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If a member of the U.S. Armed Forces dies while in active service in a combat zone or from wounds, disease, or other injury received in a combat zone, the decedent’s income tax liability is forgiven for the tax year in which death occurred and for any earlier tax year ending on or after the first day the member served in a combat zone in active duty status.

Credit. Any forgiven tax liability that has already been paid will be refunded, and any unpaid tax liability at the date of death will be forgiven.

In addition, any unpaid taxes for prior years will be forgiven and any prior year taxes paid after the date of death will be refunded.

This provision also applies to a member of the Armed Forces serving outside the combat zone if the service:

• Was in direct support of military operations in the zone, and

• Qualified the member for special military pay for duty subject to hostile fire or imminent danger.

For a description of combat zone, see Combat Zone, earlier.

Missing status. The date of death for a member of the Armed Forces who was in a missing status (missing in action or prisoner of war) is the date his or her name is removed from missing status for military pay purposes. This is true even if death actually occurred earlier.

Above Information Extracted from IRS Publication #3, Armed Forces Tax Guide