Many people with tax collection problems feel like they’re in a combat zone, besieged by battalions of battle-hardened IRS Revenue Officers. But many tax practitioners, particularly those of us here in the Washington metropolitan area, will encounter clients who are or have recently been in real combat zones — places like Iraq, the Persian Gulf, Afghanistan, Kosovo, Kuwait, Bahrain, Qatar, the United Arab Emirates, and other such garden spots. These folks have enough on their minds without worrying about what the IRS Collection Division may do to them or their families while they’re gone.2Certain provisions of the Internal Revenue Code are designed to protect them from IRS collection action, but these rules introduce administrative complexities that are often beyond the capabilities of the IRS’s hopelessly antiquated computer system, with the result that deployment to a combat zone can actually trigger the very IRS collection action that these statutory provisions were intended to prevent. The IRS is aware of these problems and has quietly formed a National Office working group to address the issue. But in the meantime, we as practitioners should be ready to help military personnel who have tax collection problems that they can’t adequately handle because they are busy defending us and our loved ones.3

Two statutory sources of relief

First, IRC §7508 and the implementing notices and Rev. Procs. direct the IRS collection machine to stand down with respect to military members and certain others while they are in a combat zone or qualified hazardous duty area, and for 180 days thereafter. The price of this cessation of collection action and the extension of various tax-related deadlines is that the statute of limitations on collection4 is suspended for the same period of time.

Second, the Servicemembers Civil Relief Act (SCRA), was signed by the President on December 19, 2003. It replaced the Soldier’s and Sailor’s Civil Relief Act (SSCRA), which had remained largely unchanged since its adoption in 1940. The SCRA, like the SSCRA before it, provides that the collection of any income tax, whether falling due before or during military service, may be deferred if ability to pay the tax is “materially impaired” because of the taxpayer’s military service. With many Reserve and National Guard units in this area and throughout the country having been mobilized for active duty service, there are many individuals and families to whom this rule could apply.5 Collection may be deferred during the period of the taxpayer’s military service and up to 180 days afterward, with a corollary extension of the statute of limitations on collection for the period of military service plus 270 days. Note that this is a broad rule that can apply whether or not the military member is in a combat zone. However, it applies only to certain military personnel, typically in their initial period of enlistment. IRC §7508, in contrast, applies to all military personnel, regardless of their length of service, but only for those periods of time they are in designated combat zones and for 180 days thereafter.

IRC §7508

In addition to deferring collection on previously determined tax liabilities, IRC §7508 provides for an extension of the deadlines for taking many time sensitive actions, including the filing of income tax returns.6 These deadlines are postponed until at least 180 days after the taxpayer leaves the designated combat zone. IRS will not assess income tax or charge any penalty or interest during the postponement period, and is supposed to cease all enforcement activities against these taxpayers during such periods. Those areas qualifying as combat zones include the following:7

Operations Joint Endeavor and Able Sentry. P.L. 104B117 provides tax relief to personnel in the Armed Forces serving in Bosnia, Herzegovina, Croatia and Macedonia (formerly Yugoslavia) as if they were in a combat zone (effective retroactive to 11-21-1995).

Operation Allied Force. Executive Order 13119 (effective 3-24-1999) designates Yugoslavia (including Serbia and Montenegro), Albania, the Adriatic Sea, and the Ionian Sea north of the 39th parallel as combat zones.

Operation Enduring Freedom. Executive Order 13239 (effective 9-19-2001) designates Afghanistan and the airspace above as a combat zone. Also included are Pakistan, Tajikistan, Jordan, Kyrgystan, Uzbekistan, The Philippines (effective 1-9-2002), Yemen (effective 4-10-2002) and Dijbouti (effective 7-1-2002).

Operations Desert Storm and Iraqi Freedom. Executive Order 12744 (effective 1-17-1991) designates as combat zones the Persian Gulf, the Red Sea, the Gulf of Oman, the part of the Arabian Sea north of 10 degrees north latitude and west of 68 degrees east longitude, the Gulf of Eden and the total land areas of Iraq, Kuwait, Saudi Arabia, Oman, Bahrain, Qatar, the United Arab Emirates, Turkey (effective 1-1-2003), Israel (1-1-2003 to 7-31-2003), Egypt (3-19-2003 to 4-20-2003), and the eastern Mediterranean (3-10-2003 to 7-31-2003).

