26 USC 122 - Certain reduced uniformed services retirement pay

(a) General rule 
In the case of a member or former member of the uniformed services of the United States, gross income does not include the amount of any reduction in his retired or retainer pay pursuant to the provisions of chapter 73 of title 10, United States Code.
(b) Special rule 

(1) Amount excluded from gross income 
In the case of any individual referred to in subsection (a), all amounts received after December 31, 1965, as retired or retainer pay shall be excluded from gross income until there has been so excluded an amount equal to the consideration for the contract. The preceding sentence shall apply only to the extent that the amounts received would, but for such sentence, be includible in gross income.
(2) Consideration for the contract 
For purposes of paragraph (1) and section 72 (n), the term consideration for the contract means, in respect of any individual, the sum of
(A) the total amount of the reductions before January 1, 1966, in his retired or retainer pay by reason of an election under chapter 73 of title 10 of the United States Code, and
(B) any amounts deposited at any time by him pursuant to section 1438 or 1452(d) of such title 10.