Davis urges IRS to clarify tax benefit for retired safety officers

A House lawmaker is pushing the Internal Revenue Service to clarify a provision of federal law that affects federal, state and local retirees who served in public safety roles.

In a letter to IRS acting Commissioner Linda Stiff, Rep. Tom Davis, R-Va., asked the agency to clarify the definition of "public safety officer" to determine which retirees qualify for benefits provided under a 2006 pension protection law. The law allows retired public safety officers to exclude from income up to $3,000 per year in distributions from governmental plans used to purchase health insurance or long-term care insurance.

The law defines public safety officer as: "an individual serving a public agency in an official capacity, with or without compensation, as a law enforcement officer, as a firefighter, as chaplain, or as a member of a rescue squad or ambulance crew."

But federal retirees have not received adequate information as to their eligibility for benefits under the law, Davis wrote. "Many federal retirees who served in a law enforcement capacity but did not carry a badge and weapon or have arrest authority are unsure as to whether they may apply for the exclusion," he said.

Neither the IRS nor the Office of Personnel Management has provided retirees with adequate answers regarding eligibility, Davis said. Some retired public safety officers are reluctant to self-report the tax exclusion to the IRS because they fear the agency will rule them ineligible after their tax returns are filed, thus subjecting them to penalties.

Daniel Adcock, assistant legislative director for the National Active and Retired Federal Employees Association, said the organization sent a letter to members last September notifying them of the tax benefit. That spurred many questions from members about whether they would be eligible for the benefit.

"Congressman Davis agreed that it was time to try to get the IRS to be sensitive to this issue and that their information and guidance was needed," Adcock said. "We're trying to get a better definition of these folks who may be in the gray area of public safety officers."

Davis urged the IRS to develop better guidance on the law for taxpayer information call centers and in the 2007 version of a tax guide for civil service retirement benefits. He also urged the tax agency to provide more specific eligibility information to congressional offices and federal retiree and employee organizations.

Adcock said amending the law to better define public safety officers is a potential solution to the problem. He also said NARFE has been working with Davis to extend the tax exclusion to all federal and military retirees. "It gets you to nearly the same place as the premium conversion legislation," he said.

That legislation, introduced by Davis in February, would enable federal and military retirees to pay health insurance premiums with pretax dollars.

The House Oversight and Government Reform Committee passed the premium conversion bill in September. It now awaits action in the Ways and Means Committee, where it has stalled in recent years.

Because extending the public safety officer tax exclusion to all federal and military retirees would cap the maximum reportable amount at $3,000, Adcock said, it may be more likely to garner congressional support.

"It's going to be significantly cheaper than the premium conversion," Adcock said. "We're working to try to get this proposal into a larger tax bill."

The IRS would not comment on the letter, as a matter of policy against commenting on congressional action.