IRS Notice 2003-21 presents a series of questions and answers that will be helpful to you in understanding how IRC §7508 is supposed to be applied in particular situations.8 It also explains how to contact special IRS offices, both in the U.S. and abroad, by e-mail, telephone, or telecopier for more information.9 Among the questions most directly related to tax collection issues are the following:

Q-12: My son is a member of the U.S. Armed Forces, and he has been serving in the combat zone since February 1, 2003. Is he entitled to an extension of time for filing and paying his 2002 federal income taxes? Are any assessment or collection deadlines extended?

A-12: In general, the deadlines for performing certain actions applicable to his taxes are extended for the period of his service in the combat zone, plus 180 days after his last day in the combat zone. This extension applies to the filing and paying of your son’s 2002 income taxes. Also, in addition to the 180-day period, your son’s extension period includes the 74-day period that was left before the April 15, 2003, deadline. During this 254-day extension period, assessment and collection deadlines will be extended, and interest and penalties attributable to the extension period will not be charged.

Q-14: Assuming the same facts as in question 12, will the deadline extensions continue to apply if my son is hospitalized as a result of an injury sustained in the combat zone?

A-14: The deadline extensions will apply for the period that your son is continuously hospitalized outside of the United States as a result of injuries sustained while serving in the combat zone, including 180 days thereafter. For hospitalization inside the United States, the extension period cannot be more than 5 years.

Whereas the rules excluding combat pay from taxable income apply narrowly to U.S. military personnel, the cessation of collection action and the extension of various tax-related deadlines due to service in a combat zone are available to military personnel, to those serving in a combat zone in direct support of military personnel, and to their families. This includes merchant marines serving aboard vessels under the operational control of the Department of Defense, Red Cross personnel, accredited correspondents, and civilian personnel acting under the direction of the U.S. Armed Forces. The rules do not apply to private businessmen, including civilian employees of defense contractors, unless they are acting in direct support of U.S. military operations.

Q-18: My son is a civilian explosive specialist who is in the combat zone training U.S. Armed Forces members serving in the combat zone. Do the deadline extension provisions apply to my son?

A-18: Yes. The deadline extensions apply to your son because he is serving in the combat zone in support of the U.S. Armed Forces.

Q-20: I am a member of the U.S. Armed Forces serving in the combat zone. Do the deadline extensions apply to my husband, who is in the United States?

A-20: Yes. The deadline extensions apply not only to members serving in the U.S. Armed Forces (or individuals serving in support thereof) in the combat zone, but to their spouses as well, with two exceptions. First, if you are hospitalized in the United States as a result of injuries received while serving in the combat zone, the deadline extensions would not apply to your husband. Second, the deadline extensions for your husband do not apply for any tax year beginning more than 2 years after the date of the termination of the combat zone designation.

Q-21: Assuming the same facts as in question 20, will my husband have to file a joint tax return in order to benefit from the deadline extensions?

A-21: No. The deadline extensions apply to both spouses whether joint or separate returns are filed. If your husband chooses to file a separate return, he will have the same extension of time to file and pay his taxes that you have.

Remember, the extensions apply not just to the filing of income tax returns, but to many other acts subject to deadlines under the Internal Revenue Code, such as filing a claim for innocent spouse relief10 within two years of the first collection action:

Q-24: Almost two years ago, the IRS contacted me to collect tax on a joint income tax return I had filed with my now former spouse. I believe only my former spouse should be held liable for the tax. I understand that I may file Form 8857, Request for Innocent Spouse Relief, within 2 years of the first collection activity against me by the IRS. I have just entered a combat zone. Do the deadline extensions apply to the filing of Form 8857?

