Tax Forgiveness When a Servicemember Dies in a Combat Zone: A Guide for Survivors

If you are reading this because someone you love died in service, I am sorry. This page exists because the last thing a grieving family should face is an IRS bill for a servicemember who gave everything. Congress agreed. Section 692 of the Internal Revenue Code forgives the income tax, and in many cases the IRS will refund tax already paid. Here is how it works and how to claim it.

Combat zone forgiveness

IRC 692(a) applies to an individual who dies while in active service as a member of the Armed Forces, if the death occurred while serving in a combat zone or as a result of wounds, disease or injury incurred while serving there. For that person:

• Income tax does not apply for the tax year of death.
• Income tax does not apply for any earlier tax year ending on or after the first day the member served in a combat zone.
• Any unpaid income tax for years before that, including interest, additions and penalties, shall not be assessed. If assessed, it is abated. If collected, it is credited or refunded as an overpayment.

IRM 5.1.7.10 summarizes the same rule for IRS collection employees: such tax "shall not be assessed. Tax already assessed shall be abated, and if already collected, shall be credited or refunded as an overpayment."

IRS Publication 3 for 2025 returns adds that the rules also apply to a member serving outside the combat zone if the service was in direct support of military operations in the zone and qualified the member for hostile fire or imminent danger pay. It also says the beneficiary or estate does not pay tax on amounts received that would have been included in the member's income for the year of death.

Missing in action

IRC 692(b) treats the date of death of a member in missing status as no earlier than the date a determination of death is made under 37 U.S.C. 556. Publication 3 puts it more simply: the date of death is the date the name is removed from missing status for military pay purposes, even if death occurred earlier. The statute limits this for years beginning more than two years after combatant activities in the zone end.

Terroristic or military action

IRC 692(c) is broader in one respect. It covers any individual who dies while a military or civilian employee of the United States, if death results from wounds or injury incurred while an employee in a terroristic or military action. Tax does not apply for the year of death and for prior years back to the last tax year ending before the year the wounds or injury occurred.

The statute defines terroristic or military action as terrorist activity a preponderance of the evidence shows was directed against the United States or its allies, or military action involving U.S. Armed Forces resulting from violence or aggression against the United States or its allies (or threat of it). Training exercises do not count. Multinational forces in which the United States participates are treated as allies.

Publication 3 gives an example: an Army private who died in 2025 of wounds from a terrorist attack in 2024 has his income tax forgiven for 2023 through 2025.

Federal civilian families should note that word "civilian." This rule is not limited to uniformed service. Section 692(d) separately addresses specified victims of certain terrorist attacks, with its own rules, including a $10,000 minimum benefit for those victims.

How to claim it: the five steps

Publication 3 lays out the process the personal representative should follow.

1. File the right form. If no return was filed for the year, file a paper Form 1040 or 1040-SR with the W-2. If a return was filed, file a paper Form 1040-X, one for each year.
2. Mark the return. Write the conflict or action at the top of page 1 and on the total tax line, for example "Enduring Freedom, KIA" or "Iraqi Freedom, KIA" as Publication 3 shows them. For a terrorist action, write "KITA."
3. Attach a computation. Show the tax before forgiveness and the amount forgiven.
4. Attach Form 1310 if required. Form 1310 is not needed for a surviving spouse filing an original or amended joint return, or for a personal representative filing an original return with a court certificate of appointment attached.
5. Attach the death certification. For military and DoD civilian personnel, the Department of Defense provides it on DD Form 1300, Report of Casualty. For civilian employees of other agencies killed overseas, it is a letter from the Director General of the Foreign Service or a delegate.

Publication 3 lists the mailing address as Internal Revenue Service, 333 W. Pershing Street, Stop 6503, P5, Kansas City, MO 64108, and states these returns must be filed on paper. Revenue Procedure 2004-26 has additional detail.

Paper return. Correct marking. A computation. The casualty report. That is the package.

Joint returns and community property

Only the deceased member's share of a joint liability is forgiven. Publication 3 explains the calculation: figure the tax on separate returns for each spouse, then multiply the joint tax by the deceased spouse's share of the combined separate-return tax. If you cannot do that, attach a statement of all income and deductions showing whose is whose, and the IRS will compute it.

In a community property state, Publication 3 says a spouse who reported half of the military pay can get a refund of tax on that share, and forgiveness of unpaid tax on the military pay also applies to the spouse's half.

Deadlines

The general refund deadline applies: three years from when the return was filed or two years from when the tax was paid, whichever is later. But if the death was combat zone related, Publication 3 says the deadline is extended under the combat zone rules of IRC 7508. See the combat zone deadline extension. If you have the death certification but not enough tax information to finish, Publication 3 says to file the return or Form 1040-X with Form 1310 by the deadline, with a statement that an amended claim will follow.

What if the IRS is already collecting?

Notices may keep coming for a while, because IRS systems do not always know. Respond in writing, state that the member died under circumstances covered by IRC 692, and include the death certification. Ask that collection be stopped and the balance abated. If you need someone to speak to the IRS for the estate, a personal representative can authorize a representative on Form 2848. See powers of attorney for military families.

If the death was not covered by section 692, the estate may still face IRS issues, but the ordinary rules for decedents apply. Get advice before paying anything out of the estate.

Nobody should have to fight the IRS while grieving. The law is on your side here. Use it, and lean on help.