(a) General rule
In the case of a member or former member of the uniformed services of the United States, gross income does not include the amount of any reduction in his retired or retainer pay pursuant to the provisions of chapter 73 of title 10, United States Code.
(b) Special rule
(1) Amount excluded from gross income
In the case of any individual referred to in subsection (a), all amounts received as retired or retainer pay shall be excluded from gross income until there has been so excluded an amount equal to the consideration for the contract. The preceding sentence shall apply only to the extent that the amounts received would, but for such sentence, be includible in gross income.
(2) Consideration for the contract
For purposes of paragraph (1) and section 72(n), the term "consideration for the contract" means, in respect of any individual, the sum of—
(A) the total amount of the reductions before January 1, 1966, in his retired or retainer pay by reason of an election under chapter 73 of title 10 of the United States Code, and
(B) any amounts deposited at any time by him pursuant to section 1438 or 1452(d) of such title 10.
Prior Provisions
A prior section 122 was renumbered section 140 of this title.
Amendments
2014—Subsec. (b)(1). Pub. L. 113–295 struck out "after December 31, 1965," after "all amounts received".
1974—Subsec. (a). Pub. L. 93–406, §2007(a), substituted "United States, gross income does not include the amount of any reduction in his retired or retainer pay pursuant to the provisions of chapter 73 of title 10, United States Code" for "United States who has made an election under chapter 73 of title 10 of the United States Code to receive a reduced amount of retired or retainer pay, gross income does not include the amount of any reduction after December 31, 1965, in his retired or retainer pay by reason of such election".
Subsec. (b)(2). Pub. L. 93–406, §2005(c)(10), substituted "72(n)" for "72(o)".
Subsec. (b)(2)(B). Pub. L. 93–406, §2007(b)(1), inserted reference to section 1452(d) of title 10.
Effective Date of 2014 Amendment
Amendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.
Effective Date of 1974 Amendment
Amendment by section 2005(c)(10) of Pub. L. 93–406 applicable only with respect to distributions or payments made after Dec. 31, 1973, in taxable years beginning after Dec. 31, 1973, see section 2005(d) of Pub. L. 93–406, set out as a note under section 402 of this title.
Pub. L. 93–406, title II, §2007(c), Sept. 2, 1974, 88 Stat. 993, provided that: "The amendments made by this section [amending this section and sections 72, 101, and 2039 of this title] apply to taxable years ending on or after September 21, 1972. The amendments made by paragraphs (3) and (4) of subsection (b) [amending sections 101 and 2039 of this title] apply with respect to individuals dying on or after such date".
Effective Date
Pub. L. 89–365, §1(d), Mar. 10, 1966, 80 Stat. 33, provided that: "The amendments made by subsections (a) and (b) [enacting this section and amending section 72 of this title] shall apply with respect to taxable years ending after December 31, 1965. The amendment made by subsection (c) [amending section 101 of this title] shall apply with respect to individuals making an election under chapter 73 of title 10 of the United States Code who die after December 31, 1965."
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