What are the rules and time limits for amending federal tax returns to claim refunds when CRDP is later recharacterized as CRSC?
Executive summary
When Combat-Related Special Compensation (CRSC) replaces Concurrent Retirement and Disability Pay (CRDP), the tax landscape can change because CRDP is taxable and CRSC is not; official and practitioner sources say veterans can seek federal tax refunds for years in which CRDP was taxed if CRSC is later applied retroactively, but the mechanics, deadlines, and limits involve separate VA/DFAS timetables and IRS rules, and the available reporting does not supply definitive IRS time‑limit language [1] [2] [3] [4].
1. What changes when CRDP is recharacterized as CRSC: taxed vs. tax‑free status
CRDP restores retired pay and is treated as taxable retired pay, while CRSC is classified as special compensation and is tax‑free; because an approved CRSC award causes DFAS to reconsider CRDP payments, retirees who receive retroactive CRSC may have taxable CRDP effectively replaced by nontaxable CRSC for the affected periods [1] [2] [5] [6].
2. The administrative side: DFAS, VA, and retroactive audits
DFAS will audit accounts and implement CRSC in place of CRDP when CRSC is approved, and DFAS or the service payment office may determine whether back payments are owed after a CRSC award or a change in VA compensation; an approved CRSC application triggers reconsideration of any CRDP payments [2] [3].
3. Filing amended tax returns: what the reporting says veterans can do
Law firms, veterans organizations, and community forums report that veterans may be able to claim federal refunds by filing amended tax returns for the year CRSC is awarded and prior years to which CRSC is retroactively applied, because amounts that were taxed as CRDP may become excludable as CRSC [1] [5] [4]. Several practical guides and veterans’ discussions note that amended returns are an available path when DFAS issues retroactive, nontaxable CRSC payments [4] [5].
4. Time limits and competing statutes: VA/DFAS vs. IRS
The VA’s CRSC program carries a six‑year time limit for filing CRSC claims to secure full back payments — claim within six years of a VA rating decision or entitlement to retired pay to preserve retroactive CRSC [3]. Sources make clear that DFAS will apply CRSC retroactively if awarded and will calculate back pay, but the reporting does not spell out the IRS statute of limitations or exact windows for filing amended federal tax returns in these situations; the secondary literature and forums advise weighing whether it’s worth amending returns for years that predate the current tax year [5] [4] [1].
5. Practical tensions and differing perspectives in the record
There is a tension in the sources: advocacy, law‑firm, and DFAS/VA material say retroactive CRSC can create grounds for tax refunds and that DFAS will audit accounts [1] [2] [3], while some forum contributors assert DFAS may not retroactively change pay entries on statements even when CRSC is awarded, leaving veterans to pursue amended returns themselves [4]. This divergence suggests administrative practice varies case‑by‑case and that many veterans rely on filing amended returns when DFAS does not revise prior year pay stubs [4] [5].
6. Bottom line, limits of available reporting, and next actions implied by the sources
The documented rules are: CRDP is taxable and CRSC is not; an approved CRSC application replaces CRDP for affected periods and may generate back pay from DFAS; VA imposes a six‑year limit for CRSC claims to secure retroactive payments [1] [2] [3]. The reporting confirms veterans may file amended federal returns to seek refunds for years turned nontaxable by CRSC [1] [5] [4], but the sources do not provide explicit IRS amendment‑deadline language or procedural steps; therefore, determining exact IRS refund windows and documentation requirements requires consulting IRS guidance or a tax professional after DFAS issues its CRSC decision and any back‑pay accounting [5] [4].