If a member of the United States’ Armed Forces dies in a combat zone from wounds, injury or disease, then his/her tax liability is forgiven.
The forgiveness applies to the year when death occurred and previous tax year ending before the member began service in a combat zone in active service. In addition to this, any taxes which are unpaid for the years ending before the member began service in a combat zone will also be forgiven. If any of these taxes are paid after the date of death, they will be refunded.
If a member of United States’ armed forces dies serving outside the combat zone, but was in direct support of military operations in that zone, then the rules of forgiveness are also applicable to him or her.
If an individual dies from wounds or injurious incurred as a member of the United States Armed Forces in a terrorist or a military action, his or her tax liability is forgiven. For example, John died in 2008 of wounds incurred in a terrorist attack in 2007. Income tax liability is forgiven for the tax years 2006, 2007 and 2008.
How to claim the forgiveness or refund
Usually Form 1040X is used to claim the refund.
If the tax liability of the descendent is forgiven, the personal representative should take the following steps:
He should file Form 1040 if a tax and return has not been filed for the year. Form 1040X should be filed if a tax return has been already filed. Form 1040X should be filed for each year. He should identify the return properly by writing correct description on the line for total tax. Example ‘Kosovo Operation – KIA’
He should also include an attachment showing computation of the tax liability of the descendent before any amount is forgiven and the amount that is to be forgiven. A certification from the Department of Defense or the Department of State must be attached. Form 1310, which is a statement of person claiming refund due to a deceased taxpayer, should also be attached.
If the certification is received a but there is not enough tax information to file a claim in the given deadline for refund, then file Form 1040X along with Form 1310.
There is a deadline for filing such claim. The period for filing a refund claim is generally three years from the time of filing the return or two years from the time of payment of the tax, whichever is later.