A-24: Yes. A list of time-sensitive acts for which performance is postponed for members of the U.S. Armed Forces (or individuals serving in support thereof) in a combat zone is provided in Rev. Proc. 2002-71. Section 14.03(2) of that revenue procedure concerns innocent spouse relief.

One event often triggering the start of collection action against a delinquent taxpayer is the default of an installment agreement. IRC §7508 is supposed to prevent this, instead allowing a taxpayer serving in a combat zone to forget about his problems “back in the world” until 180 days after his return. Unfortunately, the inadequacies of the IRS computer system have led to some outrageous results related to installment agreements. For example, the posting of a combat zone indicator, intended to put a hold on actions such as those related to the default of an installment agreement, has been wrongly interpreted as in itself defaulting the agreement, even when all payments have been timely made. This in turn has precipitated aggressive action by IRS Automated Collection Service personnel, seemingly unaware of the provisions of IRC §7508 or Notice 2003-21. However, here’s the way it is supposed to work:

Q-28: My son, who is a member of the U.S. Armed Forces, was on an installment payment plan with the IRS for back income taxes before he was assigned to the combat zone. What should be done now that he is in the combat zone?

A-28: The IRS office where your son was making payments should be contacted. Because your son is serving in the combat zone, he will not have to make payments on his back income taxes for his period of service in the combat zone plus 180 days. No additional penalties or interest will accrue during the deadline extension period.

Again, that’s what is supposed to happen. In reality, to get this statutorily mandated result for your client you may have to do battle with the Automated Collection Service, an IRS behemoth that blindly relies on an inadequate computer system and is staffed by personnel with insufficient training, who in some cases sadly lack the courtesy and common sense that in these situations one would expect them to have. The IRS Taxpayer Advocate’s Office is very responsive, however, and you should not hesitate to call on them for assistance.11

Servicemembers Civil Relief Act

The SCRA provides protection that is different in scope than that available under IRC §7508. And since nothing related to taxes is simple or straightforward, let’s go through a few important definitions. For purposes of the SCRA:12

“Person in military service,” means any member of the U.S. Army, Air Force, Navy, Marine Corps, Coast Guard, and any officer of the Public Health Service detailed for duty with the Army or Navy.

“Period of military service,” means a person’s initial period of active military service13, which will be:

(a) The period of active duty under the first enlistment of the taxpayer in the military service;

(b) The period of service which precedes any reenlistment following recall of the taxpayer to active duty from a reserve or National Guard unit;

(c) The first period of reenlistment of taxpayer who has been out of the military service for one year or more; or

(d) In the case of an officer, the first two years of any tour of active duty that is preceded by a period of inactive duty or nonmilitary status for one year or more.

“Material Impairment” is present if the taxpayer’s current monthly income (i.e. the military income) is less than the monthly income immediately prior to active duty.

Unlike what is supposed to happen when someone is sent to a combat zone and the IRS is automatically notified of this fact by the Department of Defense, you must take affirmative action on behalf of your client to obtain a deferment of IRS collection action under the SCRA. A deferment will be granted if:

(a) the taxpayer submits a written request for deferment under the SCRA;

(b) The taxpayer establishes that he or she is serving an initial period of military service,14 and

(c) the taxpayer submits satisfactory proof that ability to pay the tax has been materially impaired because of the taxpayer’s military service.

If a deferment is granted, the statute of limitations on collection is suspended during the taxpayer’s military service plus 270 days thereafter. Interest and penalties do not accrue during the deferment on any tax for which collection is deferred. However, the taxpayer remains liable for interest which had previously accrued. Interest will also accrue while the tax remains unpaid after the deferment ends. Even if the deferment is denied, the SCRA provides that interest will be charged at only 6% while the taxpayer is in active military status on liabilities accruing prior to the beginning of such service.15

If the taxpayer is on an installment agreement and requests a reduced monthly payment based on reduced military income, the IRS will treat this as a request for relief under the SCRA.16 Upon determining that relief under the SCRA is available, the IRS is supposed to advise the taxpayer that voluntary payments can still be made, but that the account will be deferred until his or her military status is terminated. Whether in practice the Service actually does this in any particular case is subject to the vagaries of the IRS computer system and the level of training of the IRS line personnel involved.


