BOARD DATE:	  9 August 2012

		DOCKET NUMBER:  AR20120003011 


THE BOARD CONSIDERED THE FOLLOWING EVIDENCE:

1.  Application for correction of military records (with supporting documents provided, if any).

2.  Military Personnel Records and advisory opinions (if any).


THE APPLICANT'S REQUEST, STATEMENT, AND EVIDENCE:

1.  The applicant requests correction of records to show his reenlistment bonus payments are tax exempt.

2.  He states he believes taxing his bonus in the amount of $4,545.00 is an error since he was deployed to Afghanistan at the time the payment was made and he should not have been taxed while deployed to a combat zone.  He was promised a $15,000.00 reenlistment bonus in his contract which was signed in February 2008, but that contract was not honored.  The decision to pay him the bonus was made while he was deployed to Afghanistan.

3.  He provides:

* email related to his ineligibility for a prior-service enlistment bonus (PSEB)
* DD Form 214 (Certificate of Release or Discharge from Active Duty)
* letter to Case Management Division, dated 30 December 2010
* copy of Army Board for Correction of Military Records (ABCMR) Record of Proceedings, dated 17 March 2011
* Defense Finance and Accounting Service (DFAS) letter to the applicant, dated 15 June 2011
* DFAS-DE Form 67 (Military Pay and Allowance Voucher)
* Internal Revenue Service (IRS) Form W-2 (Wage and Tax Statement)
* Army Review Boards Agency letter to the applicant, dated 16 June 2011
* Army Review Boards Agency Certificate


* letter Case Management Division, dated 17 October 2011
* DFAS letter to the applicant, dated 28 October 2011

CONSIDERATION OF EVIDENCE:

1.  On 23 February 2008 after having prior enlisted service, the applicant enlisted in the U.S. Army Reserve.  Section IV (Service Obligation), paragraph 2, of his enlistment contract indicates he enlisted under the prior-service program for training in military occupational specialty (MOS) 68W (Health Care Specialist).  Paragraph 4 of this document authorized a PSEB of $15,000.00.

2.  His DD Form 214 for the period 23 August 2010 through 29 August 2011 shows he was deployed to Afghanistan during the period 7 January 2010 to 21 July 2011.

3.  He was not authorized to receive the PSEB because he had completed more than 17 years of service at the time of the reenlistment.  He applied to the ABCMR for relief.  On 17 March 2011, the Board granted him partial relief when it recommended correction of his records by showing he was entitled to receive a reenlistment bonus in the amount of $15,000.00 based on MOS 68W and payment of the reenlistment bonus.

4.  A DFAS letter to the applicant, dated 15 June 2011, stated the payment would be electronically transferred to the bank address reflected on the enclosed DFAS-DE Form 67 as a result of the recent correction of his military records.  It stated his account should reflect this direct deposit within 10 working days from the date of the letter.

5.  An IRS Form W-2 2011 shows he received $15,000.00 in compensation.  The combined Federal and State income tax withheld was $4,545.00.

6.  A DFAS letter to the applicant, dated 28 October 2011, states DFAS was returning the applicant's letter without action.  The reason given was that the date the applicant signed the reenlistment contract is the determining factor in which the bonus payment is taxed per Department of Defense Financial Management Regulation (DODFMR), volume 7A, chapter 44.  The applicant's contract was signed in February 2008 during a time when the applicant was not in a combat zone; therefore, the bonus was taxable and subject to Federal and State income tax withholding.

7.  DODFMR, volume 7A, chapter 44, provides:

	a.  Wages of all service members, except those listed in paragraph 440102, are subject to withholding of Federal and State income tax.

	b.  Effective 21 March 1996, all of the compensation of enlisted members for any month during any part of which such members perform active duty in a combat zone or qualified hazardous duty area qualify them for combat zone tax exclusion under subparagraph 440103C (effective 19 September 2001, Afghanistan, including the air space above, was designated as a combat zone).

	c.  Figure 44-2, rule 5, states a bonus entitlement (including installments) earned (reenlists, extends, signs agreement) in a month during which combat zone tax exclusion does not apply is taxable and subject to Federal/State income tax withholding.

DISCUSSION AND CONCLUSIONS:

1.  He contends his $15,000.00 reenlistment bonus should be tax exempt because he was deployed to Afghanistan when the decision was made to pay him this bonus and the payment of this bonus was made.

2.  On 23 February 2008, he enlisted in the U.S. Army Reserve and contracted for a $15,000.00 PSEB for which he was not eligible.  On 17 March 2011 as a matter of equity and justice, the Board recommended correction of his records to show he was entitled to a $15,000.00 reenlistment bonus.  It appears DFAS paid him the bonus in late June or early July 2011.

3.  He served in a designated combat zone during the period 7 January 2010 to 21 July 2011.  While the correction of his record to entitle him to a $15,000.00 reenlistment bonus and payment of that bonus may have occurred during his deployment, this was a correction to a contract executed on 23 February 2008.

4.  DODFMR, volume 7A, chapter 44, figure 44-2, rule 5, states a bonus entitlement (including installments) earned (reenlists, extends, signs agreement) in a month during which combat zone tax exclusion does not apply is taxable and subject to Federal/State income tax withholding.  The applicant was not serving in a designated combat zone at the time he contracted for the PSEB; therefore, the combat zone tax exclusion does not apply.

5.  In view of the foregoing, there is an insufficient basis for granting his request.



BOARD VOTE:

________  ________  ________  GRANT FULL RELIEF 

________  ________  ________  GRANT PARTIAL RELIEF 

________  ________  ________  GRANT FORMAL HEARING

___X_____  __X______  __X__  DENY APPLICATION

BOARD DETERMINATION/RECOMMENDATION:

The evidence presented does not demonstrate the existence of a probable error or injustice.  Therefore, the Board determined the overall merits of this case are insufficient as a basis for correction of the records of the individual concerned.



      ____________X_____________
                 CHAIRPERSON
      
I certify that herein is recorded the true and complete record of the proceedings of the Army Board for Correction of Military Records in this case.

ABCMR Record of Proceedings (cont)                                         AR20120003011



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ABCMR Record of Proceedings (cont)                                         AR20120003011



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