The VA completed my disability claim after I received my 1099-R. The letter from the VA states "Because VA compensation is not taxable, you may be entitled to a tax exemption during the period the VA withheld your compensation; the amount of the exemption would be the amount of compensation the VA withheld based on your receipt of military retired pay." Can I adjust my military retired pay 1099-R to account the amount withheld? If so, how do I do that and what evidence do I need to show to the IRS that the adjustment is appropriate?
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There is a specific procedure for your situation that is required by the IRS. Just understand that you can not e-file. If you want the tax-free income, you *have* to do it the IRS way if your VA disability was retroactive to a period of time before the offset reduced your pay from DFAS. See this link for what you have to do.
https://www.irs.gov/individuals/military/special-tax-considerations-for-veterans
Note the information assumes a prior year return that you would amend. You will "NOT be amending your 2018 return, since you haven't filed it yet. Just follow the procedure and requirements and mail your completed return along with the required documentation to the IRS to support your "changes" to the 1099-R DFAS issued you, and you'll be fine. Note that you should send your return to the IRS using certified mail, return receipt required. (that's *required*, not requested.)
Otherwise, if the IRS says they didn't get your paperwork and you can't prove otherwise, you lose.
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