J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

35.6 Tax Forgiveness for Combat Zone or Terrorist or Military Action Deaths

If a member of the Armed Forces is killed in a combat zone or dies from wounds or disease incurred while actively serving in a combat zone, any income tax liability for the year of death and any earlier year in which he or she actively served in a combat zone is waived. In addition, the service member’s estate is entitled to a refund for income tax paid while serving there.

If a member of the Armed Forces was a resident of a community property state and his or her spouse reported half of the military pay on a separate return, the spouse may get a refund of taxes paid on his or her share of the combat zone pay.

Forgiveness benefits apply to an Armed Forces member serving outside the zone if service: (1) was in direct support of military operations there, and (2) qualified the member for special military pay for duty subject to hostile fire or imminent danger.

Missing status.

The date of death for a member of the Armed Forces who was in a missing status (missing in action or prisoner of war) is the date his or her name is removed from missing status for military pay purposes. This is true even if death occurred earlier.

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Caution

Training Exercises

Tax forgiveness for personnel killed in a “military action” does not apply to a U.S. civilian or military employee who dies as a result of ...