Revises 26 U.S.C. §122 to (1) provide that, for members or former members of the Armed Forces, gross income does not include any retired or retainer pay paid under titles 10 or 14 and specified compensation, pension, pay, annuity, or allowance under titles 10, 14, 37, or 38 in connection with disability, combat-related injury, or death; and (2) retain a special-rule framework for members of other uniformed services excluding reductions in retired or retainer pay and defining 'consideration for the contract' consistent with existing section 72(n) references.

Amends subsection (n) of 26 U.S.C. §72 by qualifying a reference to 'Subsection (b)' so that the subsection (b) rule applies specifically to members or former members of the uniformed services other than members or former members of the Armed Forces.

Repeals 10 U.S.C. §1403 and directs a clerical amendment to the table of sections at the beginning of chapter 71 to remove the item relating to section 1403.