IRS Publication 17 — Your Federal Income Tax (Individuals)

of limitations) by filing an amended return on Form 1040-X for each previous year during the retroactive period. You must include with each Form 1040-X a copy of the official VA determination letter granting the retroactive benefit. The letter must show the amount withheld and the effective date of the benefit.

If you receive a lump -sum disability severance payment and are later awarded VA disability benefits, exclude 100% of the severance benefit from your income. However, you must include in your income any lump -sum readjustment or other nondisability severance payment you received on release from active duty, even if you’re later given a retroactive disability rating by the VA.

Special statute of limitations. In most cases, under the statute of limitations, a claim for credit or refund must be filed within 3 years from the time a return was filed or 2 years from the time the tax was paid. However, if you receive a retroactive service -connected disability rating determination, the statute of limitations is extended by a 1-year period beginning on the date of the determination. This 1 -year extended period applies to claims for credit or refund filed after June 17, 2008, and doesn’t apply to any tax year that began more than 5 years before the date of the determination.

Terrorist attack or military action. Don’t include in your income disability payments you receive for injuries incurred as a direct result of a terrorist attack or military action directed against the United States (or its allies), whether outside or within the United States or from military action. See Pub. 3920 and Pub. 907 for more information. Long-Term Care Insurance Contracts Long-term care insurance contracts in most cases are treated as accident and health insurance contracts. Amounts you receive from them (other than policyholder dividends or premium refunds) in most cases are excludable from income as amounts received for personal injury or sickness. To claim an exclusion for payments made on a per diem or other periodic basis under a long -term care insurance contract, you must file Form 8853 with your return.

A long-term care insurance contract is an insurance contract that only provides coverage for qualified long -term care services. The contract must:

• Be guaranteed renewable;

• Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed;

• Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract, may only be used to reduce future premiums or increase future benefits; and

• In most cases, not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses.