Rev. Rul. 64-10

Advice has been requested whether non-service-connected disability payments made by the Veterans Administration to veterans of the Spanish-American War and World War I reduce retirement income for the purpose of the credit provided by section 37(a) of the Internal Revenue Code of 1954.

Certain veterans of the Spanish-American War and World War I receive payments from the Veterans Administration for non-service-connected disabilities, as distinguished from payments for injuries or sickness resulting from service-connected disabilities. These payments are exempt from Federal income tax under section 1001(a) of the Veterans' Benefit Act of 1957, 38 U.S.C. 3101.

Section 37(d) of the Code provides, in effect, that for the purpose of the retirement income credit the amount of retirement income shall not exceed $1,524 less-

(1) in the case of any individual, any amount received by the individual as a pension or annuity-

*

(C) Otherwise excluded from gross income, * * *.

Section 37(e) of the Code provides that the provisions of section 37(d) of the Code shall not apply to any amount excluded from gross income under section 72 (relating to annuities), 101 (relating to life insurance proceeds), 104 (relating to compensation for injuries or sickness), 105 (relating to amounts received under accident and health plans), 402 (relating to taxability of beneficiary of employees' trust), or 403 (relating to taxation of employee annuities).

In enacting section 37 of the Code, it was the intent of Congress to equalize the tax treatment of all kinds of retirement income and the type of pension or annuity referred to in section 37(d)(1)(C) of the Code is not specified or limited except insofar as section 37(e) of the Code is applicable. See Rev. Rul. 56-12, C.B. 1956-1, 52, at 53.

Of the limitations provided in section 37(e) of the Code, section 104 of the Code is the only one that might apply in this case. That section provides, in part, that gross income does not include-

(4) amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces of any country * * *.

Non-service-connected disability payments received from the Veterans Administration are not amounts received for personal injuries or sickness resulting from active service in the Armed Forces, nor do such payments fall within any of the other exceptions mentioned in section 37(e) of the Code.

Accordingly, it is held that the amount of such payments must be used to reduce the amount of the limitation in the recipients' retirement income for purposes of computing their retirement income credit.