Citation Nr: 0124084 Decision Date: 10/04/01 Archive Date: 10/09/01 DOCKET NO. 00-13 694 ) DATE ) ) On appeal from the Department of Veterans Affairs Regional Office and Independent Outpatient Clinic in Anchorage, Alaska THE ISSUE Whether the withholding of VA compensation payments to recoup an erroneous reimbursement of military separation pay is proper. REPRESENTATION Appellant represented by: Disabled American Veterans WITNESS AT HEARING ON APPEAL Appellant ATTORNEY FOR THE BOARD L. McCain Parson, Associate Counsel INTRODUCTION The veteran had active military service from June 1982 to September 1994. This matter comes before the Board of Veterans' Appeals (Board) on appeal from a July 1999 administrative decision by the Department of Veterans Affairs (VA) Regional Office (RO) and Independent Outpatient Clinic (IOC) in Anchorage, Alaska. A VA Form 21-22, Appointment of Veterans Service Organization as Claimant's Representative, dated in October 1999, reflects that the veteran appointed the American Legion as his legal representative. See 38 C.F.R. § 20.602 (2000). In January 2000, the veteran revoked the appointment of the American Legion in favor of the Disabled American Veterans. See 38 C.F.R. §§ 20.601, 20.607 (2000). FINDINGS OF FACT 1. The veteran was involuntarily separated from service in September 1994 due to failure of selection/ reappointment in the U.S. Marine Corps Reserves pursuant to 10 U.S.C.A. § 632. 2. The RO received notice in February 1995 that the veteran had received $48,837.01 in non-disability separation pay upon discharge from service. 3. Effective December 1995, the RO began withholding all of the veteran's VA compensation benefits in recoupment of his non-disability separation pay. 4. In July 1998, the entire balance of the non-disability separation pay had been withheld from the veteran's VA disability compensation benefits but not paid to the Defense Finance Accounting Service (DFAS). 5. Contemporaneous with VA fiscal adjustments undertaken to add a child to the veteran's dependency entitlement in October 1998, the veteran was erroneously reimbursed a portion of the non-disability separation pay previously recouped from his VA disability compensation payments. 6. By VA letter dated May 14, 1999, the RO informed the veteran that an erroneous reimbursement of separation pay in the amount of $28,526.00 had been made to him. 7. On July 21, 1999, the RO received the veteran's request that VA waive recoupment of the erroneous reimbursement of separation pay, or, in the alternative, implement an alternate repayment plan. 8. Effective August 1, 1999, VA reinstated the recoupment balance, withholding the full amount of VA disability compensation benefits to recoup the balance of non- disability separation pay erroneously reimbursed to the veteran in October 1998. 9. Based on administrative error and the veteran's assertions of financial hardship, VA implemented an alternate repayment plan. CONCLUSION OF LAW VA disability compensation benefits to which the veteran is entitled are subject to withholding in order to recoup the erroneous reimbursement of non-disability separation pay received by the veteran in October 1998, in accord with the current repayment plan. 10 U.S.C.A. § 1174(h)(2) (West 1991); 38 U.S.C.A. § 5107(a) (West 1991); 38 U.S.C.A. §§ 5103, 5103A (West Supp. 2001); 38 C.F.R. § 3.700(a)(5) (2001); VAOPGCPREC 12-96 (Nov. 21, 1996). REASONS AND BASES FOR FINDINGS AND CONCLUSION I. Preliminary Matter Recently enacted legislation, the Veterans Claims Assistance Act of 2000 (VCAA), Public Law No. 106-475, 114 Stat. 2096 (2000), contains extensive provisions modifying procedures for the development and adjudication of claims. The new statute is potentially applicable to all matters pending on the date of its enactment. See generally Holliday v. Principi, 14 Vet. App. 280 (2001); Karnas v. Derwinski, 1 Vet. App. 308 (1991). See also 66 Fed. Reg. 45,620 (Aug. 29, 2001) (codified as amended at 38 C.F.R. §§ 3.102, 3.156(a), 3.159, and 3.326(a)). Although it is clear, from its various provisions, that the VCAA applies to notice and development procedures in claims for disability benefits, it is by no means clear that it is applicable to a case where, as here, the resolution of the issue on appeal turns solely upon questions of law. In any event, however, as will be discussed in detail below, to whatever extent the VCAA governs here, the Board has determined that VA has met its duty to assist the veteran in the development of this claim. There is no dispute in this case as to the facts. Moreover, the Board is of the opinion that the statement of the case issued in April 2000 and the supplemental statement of the case issued in April 2001 have clearly and adequately informed the veteran of the law that governs the issue in this appeal, mandating full recoupment of separation pay to the Department of Defense (DOD) prior to payment of VA disability compensation. The veteran, in effect, disagrees with the laws governing the payment of military separation pay and VA benefits. Based upon the foregoing, VA has no outstanding duty to inform the veteran that any additional information or evidence is needed, as this is a case in which the laws and regulations, as opposed to the facts, govern its disposition. See 38 U.S.C.A. § 5102 (West Supp. 2001). As well, VA has a duty under the VCAA to assist the veteran in obtaining evidence necessary to substantiate his claim. In this instance, neither the veteran nor his representative has made reference any missing evidence that might aid his claim or otherwise affect the outcome of this matter. See 38 U.S.C.A. §§ 5103, 5103A, 5107(a) (West Supp. 2001). Accordingly, we find that VA has satisfied