I just did a return for a client with one of those. He has an annual exclusion amount of something like $1,800, which is recovering his cost basis over a number of years until he reaches age 80 or 85, as I recall. We calculated it back when he retired, and it may have been a disability pension until he reached normal retirement age.
I'm assuming you have not done his returns since he retired, so you are missing part of the story. If you are lucky, he is a retired letter carrier, and before that a military veteran. Those guys often keep good records -- this client happened to mention he has copies of all his tax returns going back to the '70s. The sign on your door may say "Tax Return Preparation," but we know that it often includes "Private Detective and Investigations."
