This is one of those things nobody wants to deal with. I don’t remember ever learning about it in tax school (I take update and continuing education classes every year). I don’t remember hearing a thing about it when I took the “Military Taxpayer” class which specifically targeted all sorts of military tax issues. I actually learned about it doing research on something else and landed on the wrong page of a document. It seemed like this information should be shared. If you need to be reading this, I am sorry about your loss.
Tax liability can be forgiven if a member of the US Armed Forces dies while in active service in a combat zone. This also includes death from wounds, disease, or other injury received in a combat zone or incurred in a terrorist or military action.
In addition, any unpaid tax liability at the date of death may be forgiven. When a liability is forgiven, it means that the debt doesn’t have to be paid.
If you’re filing a tax return (or amended return) you will have to identify that you will be claiming tax forgiveness by writing across the top of the tax return:
“Iraqi Freedom-KIA” or “Enduring Freedom-KIA”
If the soldier was killed in a terrorist action, write “KITA”. You will use the same phrase that you wrote across the top of page 1 on the line of your tax return for the total tax. On a 1040 that’s line 61.
You will need to attach the following documents to your return:
- Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer, here’s a link for that form: http://www.irs.gov/pub/irs-pdf/f1310.pdf
- A certification from the Department of Defense or Department of State (form DD 1300 for military and department of Defense employees)
- You will also need to include a sheet that shows how you computed the tax liability to be forgiven. If you have a joint return, only the soldier’s debt is forgiven, not the spouse’s.
Military tax forgiveness returns need to be mailed to a special address. This is not something that can be e-filed.
Internal Revenue Service
333 W. Pershing, Stop 6503, P5
Kansas City, MO 64108
You can get more detailed information on this issue by reading IRS Publication 3: Armed Forces’ Tax Guide. Here’s a link to the book: http://www.irs.gov/pub/irs-pdf/p3.pdf The information you need starts on page 20.