PROCEDURES ARE SET FORTH FOR HAVING TAX FORGIVEN OR CLAIMING REFUNDS FOR U.S. CIVILIAN OR MILITARY EMPLOYEES WHO DIE OUTSIDE U.S. FROM TERRORIST OR MILITARY ACTION

Rev. Proc. 85-35

SECTION 1. PURPOSE

The purpose of this revenue procedure is to provide guidance for representatives of certain military or civilian employees of the United States who have died as a result of injuries incurred outside the United States in a terroristic or military action. Procedures are provided for having tax forgiven or for claiming refunds of tax under section 692(c) of the Internal Revenue Code.

SEC. 2. BACKGROUND

01 Pub. L. No. 98-259, 1984-1 C.B. 313 (the Act), as amended by the Tax Reform Act of 1984, Pub. L. No. 98-369, section 722(g), 98 Stat. 494, 1984-3 C.B. (Vol. 1) 1, 482, enacted section 692(c) of the Internal Revenue Code. Section 692(c)(1) provides, in the case of any individual who dies while a military or civilian employee of the United States, if such death occurs as a result of wounds or injury while the individual was a military or civilian employee and which was incurred outside the United States in a terroristic or military action, that any tax imposed by subtitle A of the Code (income tax) shall not apply with respect to the taxable year in which falls the date of death and with respect to any prior taxable year in the period beginning with the last taxable year ending before the taxable year in which the wounds or injury were incurred.

02 Section 692(c)(2) of the Code defines "terroristic or military action" as any terroristic activity which a preponderance of the evidence indicates was directed against the United States or any of its allies and any military action involving the Armed Forces of the United States and resulting from violence or aggression against the United States or any of its allies (or threat thereof).

03 Under section 1(b)(1) of the Act, section 692(c) of the Code applies to all taxable years of individuals dying after December 31, 1979, as a result of wounds or injuries incurred after that date. The general period of limitations set forth in section 6511 applies to claims made under the Act. However, under section 1(b)(2) of the Act, in a case in which the general period of limitations has expired or will otherwise expire before April 10, 1985, the period of limitations will not expire before April 10, 1985.

04 Section 722(g) of the Tax Reform Act of 1984 amended the Act to change the effective date from December 31, 1979, to November 17, 1978, and to include the Director General of the Multinational Force and Observers in the Sinai as a civilian employee. Under section 722(g)(5)(B), claims for refund for persons affected by these changes may be made by July 18, 1985, if the period of limitations would otherwise have expired before then.

SEC. 3 PROCEDURE

01 In the case of any employee for whom no U.S. Individual Income Tax Return (Form 1040, 1040A or 1040EZ) has been filed, tax may be forgiven and a claim for refund of any withheld income tax or estimated tax payments should be made by filing Form 1040 with the Internal Revenue Service Center, P.O. Box 267, Covington, KY 41019, Attn: Stop 2. The phrase "KITA--see attached" should be entered on the line for "Total tax" (line 56 on the 1983 form). The attachment should include a computation of the tax liability before application of section 692(c) of the Code and the amount being forgiven under that section. On joint returns reporting taxable income of the surviving spouse, an allocation of tax between spouses must be made. See Section 1.692-1(b) of the Income Tax Regulations and Rev. Rul. 85-103, page ____, this Bulletin. If the surviving spouse or other person filing the joint return is unable to determine the proper allocation, statement of all income and deductions allocable to each spouse should be attached and the Internal Revenue Service will make the proper allocation. All returns must be accompanied by Form W-2, Wage and Tax Statement.

02 In the case of any employee for whom a U.S. individual income tax return has already been filed (for example, in the case of a year for which the return was filed before enactment of the Act), claims for refund should be made by filing Form 1040X, Amended U.S. Individual Income Tax Return, with the Internal Revenue Service Center, P.O. Box 267, Covington, KY 41019, Attn: Stop 2. Separate Forms 1040X should be filed for each year in question. The phrase "KITA--see attached" should be entered on line 12, "Total tax liability". The attachment should include a computation of the tax liability before application of section 692(c) of the Code and the amount being forgiven under that section. In the case of joint returns reporting taxable income of the surviving spouse, an allocation of tax between spouses must be made. See, section 1.692-1(b) of the regulations and Rev. Rul. 85-103. If the surviving spouse or other person filing the claim for refund is unable to determine the proper allocation, a statement of all income and deductions allocable to each spouse should be attached and the Service will make the proper allocation.

03 All returns and claims for refund should be identified by writing "K I T A" in bold letters on the top of page 1 of the return or claim for refund.

04 All returns and claims for refunds must be accompanied by the following documents:

1. Form 1310. Statement of Person Claiming Refund Due a Deceased Taxpayer;

2. A certification from the Department of Defense or the Department of State that the death was the result of terroristic or military action outside the United States. In the case of military employees and civilian employees of the Department of Defense, certification must be made by the Department of Defense on Form DOD 1300. In the case of civilian employees of all other agencies, certification must be made in the form of a letter signed by the Director General of the Foreign Service, Department of State, or his/her delegate. In either case, the certification must include the name and social security number of the individual, the date of injury, the date of death, and a statement that the individual died as the result of a military or terroristic action outside the United States and was an employee of the United States at the date of injury and at the date of death.

05 In a case in which a decedent has been certified as having died as the result of military or terroristic action outside the United States, but the decedent's representative does not have enough tax information to file a timely claim for refund, the representative may stop the running of the period of limitations for making such a claim by filing Form 1040X with the Internal Revenue Service, Covington, Ky 41019, Attn: Stop 2, attaching Form 1310, and attaching a statement that an amended claim will be filed as soon as the requisite information is ascertained.

SEC. 4 INQUIRIES

Inquiries concerning this revenue procedure should be addressed to the Commissioner of Internal Revenue, attention D:R:R:I, 1111 Constitution Ave., N.W., Washington D.C. 20224.

SEC. 5 EFFECTIVE DATE

This revenue procedure is effective for all returns or claims for refunds filed as the result of the Act, as amended.