THE VIRGINIAN-PILOT 
              Copyright (c) 1994, Landmark Communications, Inc.

DATE: Wednesday, August 10, 1994             TAG: 9408100452
SECTION: LOCAL                    PAGE: B3   EDITION: FINAL 
SOURCE: ASSOCIATED PRESS 
DATELINE: RICHMOND                           LENGTH: Medium:   53 lines

STATE BLAMES U.S. FOR GLITCH IN PENSION REFUNDS THE MISTAKE WON'T JEOPARDIZE THE RETURN OF $340 MILLION OVER 5 YEARS.

Misinformation about the income of about 80,000 military retirees has caused a glitch in Virginia's program to rebate to federal pensioners taxes illegally collected from them, state officials said.

But the mistake will not jeopardize the program for returning $340 million to federal civilian and military retirees during the next five years, state Tax Commissioner Danny Payne said Monday.

The military retirees got tax overpayment notices from the state government telling them there was some misinformation about what they earned for the disputed tax period of 1985-1988.

Mark Miner, chief spokesman for Attorney General James S. Gilmore III, said the Defense Department gave the state ``incorrect data on annuities paid to federal military retirees.''

``Everyone's income is off by one year,'' Miner explained. ``For example, the information John Doe has on his 1987 pension actually refers to 1988.''

In other words, ``all the years are messed up except 1985,'' he said.

Michael Kator, a lawyer for about 400 federal pensioners, said the state is passing the buck and putting an unnecessary burden on military pensioners.

``To say that the Department of Defense screwed up is scapegoating in the extreme,'' Kator argued. ``The state is good at pointing the finger.''

It is unfair, he said, to expect pensioners or their heirs to produce the correct numbers from their records.

But Payne said he is confident that the pensioners have records to make the changes.

Last month, the General Assembly and Gov. George F. Allen endorsed the out-of-court settlement for some 186,000 illegally taxed federal pensioners.

Miner said the Virginia Department of Taxation caught the error by the Defense Department.

Payne said his department will notify the federal pensioners this week about the error.

KEYWORDS: IF YOU HAVE QUESTIONS

MILITARY RETIREES AFFECTED BY A GLITCH IN THE REPORTING OF INCOME

INFORMATION WILL HAVE TO FILE FORM FR 2 BY NOV. 1 TO PRESERVE THEIR

RIGHTS TO RECOVER THE TAXES THE STATE ILLEGALLY COLLECTED FOR

TAXABLE YEARS 1985-88.

THE STATE'S NUMBER FOR PENSIONERS WITH QUESTIONS TO CALL IS (800)

730-8730.

by CNB