SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Combat-Injured Veterans Tax Fairness 
Act of 2016''.

SEC. 2. FINDINGS.

    Congress makes the following findings:
            (1) Approximately 10,000 to 11,000 individuals are retired 
        from service in the Armed Forces for medical reasons each year.
            (2) Some of such individuals are separated from service in 
        the Armed Forces for combat-related injuries (as defined in 
        section 104(b)(3) of the Internal Revenue Code of 1986).
            (3) Congress has recognized the tremendous personal 
        sacrifice of veterans with combat-related injuries by, among 
        other things, specifically excluding from taxable income 
        severance pay received for combat-related injuries.
            (4) Since 1991, the Secretary of Defense has improperly 
        withheld taxes from severance pay for wounded veterans, thus 
        denying them their due compensation and a significant benefit 
        intended by Congress.
            (5) Many veterans owed redress are beyond the statutory 
        period to file an amended tax return because they were not or 
        are not aware that taxes were improperly withheld.

SEC. 3. RESTORATION OF AMOUNTS IMPROPERLY WITHHELD FOR TAX PURPOSES 
              FROM SEVERANCE PAYMENTS TO VETERANS WITH COMBAT-RELATED 
              INJURIES.

    (a) In General.--Not later than one year after the date of the 
enactment of this Act, the Secretary of Defense shall--
            (1) identify--
                    (A) the severance payments--
                            (i) that the Secretary paid after January 
                        17, 1991;
                            (ii) that the Secretary computed under 
                        section 1212 of title 10, United States Code;
                            (iii) that were not considered gross income 
                        pursuant to section 104(a)(4) of the Internal 
                        Revenue Code of 1986; and
                            (iv) from which the Secretary withheld 
                        amounts for tax purposes; and
                    (B) the individuals to whom such severance payments 
                were made; and
            (2) with respect to each person identified under paragraph 
        (1)(B), provide--
                    (A) notice of--
                            (i) the amount of severance payments in 
                        paragraph (1)(A) which were improperly withheld 
                        for tax purposes; and
                            (ii) such other information determined to 
                        be necessary by the Secretary of Treasury to 
                        carry out the purposes of this section; and
                    (B) instructions for filing amended tax returns to 
                recover the amounts improperly withheld for tax 
                purposes.
    (b) Extension of Limitation on Time for Credit or Refund.--
            (1) Period for filing claim.--If a claim for credit or 
        refund under section 6511(a) of the Internal Revenue Code of 
        1986 relates to a specified overpayment, the 3-year period of 
        limitation prescribed by such subsection shall not expire 
        before the date which is 1 year after the date the information 
        return described in subsection (a)(2) is filed. The allowable 
        amount of credit or refund of a specified overpayment shall be 
        determined without regard to the amount of tax paid within the 
        period provided in section 6511(b)(2).
            (2) Specified overpayment.--For purposes of paragraph (1), 
        the term ``specified overpayment'' means an overpayment 
        attributable to a severance payment described in subsection 
        (a)(1).

SEC. 4. REQUIREMENT THAT SECRETARY OF DEFENSE ENSURE AMOUNTS ARE NOT 
              WITHHELD FOR TAX PURPOSES FROM SEVERANCE PAYMENTS NOT 
              CONSIDERED GROSS INCOME.

    The Secretary of Defense shall take such actions as may be 
necessary to ensure that amounts are not withheld for tax purposes from 
severance payments made by the Secretary to individuals when such 
payments are not considered gross income pursuant to section 104(a)(4) 
of the Internal Revenue Code of 1986.

SEC. 5. REPORT TO CONGRESS.

    (a) In General.--After completing the identification required by 
section 3(a) and not later than one year after the date of the 
enactment of this Act, the Secretary of Defense shall submit to the 
appropriate committees of Congress a report on the actions taken by the 
Secretary to carry out this Act.
    (b) Contents.--The report submitted under subsection (a) shall 
include the following:
            (1) The number of individuals identified under section 
        3(a)(1)(B).
            (2) Of all the severance payments described in section 
        3(a)(1)(A), the aggregate amount that the Secretary withheld 
        for tax purposes from such payments.
            (3) A description of the actions the Secretary plans to 
        take to carry out section 4.
    (c) Appropriate Committees of Congress Defined.--In this section, 
the term ``appropriate committees of Congress'' means--
            (1) the Committee on Armed Services, the Committee on 
        Veterans' Affairs, and the Committee on Finance of the Senate; 
        and
            (2) the Committee on Armed Services, the Committee on 
        Veterans' Affairs, and the Committee on Ways and Means of the 
        House of Representatives.
Output: Combat-Injured Veterans Tax Fairness Act of 2016 This bill directs the Department of Defense (DOD) to identify:   certain severance payments to veterans with combat-related injuries paid after January 17, 1991, from which DOD withheld amounts for tax purposes, and  the individuals to whom such severance payments were made.   DOD shall provide each such veteran with:   notice of the amount of improperly withheld severance payments, and   instructions for filing amended tax returns to recover such amount.  The period for filing a related claim with the Internal Revenue Service for a credit or refund is extended beyond the three-year limitation to the date that is one year after DOD provides the veteran with the information required by this Act. DOD shall ensure that amounts are not withheld for tax purposes from DOD severance payments to individuals when such payments are not considered gross income.