What about this statement from page 18 of the IRS Pub 525
Service-connected disability. You may be able to exclude from income amounts you receive as a pension, annuity, or similar allowance for personal injury or sickness resulting from active service in one of the following government services.
• The armed forces of any country
Conditions for exclusion. Don’t include the disability payments in your income if any of the following conditions apply.
1...
4. You would be entitled to receive disability compensation from the VA if you filed an application for it. Your exclusion under this condition is equal to the amount you would be entitled to receive from the VA.
I have been told DFAS is changing retired pay to exempt if show proof of 100% service connected permanent and total, page 18 of Pub 525 and memo requesting change. This is confusing or are they seeing what they want to see.
