How do I file my taxes using the Strickland Decision (IRR 78-161) to reclaim taxes paid from a Separation Bonus received in 1992?

[ejmiller]

I have been informed by Military DFAS to use the Strickland Decision (78-161) to reclaim taxes paid from a Separation Bonus received in 1992, which caused me to have government debt when I retired in 2019. The debt letter from Apr 2020, stated I owed the government the full amount to include the taxes deducted from gross amount. But when I was awarded VA Compensation in 2010, VA retained my benefits until they recouped the amount minus the taxes. A DFAS audit adjusted my debt but continued recouping the difference through my Military retirement payments. As I mentioned at the beginning I was informed to file my taxes using this decision to offset the taxes paid. How do I do this?

[ReneeM7122]

There isn't a mechanism built into TurboTax that would allow you to use the Strickland Decision for offsetting the taxes that you paid. 

The Strickland Decision and Internal Revenue Ruling 78-161 allow a retired service member the ability/right to adjust military retirement income reported on Form 1099-R. To enter the needed information in TurboTax, you would have to perform workarounds.  These can be complicated to do, and you could also negate the 100% accuracy guarantee.  In light of this, we would suggest you elect our new service and allow TurboTax to prepare your return for you.

[ejmiller]

Thank you for your reply, but when you say let Turbo Tax prepare my return for me, do it online through turbo tax or how. Because I do my tax online with turbo tax for years already. I have gone thru every aspect of it and can't find a workaround. So how do I do this. I also found information that suggested I should do an amendment on a 1040x, is this correct?

[ReneeM7122]

You are correct, there isn't a mechanism built into TurboTax that would allow you to use the Strickland Decision for offsetting the taxes that you paid.  The workaround would be complex and could negate your 100% accuracy guarantee service agreement. 

Here is the link to access TurboTax Full Service.

Your tax expert or CPA will work around your schedule to prepare, sign, and file your tax return for you. And, if you ever have questions or need tax advice, you can reach out to them year round.

[JKellum]

I am going through this now, and my TurboTax rep is unable to figure this out. 

Renee, Can you give any insight on how to make this work?

[JamesG1]

Have you seen the excellent presentation on the Strickland Decision by @DMarkM1 here?

If you qualify for the deduction, you will manually compute the amount of the deduction as outlined in the presentation.

The end result will be line 5 on your Federal 1040 showing the IRS form 1099-R information as received by you and the IRS.  

The non-taxable income is subtracted out as a negative entry on line 8z of Schedule 1 of the 1040 and labeled IRR 78-161.

Be sure to maintain complete records of your calculation and your basis for claiming the Strickland Decision deduction from income should the IRS have questions about your tax return at a later time.

If this does not completely answer your question, please contact us again and provide more information.

@ejmiller 

@JKellum