, and September 28, 1995 (see enclosures). We summarize these documents with this letter.

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