its duty to assist the veteran in apprising him as to the evidence needed, and in obtaining evidence pertaining to his claims, under both former law and the new VCAA. 38 U.S.C.A. § 5107(a) (West 1991); Pub. L. No. 106-475, § 3(a), 114 Stat. 2096, 2096-98 (2000) (codified as amended at 38 U.S.C. §§ 5103 and 5103A). The Board therefore finds that no useful purpose would be served in remanding this matter for yet more development. Such a remand would result in unnecessarily imposing additional burdens on VA, with no benefit flowing to the appellant. The Court of Appeals for Veterans Claims has held that such remands are to be avoided. See Winters v. West, 12 Vet. App. 203 (1999) (en banc), vacated on other grounds sub nom. Winters v. Gober, 219 F.3d 1375 (Fed. Cir. 2000); Soyini v. Derwinski, 1 Vet. App. 540, 546 (1991); Sabonis v. Brown, 6 Vet. App. 426, 430 (1994). In fact, the Court recently stated, "The VCAA is a reason to remand many, many claims, but it is not an excuse to remand all claims." Livesay v. Principi, ___ Vet. App. ___, No. 00-51 (Aug30, 2001). Before proceeding to adjudicate what would ordinarily be a rather straightforward matter, the Board finds it necessary to extend its discussion of the relevant facts and applicable legal criteria in order to address the veteran's various contentions as reflected in multiple statements written to his United States Senator, and forwarded, in turn, to the RO. II. Applicable Legal Criteria and Factual Background Federal statutes contain a number of provisions to assure that individuals do not receive duplicate benefits based upon the same military service. See, e.g., 38 U.S.C.A. § 5304(a) (West 1991), prohibiting the concurrent receipt of VA disability compensation and military retirement pay. As specifically pertinent to the present case, Congress has enacted certain statutory provisions to effectuate its policy of opposing double compensation where a military member is provided a lump-sum payment at separation from active service short of retirement. See 10 U.S.C.A. §§ 1174, 1212 (1988 & Supp. V 1993). The applicable provision of VA's Veterans Benefits Administration (VBA), Adjudication Procedure Manual, M21-1, reflects that service departments and other Federal agencies grant monetary benefits to veterans because of disability or length of service. See Manual M21-1, part IV, chapter 20, para 20.01 (Aug. 27, 1999). Their (e.g., service departments and other Federal agencies) laws usually contain specific limitations or prohibitions designed to prevent similar concurrent payments by VA. As a rule, their laws provide for elections, waivers, or administrative recoupments so that the claimant may choose between the available benefits. Id. If a claimant is entitled to monetary benefits under more than one provision of a law or regulation, the prohibition against duplication of benefits contained in 38 C.F.R. § 3.700 must be observed. Id. The DD Form 214 reflects that the veteran, a Marine Corps officer, was involuntarily separated from service due to a second failure of selection for promotion. See 10 U.S.C.A. § 632 (1988 & Supp. V 1993). Officers involuntarily discharged as a result of a second failure of selection may be entitled to either severance or separation pay, but not both. See Marine Corps Separation and Retirement Manual, MCO P1900.16, Chapter 5, para. 5006.6 (June 27, 1989); see also 10 U.S.C.A. § 1174(c)(1)(A), (d)(1). Separation pay awarded under section 1174 is paid to Regular and Reserve officers who are involuntarily discharged after completing at least 5 years of active duty but who do not qualify for retirement. Separation pay received pursuant to section 1174 is not considered a special separation benefit under 10 U.S.C.A. § 1174a. See VBA Manual M21-1, Part IV, Chapter 20, para. 20.32(a)(3) (August 27, 1999). The evidence of record reflects that the veteran received non-disability separation pay in a lump sum of $48,837.01. The provisions of 10 U.S.C.A. § 1174, specifically subsection 1174(h)(2), as in effect when the veteran received his separation pay, provided that 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 VA, but that there shall be deducted from that disability compensation an amount equal to the total amount of separation pay, severance pay, and readjustment pay received. See 10 U.S.C. § 1174 (1988 & Supp. V 1993); see also 10 U.S.C.A. § 632; VBA Manual M21-1, part III, chapter 2, para. 2.09 (Jan. 30, 1997). In February 1995, the veteran filed a VA Form 21-526, Veteran's Application for Compensation or Pension, which reflected that he had received a lump sum non-disability separation benefit in the amount of $48,837.01. By a rating decision dated in December 1995, service connection was awarded for ulcerative colitis, onychomycosis of both hands, thyroid orbitopathy of the right eye, bilateral varicose veins status post vein ligation, right shoulder impingement syndrome, and headaches, effective from September 2, 1994 (the date following separation from service). See 38 U.S.C.A. § 5110; 38 C.F.R. § 3.400(b)(ii)(2)(i). The assigned combined disability evaluation was 10 percent. In accord with the M21-1 provisions, the veteran was notified by VA letter in December 1995 that the non-disability separation pay must be recovered before he could receive disability compensation, because regulations prohibit the duplication of benefit payments. See 38 U.S.C.A. § 5304(a) (West 1991); 38 C.F.R. § 3.700(a)(5); VBA Manual M21-1, part IV, chapter 20, paras. 