Military Separation Pay/VA Disability Comp

What is the name of your state? KY but California when incident occurred in Nov. 1993.

I separated from the USN in November 1993 under the SSB (voluntary get out of jail free card) and received a lump sum payment on which I paid taxes. In April/May of 1995 I received word from the DVA that I was confirmed 30% disabled. The caveat was that they would not start paying me on a monthly basis until I repaid the lump sum amount. My Voc Rehab counselor says I am due back at least the money I paid in via taxes since I had to pay the money back before drawing compensation. In researching this I found the following here [url]http://www4.law.cornell.edu/uscode/10/1174.html[/url].

TITLE 10 Subtitle A PART II CHAPTER 59 Sec. 1174. h(2)

A member who has received separation pay under this section, or severance pay or readjustment pay under any other provision of law, based on service in the armed forces shall not be deprived, by reason of his receipt of such separation pay, severance pay, or readjustment pay, of any disability compensation to which he is entitled under the laws administered by the Department of Veterans Affairs, but there shall be deducted from that disability compensation an amount equal to the total amount of separation pay, severance pay, and readjustment pay received, less the amount of Federal income tax withheld from such pay (such withholding being at the flat withholding rate for Federal income tax withholding, as in effect pursuant to regulations prescribed under chapter 24 of the Internal Revenue Code of 1986). Notwithstanding the preceding sentence, no deduction may be made from disability compensation for the amount of any separation pay, severance pay, or readjustment pay received because of an earlier discharge or release from a period of active duty if the disability which is the basis for that disability compensation was incurred or aggravated during a later period of active duty.

The part I am concerned about begins with "Notwithstanding the above sentence. . ."

What, exactly, is this saying? I was on concurred enlistments from Jan 1985 until discharge in November 1993 without a break. My disabilities developed while I was in during that time.
Am I due back only the taxes I paid on the lump sum or the entire amount they withheld to recoup the separation pay, or nothing.

No offense to anyone, but I refer to hear from a lawyer, law student, or someone with such a background.

Thank you,

HP1181

[abezon]

You can amend your 2003 return to reduce the discharge income by 30% disability pay. This will reduce your taxable income & get you a refund. See a tax pro for help with form 1040X or contact JAG or other veterans' services for help.

The notwithstanding sentence seems to refer to someone who was in the military, left, then rejoined. But double check with JAG.