Claim for Recovery of Amounts Paid in Income Taxes as a Result of Military Retired Pay Being Incorrectly Classified as Nondisability

A retired Air Force officer appealed a claim settlement which disallowed his claim for recovery of amounts paid in State and Federal income taxes as a result of his military retired pay having been incorrectly classified as nondisability during 1960 through 1973. Applicable Federal and State statutes of limitations on refunds barred tax refunds for the years 1960 through 1973. The Air Force proposed to pay the amount of about $570 which was withheld for Federal income tax from the claimant's retired pay during that period. The claimant argued that he was taxed at a higher rate on his total income than would have been the case if his retired pay had been properly sheltered from taxes, and hence the Air Force owed him the difference, as well as interest at the rate of 6 percent. The amounts claimed were $9,000 paid in Federal taxes and $1,500 paid in State taxes. GAO held that payment for tax refunds in derogation of the Internal Revenue Code statute of limitations is not authorized beyond the monies withheld for taxes by the military department concerned. Thus, GAO concurred with the decision by the Air Force to pay only the amount of $570 which had been withheld for Federal income tax from the claimant's retired pay. The 6 percent interest claimed was also not allowed.