ROANOKE TIMES 
                      Copyright (c) 1996, Roanoke Times

DATE: Saturday, February 17, 1996            TAG: 9602190012
SECTION: VIRGINIA                 PAGE: C-3  EDITION: METRO 
SOURCE: MAG POFF STAFF WRITER 

IRS WANTS ITS CUT FROM RETIREE DEAL

The Internal Revenue Service said payments received by federal retirees in Virginia may be taxable on 1995 federal income-tax returns filed this year.

More than 140,000 federal retirees in Virginia received their first checks last March after accepting the state's offer to settle a dispute over the taxation of federal retirement benefits. Federal retirees who did not accept the settlement received refund checks with interest.

The Virginia Department of Taxation mailed those taxpayers Form 1099-G (titled "certain government payments'') in January, reporting the amount received. It went to those who either accepted the settlement and itemized federal deductions for any of the years involved in the settlement (1985-88), or who received a refund with interest.

The IRS said retirees who accepted the settlement should determine whether they itemized their federal deductions for any of the years on which the settlement was calculated. If they did, they should report the amount that appears in Box 2 of Form 1099-G on Line 10 of Form 1040.

Retirees who received a refund and interest should report the interest amount that appears in Box 3 of Form 1099-G on Line 8A of Form 1040. In addition, they must follow the same steps (above) as all retirees.

Retirees who did not itemize and who did not receive a refund with interest should not have been issued Form 1099-G. If they were sent one in error, the IRS said, they need not include any amount reported on that form on their 1995 tax return.

The IRS said it is not necessary for retirees to file amended returns for the years involved in the settlement. But they must use Form 1040 for 1995.

Taxpayers with questions can call the IRS toll-free at (800)829-1040 between 7:30 a.m. and 5:30 p.m. Monday through Friday. The best time to call, according to the agency, is early in the day Wednesday through Friday.

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