20.32 & 20.38(a) (Aug. 27, 1999). The effective date of payments, unless otherwise provided, was the date of receipt of the election (e.g., the VA Form 21- 526) subject to prior payments. See 38 C.F.R. § 3.400(j)(1); see also VBA Manual M21-1, part IV, chapter 20, para. 20.05 (August 27, 1999). According to a VA Form 21-8947, Compensation and Pension Award, dated in December 1995, offset/recoupment was initiated. See VBA Manual M21-1, part IV, chapter 20. The effect of that action was that the veteran would receive no actual disability payment from VA, and had no prospect of doing so for several years. See VBA Manual 21-1, part IV, chapter 20, para. 20.34 (August 27, 1999). After a personal hearing on the veteran's disability claims, a Hearing Officer's Decision in June 1998 awarded increased ratings for chronic headaches, ulcerative colitis, and varicose veins. Service connection was granted for alopecia with loss of eyelashes. The combined disability evaluation, then 90 percent, was made effective from September 2, 1994 (the date following separation from service). See 38 C.F.R. § 3.400(b)(2)(i); Fenderson v. West, 12 Vet. App. 119 (1999). The July 8, 1998 award notice informed the veteran of the following: Monthly rate Effective date Amount Withheld Reason for change $ 1,161.00^ Oct. 1, 1994 $ 1,161.00 Increased compensation begins subject to withholding of separation pay 1,192.00^ Dec. 1 1994 1,192.00 Cost of living increase begins 1,930.00^ Jan. 1, 1995 2,147.00 SMC* begins 1,192.00^ Feb. 1, 1995 1,192.00 SMC* stops 1,222.00^ Dec. 1, 1995 1,222.00 Cost of living increase begins 1,257.00^ Dec. 1, 1996 1,257.00 Cost of living increase begins 1,283.00^ Dec. 1, 1997 1,283.00 Cost of living increase begins ^- Monthly rate accounts for spouse; *SMC - Special monthly compensation In July 1998, the RO notified the veteran that, once a sum equivalent to the non-disability separation pay in the amount of $48,837.00 was collected, he would begin receiving monthly payments. The RO also attached a VA Form 21-8764, Disability Compensation Award Attachment, to explain certain factors concerning his benefits. In August 1998, the RO received a VA Form 21-686c, Declaration of Status of Dependents, that added one dependent male child to the veteran's award. In October 1998, the veteran submitted another VA Form 21-686c, to add a female child to his award. VA letters dated in October 1998 and May 1999 informed the veteran that his disability compensation award was amended, and that additional benefits were included for his spouse and children. Those letters also informed the veteran that, if the change/adjustments resulted in an overpayment of benefits, VA would notify him shortly of the exact amount of the overpayment and information about the repayment. A VA Form 20-6560, Notice of Benefit Payment Transaction, processed in April 1999, reflects that an error segment was identified in November 1998. The message code was 661 - RECOUPMENT BAL - NO RECURRING DEDUCTIONS. See VBA Manual, M21-1, part V, chapter 19, para. 19.08 (Sept. 4, 1998). Paragraph 19.08 provides that this message code is issued if a recoupment-type balance exists in an active master record without a recurring deduction. Id. The message code will be generated each month until a deduction is established or the balance is liquidated. The VBA Manual provides that the required actions include referring the VA Form 20-6560 with the claims folder to the Veterans Service Center, and that amended award actions should be effectuated immediately to offset recoupment balances, if appropriate. Id. A VA Form 20-8270, Compensation and Pension Master Record - Audit Writeout, generated on December 1, 1998, reflects "740 NOT ADJ - SEV/READJ/SEC 351 DED INVOLVED." See VBA Manual, M21-1, part V, chapter 19, para. 19.12 (Sept. 4, 1998). Paragraph 19.12 provides that this error code is produced if multiple service-connected conditions exist, with partial deduction for recoupment not permitting accurate automatic adjustment. On May 14, 1999, the VARO informed the veteran by letter that $28,526 of his separation pay had been erroneously returned to him when his son was added to his compensation award. The letter informed the veteran that the law considered payment of VA compensation and the receipt of separation pay to be a duplication of government benefits. The RO informed the veteran that it proposed to withhold his compensation until the full amount of separation pay had been recovered. Thereafter, VA compensation payments would be released and resumed automatically, upon full recovery of the separation pay. The letter also informed the veteran that, if withholding the full VA compensation benefits would cause him undue hardship, he could submit a request for an alternate repayment plan. That letter also informed the veteran that he had 60 days following the date of the notice to submit evidence to show that the proposed action should not be taken. The VA letter noted that if he waited more than 60 days to submit evidence, the adjustment to benefits would have already gone into effect, and his benefits would continue in that status while VA reviewed the additional evidence. The VA letter also advised the veteran that, if he continued to accept payments at the present rate for the next 60 days and it was then determined that the proposed adjustment had to be made, he would have to repay all or a part of the benefits received during the 60 days from the date of the May 14, 1999, notice. The letter also advised him that he could minimize his potential overpayment by sending a written statement asking that, beginning with his next check, his payments be reduced while the case was reviewed. However, if the request were made and, at the end of 60 days, the review showed that he should have received the higher rate, VA would restore the full rate from the date on which it was reduced. The May 1999 notice of proposed action also informed