BOARD DATE: 4 February 2016 DOCKET NUMBER: AR20150005639 THE BOARD CONSIDERED THE FOLLOWING EVIDENCE: 1. Application for correction of military records (with supporting documents provided, if any). 2. Military Personnel Records and advisory opinions (if any). THE APPLICANT'S REQUEST, STATEMENT, AND EVIDENCE: 1. The applicant requests, in effect, correction of the following DA Forms: * item 10b of DA Form 199 (Physical Evaluation Board (PEB) Proceedings), dated 8 November 1985, to show he was obligated to become a member of an Armed Force or Reserve on 24 September 1975 * item 31 of DA Form 3713 (Data for Retired Pay), dated 12 February 1986, to show the applicant was obligated to become a member of an Armed Force on 24 September 1975 2. The applicant states, in effect: a. He originally enlisted in the U.S. Army Reserve (USAR) on 8 September 1975, and was under a binding agreement, as a Reserved Officers' Training Corps (ROTC) cadet at Pennsylvania State University, to become a member of the Army. b. He was a captain (CPT) on active duty and based on having a physical disability, he was placed on the Temporary Disability Retired List (TDRL) on 13 March 1986. On 3 January 1990, he was moved to the Permanent Disability Retired List (PDRL). c. Title 26 U.S. Code, section 104, as implemented by Department of Defense (DOD) Financial Management Regulation (FMR) 7000.14-R, Volume 7B, Chapter 24, states gross retired pay is not subject to Federal Income Tax Withholding (FITW) if: * the member's retired pay is computed only on the basis of percentage of disability * the member is on the temporary or permanent disability retired list * was a member of the Armed Forces (or Reserve Component thereof), or under a binding written commitment to become such a member on 24 September 1975 d. His military retired pay (less Department of Veterans Affairs (VA) and Survivor Benefit Plan (SBP) offsets) has been taxed since his retirement on 13 March 1986. He only became aware of this exclusion on 12 January 2015. e. He has sought relief through the Internal Revenue Service (IRS) and, so far, has received an adjustment in taxes for 2011; he is currently attempting to be refunded FITW for tax years 2012 through 2014. The IRS has inquired as to whether the Army will correct his records to show he qualifies for the tax exemption of his disability retired pay. f. Section 241101, chapter 24 in Volume 7B of the DOD FMR, states, in cases where payment is made as a result of a correction of military records, and when amounts paid and reported as FITW wages are determined not to be subject to FITW as a result of the correction, the member is provided either a corrected IRS Form 1099-R (Distribution from Pensions, Annuities, Retirement or Profit-Sharing Plans, Individual Retirement Accounts, Insurance Contracts, etc.) or a letter citing the "before" and "after" amounts for each calendar year involved. 3. The applicant provides: * Orders Number D27-4, dated 12 February 1986 * Orders Number D262-14, dated 3 January 1990 * DD Form 214 (Certificate of Release or Discharge from Active Duty) * DD Form 4 (Enlistment Contract - Armed Forces of the United States), dated 8 September 1975 * My Army Benefits webpage printout * Internal Revenue Service (IRS) Forms 1099-R covering tax years 2011 through 2014 * letter, dated 23 February 2015, from the Defense Finance and Accounting Service (DFAS) CONSIDERATION OF EVIDENCE: 1. Title 10, U.S. Code, section 1552(b), provides that applications for correction of military records must be filed within 3 years after discovery of the alleged error or injustice. This provision of law also allows the Army Board for Correction of Military Records (ABCMR) to excuse an applicant's failure to timely file within the 3-year statute of limitations if the ABCMR determines it would be in the interest of justice to do so. While it appears the applicant did not file within the time frame provided in the statute of limitations, the ABCMR has elected to conduct a substantive review of this case and, only to the extent relief, if any, is granted, has determined it is in the interest of justice to excuse the applicant's failure to timely file. In all other respects, there are insufficient bases to waive the statute of limitations for timely filing. 2. The applicant signed a DA Form 597 (Army Senior ROTC Student Contract) on 20 August 1975, which was confirmed on 8 September 1975. He enlisted in the USAR on 8 September 1975 for a term of 6 years. Item 48 of his DD Form 4 listed USAR Control Group (ROTC). 3. On 8 November 1985, a PEB determined he was physically unfit for continued military service and recommended placement on the TDRL with a disability rating of 80 percent. a. The applicant concurred with the PEB's findings and recommendations on 12 November 1985. b. Item 10b of the DA Form 199 essentially states the evidence of record reflected the applicant was not a member of obligated to become a member of an Armed Force or Reserve thereof, on 24 September 1975 (emphasis added). 4. On 12 February 1986, a DA Form 3173 was prepared showing data required for the determination of retired pay. Item 31 indicates the applicant was not a member of an Armed Force on 24 September 1975 (emphasis added). 