Those serving our nation in the Armed Forces, whether or not they are currently in combat zones, deserve our respect and undying gratitude. And while they too are taxpayers, they also deserve the tax relief provided for them by statute. Although the IRS tries its best to implement these statutory protections, at times it fails to do so, or worse yet takes affirmative action against military personnel because the posting of a combat zone indicator is taken by the IRS’s Neanderthal computer system to mean that an installment agreement has been defaulted. In such cases we need to be fully aware of the rules so we can see to it that our military clients have the peace of mind needed to focus on their more immediate responsibilities.17

1 Mr. Haynes is an attorney with offices in Burke, VA, and Burtonsville, MD, and is a member of the Maryland Society of Accountants’ Newsletter Committee. From 1973 to 1981 he was a Special Agent with the IRS Criminal Investigation Division in Baltimore, and in 1980 was named “Criminal Investigator of the Year” by the Association of Federal Investigators. He specializes in civil and criminal tax disputes and litigation, IRS collection problems, and the tax aspects of bankruptcy and divorce. (phone 703-913-7500; website

2 Various provisions of the Internal Revenue Code bear on the tax treatment of certain military income, such as combat pay. This article will focus only on the tax collection issues of those serving in the military, or more specifically in a combat zone. For general information on the taxation of persons in the U.S. military, see the Armed Forces’ Tax Guide (IRS Pub. 3), IRS Notice 2003-21, IRS FS-2003-11, and the Military Family Tax Relief Act of 2003.

3 I would respectfully offer for your consideration the suggestion that you follow the practice of this office and handle such cases pro bono.

4 See the author’s article on the statute of limitations on collection published in the Aug-Sep 2002 issue of The Freestate Accountant. This and other articles are also posted on the author’s website at The entry of a TC 500 code in the affected module suspends the CSED unless and until a TC 550 (new CSED) is posted with a later transaction date.

5 See IRS Tax Tip 2004-39 (2-26-2004) at .

6 IRM (12-15-2002). Section 7508 effects the deadlines for filing a return; paying, assessing or collecting a tax; claiming a refund; litigating a suit; and performing any act listed in Rev. Proc. 2002-71, 2002-46 I.R.B. 850.

7 See IRS Pub. 3 for additional information and qualified hazardous duty areas that may qualify for similar relief.

8 See also Notice 2002-17 (Tax Relief for Those Involved in Operation Enduring Freedom); Notice 99-30 (Tax Relief for Those Affected by Operation Allied Force); and Notice 96-34 (Tax Relief for Those Affected by Operation Joint Endeavor).

9 The IRS has a special e-mail address ( ) to which a taxpayer in a combat zone can send questions related to filing and payment issues, and to update his or her combat zone status so as to qualify for various tax relief provisions. This is a good place to send information about the dates a servicemember enters and leaves a combat zone. Sadly, the system for the direct transmittal of this information between the IRS and the DOD seems to be prone to error. For example, the DOD seems to be using a “first day of the month in, last day of the month out” convention, which has the effect of overstating the time the statute of limitations is suspended. Also, the information is either not provided in timely manner by the DOD, or is not processed in a timely manner by the IRS.

10 See the author’s articles on innocent spouse relief published in The Freestate Accountant in the Aug-Sep 1998 and Jun-Jul 2000 issues, or on the website

11 Contact information for the IRS Taxpayer Advocate’s Office can be found in IRS Pub. 1546 or on the IRS’s website at .

12 IRM (1-24-2001) and (12-15-2002).

13 Note that certain career military officers or enlisted men will not fit these definitions, and are thus not protected by the SCRA.

14 A copy of the military orders or reporting instructions that detail the period of active duty must be provided.

15 If the taxpayer has been determined to be qualified for the reduced interest rate, the transcript will show a TC 340 for zero amount with the activity code Military 6% REQ54.

16 IRM (12-15-2002).

17 You should also know that some con artists actively prey on military families. Some of these scams are described here .