the veteran that if, within 30 days from the date of the notice, VA received a hearing request, payments would continue at the then present rate until the hearing was held and the testimony was reviewed. The RO also informed the veteran that, if he continued to receive the then current rate of payment until a hearing was conducted, an overpayment could result which would have to be repaid. The letter also informed the veteran that, if he requested a hearing but wished to minimize any potential overpayment, he should submit a statement asking that his benefits be reduced or suspended beginning with the next check. On July 9, 1999, the RO notified the veteran that the action outlined in the May 14, 1999, letter had been implemented, effective August 1, 1999. The RO again explained to the veteran that the law considered payment of VA compensation and the receipt of military separation pay to be a duplication of government benefits and that compensation would be withheld until the full amount of separation pay had been recovered. Thereafter, VA compensation benefits would be released automatically upon full recovery of the separation pay. The veteran was given notice of his appellate rights. On July 21, 1999, the RO received the veteran's request for a waiver of the erroneous payment of $28,526. He added a request that, if the request for waiver were denied, VA consider an alternate repayment plan based on undue financial hardship. He explained that he was undergoing vocational rehabilitation and was not gainfully employed. He proposed a repayment plan of $50 per month. He attached a VA Form 4- 5655, Financial Status Report (FSR), and requested an expedited reply. The FSR indicated that his spouse was employed. In brief, his monthly expenses included $600 for food, $385 for insurance, $200 for clothing, $100 for entertainment, and $200 for annual vacation savings, etc. In August 1999, the veteran filed a notice of disagreement with the May, July, and August 1999 determinations, and requested a hearing. For the period from August 1999 to January 2000, the veteran did not communicate directly with VA. Evidence received by the RO during that period was forwarded directly from the veteran's congressional representative, with whom the veteran had corresponded, to VA. In August 1999, the RO received congressional correspondence with multiple attachments from the veteran. In particular, a statement from the veteran dated July 30, 1999, reflects a request for an audit to ascertain whether the 28 percent tax- withholding rule had been applied to his separation payment of $48,837.01. He advanced his request for an alternate repayment plan due to financial hardship. In relevant part, the veteran asserted, in statements dated on August 9 and 10, that VA had initiated action to recoup the balance of the "overpayment" prior to the prescribed 60 days, and that VA had not responded to his request for a waiver of the debt or his request for an alternate repayment plan. The veteran also asserted that, since he had relied on being able to present evidence within the allotted 60 days, he should be allowed to exercise his option for a hearing as offered in the May 1999 letter, with the understanding that it would have the effect of restoring his benefit payments to the May 1999 rate until after the hearing was held and the testimony was reviewed. In addition, he requested: (1) proof that the overpayment occurred; (2) that VA inform him whether filing bankruptcy would absolve him of the debt; and (3) that VA address whether his debt could be reduced by the amount of Federal income tax withheld from his separation pay. The veteran's letters dated on August 9 and 10 also reflect that he had the counsel of an accredited representative at that time. On August 11, 1999, the VA Fiscal Operations staff provided the veteran with the report of an audit of his disability payments, indicating that the amount of non-disability separation pay received was $48,837.01. The VA letter informed the veteran that separation pay is not subject to proration or waiver, because that would constitute a duplication of government benefits. A review of the disbursements of disability benefits from December 1994 to June 1999 was noted to reflect: Period Months Amount Benefits Due Benefits Paid 12/01/94- 12/30/94 1 $ 1,192.00 $ 1,192.00 01/01/95- 01/30/95 1 2,147.00 2,147.00 02/01/95- 11/30/95 10 1,192.00 11,920.00 12/01/95- 12/30/95 1 1,222.00 1,222.00 01/01/96- 11/30/96 11 1,291.00 14,201.00 12/01/96- 11/30/97 12 1,328.00 15,936.00 12/01/97- 08/30/98 9 1,356.00 12,204.00 09/01/98- 11/30/98 3 1,410.00 4,230.00 12/01/98- 06/30/99 7 1,427.00 9,989.00 Total Due to Vet 55 months $ 73,041.00 Period Months Amount Disability Due Disability Paid 07/20/98 1 $ 7,472.00 $ 7,472.99 07/01/98- 09/30/98 3 1,283.00 3,849.00 10/07/98 1 30,867.00 30,867.00 10/01/98- 04/30/99 7 1,356.00 9,492.00 05/24/99 1 517.00 517.00 05/01/99- 06/30/99 2 1,427.00 2,854.00 Total Paid to Vet 15 months $ 55,051.99 Total amount VA disability benefits due veteran: $ 73,041.00 Total amount VA disability benefits paid to veteran: - 55,051.99 Total VA disability benefits withheld: 17,989.01 Total amount of non-disability separation pay: $ 48,837.01 Less total remaining VA disability benefits withheld: - 17,989.01 Total amount of non-disability separation pay to be recovered including $2,322.00 caused by audit of file: 30,848.00 In a November 1999 statement to his congressional representative, the veteran advanced his request for a waiver. In the alternative, he requested a fair and reasonable alternate repayment plan. He contended that the erroneous payment was an overpayment, and not a reimbursement of part or some of his separation