One of the hardest things to deal with is the death of a loved one who died serving his/her country bravely. To make this burden less felt by those who survive these individuals, IRS forgives the tax liability owed by these brave souls. If the member of the armed forces dies from injuries or diseases received while serving in the combat zone then they qualify for the combat zone forgiveness.
Combat zone is an area decreed by the executive order of the President of the United States as an area where the US armed forces are about to or already have engaged in combat with the enemy. Any member of the armed forces serving in the combat zone who dies from wounds or diseases incurred while serving in the combat zone qualifies for this waiver of their tax liability. For the year that they received the injury or disease in plus the year before and the year they die in, IRS forgives all their tax liabilities for these years. For e.g., if Jon incurred an injury in the Balkans in 1998 and then passed away in 1999 from that injury, his tax liability for the years starting in 1997 and ending in 1999 would be forgiven.
This also includes any unpaid taxes the deceased taxpayers had to his/her name plus if any taxes were paid after his/her death those are refunded back to the survivors. Persons outside the combat zone who directly supported the operations in the combat zone or were on special military pay due to imminent danger and hostile fire also qualify. Any individuals who were missing in action and the survivors of these individuals were receiving the military pay for them; the date of death is the date the removal of the individuals name occurs from missing status for military pay purposes. The tax liability is forgiven for the year and the year before.
The survivors of the member of armed forces that has passed away must file form 1040 for that tax year plus the form W-2 for this individual. If the tax return is filed already then file form 1040X to amend the return and to claim for a refund plus one form 1040X for every year you are claiming a refund for. Every claim that you send must have in bold letters on top of page one of each return the operation name plus right next to it "KIA" (Killed in Action). The same should be repeated on form 1040 and 1040X, on the line that reads "total tax". Other forms that must accompany all returns and claims for refunds are computations of the tax liability owed by the deceased taxpayer and/or the amount that is to be refunded. A letter of certification from the Department of Defense or the Department of State and form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer, should accompany this.
If the deceased taxpayer lived in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) and his/her surviving spouse had been reporting some of the military pay on his/her tax return, they can file for a refund for the amount they had been including on their tax return for the years that apply according to the combat zone forgiveness.
The usual time for filing a claim for a refund is 3 years but that is extended due to the fact that deceased was a member of the armed forces and he/she died in a combat zone or injuries from it.