5. He was honorably retired on 12 March 1986. His DD Form 214 shows he completed 7 years, 9 months, and 18 days of net active creditable service. The narrative reason for separation is physical disability - temporary. He was placed on the TDRL on 13 March 1986. 6. On 5 December 1989, a PEB found the applicant should be removed from the TDRL and placed on the PDRL with a disability rating of 100 percent. The applicant concurred on 18 December 1989. 7. Orders Number D6-11, dated 3 January 1990, issued by the U.S. Total Army Personnel Command, shows the applicant was removed from the TDRL and permanently retired effective 3 January 1990 with a disability rating of 100 percent. 8. Title 26, U.S. Code, section 104 provides for military disability retired pay to be tax-exempt in cases where the Soldier was either a member of the Armed Forces (or Reserve Component), or was "under a binding written commitment to become such a member" on 24 September 1975. Prior to 1976, disability pay was excluded from gross income under this section. In 1976, Congress amended section 104 to terminate this exclusion for members after 24 September 1975, only exempting cases where the disability was the result of combat. The purpose of the amendment was to end a perceived abuse of disability retired pay. 9. DOD FMR 7000.14-R, Volume 7B, Chapter 24, section 2403 (Retire Pay not subject to FITW) implements the provisions of Title 26, U.S. Code, section 104. Section 2411 (Processing Correction of Records Cases) details procedures to follow when records have been corrected as a result of Board action. 10. Army Regulation 635-40 (Physical Evaluation for Retention, Retirement, or Separation), dated 13 December 1985, prescribed policies and procedures for Soldiers undergoing evaluation for physical disabilities. a. Section IV (Physical Disability Evaluation) provides guidance for PEB determinations. It details changes implemented by The Tax Reform Act of 1976 (TRA76) and states the conditions for disability retired pay to be excludable from gross income. (1) Disability retired pay is that portion of retired pay based on a person's disability rating. (2) Disability retired pay is excluded from gross income if, on 24 September 1975, the individual was a member (including Reserve Component membership) of the armed forces of any country or was under a binding written agreement to become such a member. b. The PEB will make the appropriate entry in item 10b based upon available records. DISCUSSION AND CONCLUSIONS: 1. The applicant appears to be eligible for the requested relief. As required by Title 26, U.S. Code, section 104: a. The evidence of record indicates the applicant was, in fact, under a binding written commitment to become a member of the U.S. Army on 24 September 1975. (1) By virtue of having signed a Senior ROTC Student Contract and a DD Form 4, he was obligated to serve in the U.S. Army upon graduation from college. (2) Following his completion of the ROTC program, he served on active duty for a period of more than 7 years. b. His disability retired pay was computed only on the basis of the percentage of disability. He did not otherwise have sufficient years of service for retirement. c. He was initially placed on the TDRL and, ultimately, moved to the PDRL. 2. Based upon the foregoing, it would be appropriate to amend his DA Forms 199 and 3713 to reflect he met the requirements of Title 26, U.S. Code, section 104 on 24 September 1975, and to request DFAS to either issue a corrected IRS Form 1099-R, or issue a letter citing the "before" and "after" amounts for each calendar year involved. BOARD VOTE: ___X_____ __X______ __X___ GRANT FULL RELIEF ________ ________ ________ GRANT PARTIAL RELIEF ________ ________ ________ GRANT FORMAL HEARING ________ ________ ________ DENY APPLICATION BOARD DETERMINATION/RECOMMENDATION: The Board determined that the evidence presented was sufficient to warrant a recommendation for relief. As a result, the Board recommends that all Department of the Army records of the individual concerned be corrected by: a. Deleting the entry in item 10b of his DA Form 199, dated 8 November 1985, indicating he was not obligated to become a member of an Armed Force or Reserve thereof on 24 September 1975, and replacing it with an "X" in the block showing he was obligated. b. Deleting the entry in item 31 of his DA Form 3713, dated 12 February 1986, where the "No" block has been checked, and replacing it with an "X" in the "Yes" block. c. Requesting DFAS either issue a corrected IRS Form 1099-R, or issue a letter citing the "before" and "after" amounts for all calendar years since he was placed on the TDRL. _______ _ X _______ ___ CHAIRPERSON I certify that herein is recorded the true and complete record of the proceedings of the Army Board for Correction of Military Records in this case. ABCMR Record of Proceedings (cont) AR20150005639 3 ARMY BOARD FOR CORRECTION OF MILITARY RECORDS RECORD OF PROCEEDINGS 1 ABCMR Record of Proceedings (cont) AR20150005639 6 ARMY BOARD FOR CORRECTION OF MILITARY RECORDS RECORD OF PROCEEDINGS 1