pay, since the sum was not comparable. The veteran further asserted that he did not question the sums received in October, because he relied on the statements of his accredited representative that he was due a refund of taxes paid on his separation pay. Again, the veteran asserted that his situation was urgent. A VA Form 119, Report of Contact, dated December 8, 1999, reflects that repayment was considered due to administrative error and that the RO had attempted to contact the veteran several times regarding a satisfactory repayment plan. In pertinent part, a Report of Contact dated December 9, 1999, reflects that the veteran called the RO. He commented on the increase in overpayment amount by $2,322, and reported that he would withdraw the appeal if a repayment plan could be worked out. The veteran was informed that the minimum acceptable payment was $800 per month for a period of 36 months, to liquidate the $28,526 outstanding. A December 9, 1999, VA Memorandum to the Chief, Fiscal Service, from the Chief, Veterans Service Center (VSC), regarding the August 1999 audit letter reflects that an error had been made in computing the amount of the debt. The memorandum reflects that the veteran was due $1,161 per month for the period from October 1, 1994, to November 30, 1994, and that the veteran's debt should therefore be decreased by $2,322, as added on August 11, 1999. A VA Form 21-8947, Compensation and Pension Award, dated December 10, 1999, reflects that the recoupment amount was changed, due to administrative error. Specifically, the award of September 29, 1998, had returned previously recouped separation pay to the veteran. The amount then reflected as requiring recoupment was $23,713, with a total monthly deduction of $800. The downward adjustment was completed by the finance staff on December 10, 1999. On December 10, 1999, the RO contacted the veteran regarding the above adjustment, and informed him that the repayment plan for $800 per month was approved. By VA letter dated December 13, 1999, the RO informed the veteran of the repayment plan, and requested a statement withdrawing the appeal. The RO also informed the veteran that, if his statement was not received by January 13, 2000, it would be assumed that he no longer wished to have a repayment plan. In January 2000, the RO received both a handwritten note and a seven-page typed statement directly from the veteran. In brief, the veteran sought to apply the provisions of 38 C.F.R. §§ 1.900-1.950, specifically, 38 C.F.R. § 1.917, to demonstrate undue financial hardship and the need for a further reduction in the monthly recoupment amount. He proposed that the recoupment amount be reduced to $50.00 per month until the full amount was recouped. He also asserted that, under the current repayment plan, VA was withholding more than 15 percent of his net monthly VA compensation benefit to recoup his indebtedness to the service department, violating the provisions of 38 C.F.R. § 1.912a. The veteran also claimed that the RO's delay in approving a repayment plan had resulted in undue financial hardship, by withholding 100 percent of his disability benefits since August 1999. The veteran asserted that VA had yet to address his request for waiver of the indebtedness based on his inability to pay, citing 38 C.F.R. § 1.931. Again, the veteran claimed that he should be reimbursed and/ or given credit for the Federal income tax withheld from his separation pay, in the sum $13,674.36, to reduce his debt. He also requested another audit by fiscal services to reflect the corrections effected on December 10, 1999 by finance. The evidence of record reflects that the veteran did not appear for a scheduled meeting with the VA Service Center Manager and his accredited representative in March 2000. At that time, the veteran's representative was informed by the Service Center Manager that no overpayment, per se, existed, and that the withholding had to continue because it was to recoup a separation pay balance. The Service Center Manager also explained that VA was not attempting to recover the money erroneously paid to the veteran in 1998. VA had simply picked up the recoupment balance to be recovered with a date- of-last-payment adjustment. The Service Center Manager also informed the veteran's representative that a waiver could not be considered, as there was no overpayment. An April 2000 memorandum of meeting, drafted by the Service Center Manager, reflects that the veteran attended with his accredited representative. The veteran expressed his belief that the money withheld from the award of July 1998 should have recovered or fully offset the remaining balance of his separation pay. He asserted that the August 1999 audit supported that contention, and that was why he had received a check for $7,472.99 in July 1998. The Service Center Manager noted that the veteran's calculations were based on the amounts "Due" and not "Paid." The Service Center Manager explained to the veteran that the Department of Defense and VA records reflect that separation pay had not been fully offset, and that the audit accounted for all the money he was entitled to receive. The RO informed the veteran that it was possible that coding errors had allowed the money to be released to him and not to the Department of Defense. The memorandum of the meeting also reflects that the veteran interpreted the law as requiring the withholding, not necessarily the payment of the withheld sum. It was the veteran's contention that, as of July 1998, the money had been withheld and that should be enough to meet the law. The RO issued the veteran a statement of the case in April 2000. An April 2000 VA memorandum written by the Service Center Manager to the supervisor from Fiscal Operations reflects that a statement of the case had been issued explaining to the veteran that the separation pay must be recovered and not simply withheld. The service center manager inquired of Fiscal Operations why the money from the July 1998 award was paid out in increments, with the last payment being in October 1998. She opined that, if the money had been paid timely, it would have gone to Defense Finance and Accounting Service (DFAS). Since it was not, it appeared to have been sent to the veteran. Notes from a May 2000 conference call with Fiscal [Operations] reflects that, after an award is put into the computer system, the system takes control of the payment. It was noted that the lag time in this case was unusual, but there was no human intervention that caused the reimbursement. "The more changes and actions input at one time, the longer it takes to process. The money paid in October 1998 was from the award of September 1998, which omitted the codes for offset." Fiscal was notified by DFAS of the error, and that money was still in the system, requiring offsetting. In June 2000, the veteran again articulated numerous arguments for waiver, a reduced repayment plan based on undue financial hardship, and a personal hearing before a Hearing Officer. The RO scheduled hearings for the veteran in July and October 2000. The veteran did not appear. The RO informed the veteran in November 2000 that, if he failed to appear for the rescheduled hearing in December 2000, the hearing would not be rescheduled. The veteran did appear before a Hearing Officer in December 2000, via videoconference. The RO then issued a supplemental statement of the case regarding the appealed issue. A C&P Master Record - Audit Writeout, VA Form 20-8270, generated in November 2000, reflects "740 NOT ADJ - SEV/READJ/SEC 351 DED INVOLVED". The deduction amount remained $800, and the balance owing was $11,791. A December 2000 VA letter reflects that the veteran's disability compensation award was amended to reflect a cost- of-living increase (the remote out-years reflect the anticipated attainment of the age of majority by his two dependent children. Monthly rate Effective date $ 1509.00 12/01/00 1453.00 12/02/13 1374.00 08/31/16 The transcript of the personal hearing held in December 2000 reflects the veteran's argument that the provisions of 38 C.F.R. §§ 1.963-1.965 should be applied to ascertain whether the agency properly created the debt. It was asserted that the veteran did not commit fraud in the making of the debt, and that, therefore, the debt should be cleared. The representative testified that, if it was determined that the debt was properly created, the veteran proposed a $100 per month repayment plan until the agency was satisfied that the debt had been cleared. The veteran offered testimony as to the financial hardship imposed by the recoupment and other debts (e.g., a line of credit at the bank, dependent medical expenses, and VA mortgage). The transcript reflects that the veteran was involved in vocational rehabilitation, and that his family did not have extra money to get daycare. Therefore, he watched the children. The veteran testified that his family was getting by, but that it had been a struggle. He added that life pending the recoupment had not been as bad as he had thought it would be. Otherwise, he would have had to declare bankruptcy. The Hearing Officer informed the veteran that the law required full recoupment of separation/severance pay. She acknowledged that there was a mistake, in that the veteran was sent the money, but the remainder of the unreturned money - whatever the sum - needed to be withheld. III. Analysis The Board acknowledges the veteran's apparent frustration, as he believes he has articulated his position cogently and in a very comprehensive manner in multiple documents dated from July 1999 to the present. In adjudicating this case, the Board will also address collateral matters raised by the veteran that are germane to the issue on appeal. Congress, as recognized by the Internal Revenue Service, the Armed Forces, the Department of Transportation, and VA, has mandated that full recoupment of non-disability separation pay must be recouped before the veteran may receive disability compensation benefits. See 10 U.S.C.A. § 1174; 26 U.S.C.A. §§ 104, 3401; 38 U.S.C.A. § 5304. The Secretary of Veterans Affairs is also bound, in matters such as this, by the precedent opinions of the VA General Counsel. See 38 U.S.C.A. § 7104(c). An opinion of the VA General Counsel, VAOPGCPREC 14-92 (57 Fed. Reg. 49,746 (1992)) held, "In accordance with the provisions of 10 U.S.C.A. § 1174a and 38 C.F.R. § 3.700, VA disability compensation should be offset to recoup the amount of separation benefits received by a former member of the armed forces." See Sabonis v. Brown, 6 Vet. App. 426, 429 (1994). The Board emphasizes that it appears undisputed that, in October 1998, a portion of VA disability compensation, withheld pursuant to 38 U.S.C.A. § 5304, was erroneously reimbursed to the veteran instead of being released to the Department of Defense during routine fiscal operations in accordance with the law. See also 10 U.S.C.A § 1174(h)(2); 38 C.F.R. § 3.700(a)(5)(i). The veteran argues that, since the full amount of the non-disability separation pay had been withheld as of July 1998, the October 1998 disbursement of a portion of the withheld separation pay should not be subject to recoupment. In March and April 2000, the RO explained to the veteran and his representative that the Defense Finance Accounting Service (DFAS) had not received the full repayment of the separation benefit which the veteran had been paid at retirement. Consequently, the veteran's acceptance of the erroneously disbursed sum resulted in, not in an overpayment, but a restoration of the recoupment balance owed to the Department of Defense. Thus, the recoupment of the separation pay remained outstanding under the terms previously in effect before the reimbursement but for the administrative error, since the applicable law precludes the receipt of duplicate benefits. In the unusual case in which a recoupment balance is to be reinstated subject to withholding, as in this case, the new balance (total amount to be recouped minus the amount previously recouped) is subject to withholding. See VBA Manual M21-1, Part IV, Chapter 20, para. 20.35(e)(2)(c). In view of the prevailing law, the Board has determined, therefore, that that portion of non-disability separation pay erroneously released back to the veteran in October 1998 is subject to recoupment by withholding VA disability compensation benefits to which he would otherwise be entitled. Simply stated, the veteran is not entitled to receive the full VA disability compensation award until the full amount of non-disability separation pay received in 1994 has been withheld and paid to the service department. See VBA Manual M21-1, part IV, chapter 20, para. 20.34. Next, the Board addresses the veteran's assertion that he should be reimbursed for the Federal income tax withheld from his non-disability separation pay. The veteran believes that he is entitled to an offset of $13,674.36 in Federal income tax, which was withheld before he was paid the net amount of his non-disability separation pay. The veteran argues that, if VA accounts for the Federal income tax withheld on the non-disability separation pay, his debt would be reduced to $14,851.64. With all due respect for the apparent logic of the veteran's assertion, nowhere in the statutory language of 10 U.S.C.A. § 1174, as in effect when the veteran was involuntarily separated from service in 1994, is there any suggestion that the amount to be deducted should be adjusted downward to reflect taxes paid on the amount in question. The statute clearly stated, at that time, that the "total" amount of separation pay received shall be deducted. The exemption from taxation provided by 38 U.S.C.A. § 5301(a) applies only to payments of benefits due, or to become due, under laws administered by VA, i.e., title 38 of the United States Code. See VAOPGCPREC 67-91 (Aug. 30, 1991). We do note that Congress subsequently amended the statute, in Public Law No. 104-201 (Sept. 23, 1996), at title VI, subtitle E, § 653(a), to provide that the aforementioned total amount must be deducted, "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)." However, section 653(b) of that Act, at 110 Stat. 2583, expressly provides: "The amendments made by this section [amending subsec. (h)(2) of this section] shall take effect on October 1, 1996, and shall apply to payments of separation pay, severance pay, or readjustment pay that are made after September 30, 1996." Thus, the veteran may not receive the benefit of that later statutory amendment. Cf. Karnas, supra. See VBA Manual M21- 1, part IV, chapter 20, para. 20.32a(3) ("For payments received prior to October 1, 1996, recoup the pretax amount."). Inasmuch as VA does not have any discretion in the recoupment of the veteran's separation pay as received under title 10, the Board stresses that separation pay is not a benefit under VA laws, and, therefore, non-disability separation pay is not exempt from taxation pursuant to 38 U.S.C.A. § 5301. See VAOPGCPREC 12-96 (Nov. 21, 1996); VBA Manual M21-1, part IV, chapter 20, paras. 20.32 & 20.40. The United States Tax Court has held that a veteran is not entitled to re- characterize service readjustment pay as disability compensation excludable from gross income under section 104(a)(4) of the Internal Revenue Code and 38 U.S.C.A. § 5301(a). See Berger v. Commissioner, 76 T.C. 687, 695 (1981). In accord with the relevant provisions in effect at the time the veteran received his separation benefit in 1994, VA must recoup 100 percent of his separation pay, that is, the pretax amount. In sum, Congress did not provide for such an exemption, and, notwithstanding equitable arguments by the veteran, we may not infer one. Therefore, the veteran is not entitled to recover any of the Federal income tax withheld from the separation pay during the period of recoupment, nor is he entitled to a refund. See Palm v. United States, 904 F. Supp. 1312 (1995) (servicemember who upon separation receives lump sum payment upon which tax is paid is not entitled to a refund where government recoups lump sum payment by withholding disability payments until full amount of lump sum is recovered). The Board also observes that the veteran has sought to apply the provisions of 38 C.F.R. § 1.912a(e)(3) to reduce the monthly withholding during the period of recoupment. However, that regulation is applicable to the offset of military service debts associated with retirement and survivor benefits under chapter 73 of title 10, not the recoupment of non-disability separation pay under 10 U.S.C.A. § 1174. Therefore, the veteran's attempt to limit the monthly recoupment of non-disability separation pay from his VA disability compensation benefits, to 15 percent of his net compensation less all current deductions, under 38 C.F.R. § 1.912a(e)(3), is not for application. See also 38 U.S.C.A. §§ 5301(c), 5314. The Board now turns to address the veteran's request that recoupment be deferred or suspended pending a decision by the Board for Correction of Military Records (BCMR) to reclassify his discharge as a disability discharge based on the 90 percent rating evaluation later assigned by VA. The U.S. Court of Federal Claims (formerly the U.S. Claims Court) has held that VA disability ratings are not determinative of issues in military disability retirement cases. See 10 U.S.C.A. § 1201, Note 139 (West 1994); Lord v. U.S., 2 Cl. Ct. 749 (1983). While a former military member may be eligible for disability benefits from VA, it does not inexorably follow that he was disabled for further military duty at the time of his separation from service. See Furlong v. U.S., 153 Ct. Cl. 557 (1961). The Board does not intimate that the veteran should not seek to have his record corrected by a BCMR, if that is his desire. Nonetheless, to suspend repayment of the non- disability separation pay, as well as to continue disbursing monthly disability compensation benefits at the full rate pending the outcome of such a separate claims process, would not be in the best interest of VA or the veteran. The fact remains that VA would still collect 100 percent of his separation pay. See VBA Manual M21-1, part IV, chapter 20, para. 20.32(a)(5) (Nov. 9, 1998) (directing recoupment of the full amount of disability severance pay received for the same disability or disabilities at a rate not in excess of the current rate of compensation payable for the initial compensable evaluation assigned for those disabilities); see also 38 C.F.R. § 3.700(a)(3). The Board is not unsympathetic to the considerations voiced by the veteran, and takes this opportunity to address them. The veteran claims that the RO, in written and oral communications, misled him, which resulted in the forfeiture of certain rights. The Board has combed through the claims file to ascertain whether the veteran was given incorrect information in VA correspondence that impaired his ability to vindicate his rights. There is no indication that the VA letters sent to the veteran in May 1999 or July 1999 were misleading or incorrect as alleged by the veteran in his August 1999, November 1999, and January 2000 letters. Our review of the claims file demonstrates that the veteran was properly notified by the RO in May 1999 of the erroneous reimbursement, earmarked for DOD but sent, by mistake, to him. The May 14, 1999, VA letter properly informed the veteran that a hearing request within 30 days of the date of the letter, not 60 days, would enable him to continue receipt of benefits at the May 14, 1999, rate. Otherwise, the benefits would continue at the then present rate for 60 days following the notice, so that he could present evidence to show that the proposed action should not be taken. The veteran did not file a notice of hearing within the requisite 30 days to invoke a stay in the proposed reduction. For whatever reasons, after consulting with his service representative, the veteran did not respond to any requests until July 17, 1999, applying time computation rules at 38 C.F.R. § 3.110 and § 20.305. The hearing request, therefore, was received well outside the statutory 30 days, and could not serve as a basis to stay the proposed recoupment until the hearing was held and the evidence considered. See 38 C.F.R. § 1.912(c)(3). Even so, the veteran had not lost his right to a hearing. As a matter of fact, the veteran was provided opportunities to express his opinions and present evidence before the Service Center Manager and a Hearing Officer during this appeal. See 38 C.F.R. § 3.103(c)-(d). The veteran has asserted that, but for VA taking action to implement the recoupment prior to the agreed upon 60 days as reflected in the May 14, 1999, notice of proposed action, he would still be receiving disability compensation benefits at the full rate. The Board stresses that the submission of a financial status report on July 21, 1999, was not sufficient to stay the proposed action during the review process. Moreover, as reflected in the July 9, 1999, VA administrative decision, the recoupment action was not effective until August 1, 1999, which afforded the veteran adequate opportunity to submit other evidence. Nonetheless, evidence received by the RO on July 21, 1999, did not demonstrate that the proposed recoupment of the non-disability separation pay was improper, that is, in error. Therefore, the veteran had not demonstrated that the proposed recoupment of the non- disability separation pay should not take place so as to justify the continuation of disability compensation benefits at the full rate as mandated by law. As a matter of fact, in July and August 1999, the veteran requested an alternate repayment plan based on undue financial hardship, and a waiver of the recoupment. At this juncture, the Board turns its attention to address the veteran's attempts to obtain waiver of the sum owed to the Department of Defense based on financial hardship by applying the provisions of 38 C.F.R. § 1.912 and § 1.912a. Collectively, those provisions reflect that VA shall collect debts by administrative offset from any payments made by VA to an individual indebted to VA. The Board stresses that the veteran has not incurred a debt that is owed to VA in ths case. No overpayment of VA benefits has occurred. In August 1999 and in March 2000, the RO informed the veteran that waiver was not an option to the recoupment of separation pay. Essentially, VA does not have jurisdiction to waive repayment of the separation pay to DOD. See 38 U.S.C.A. §§ 5304, 5314; 38 C.F.R. § 1.963. Therefore, the only option available, as presented to the veteran in May 1999, was an alternate repayment plan. There simply is no authority in the law that would permit the VA to grant the veteran's request for relief from total recoupment of the erroneous reimbursement of non- disability separation pay. See Sabonis v. Brown, supra. VBA Manual M21-1, part IV, chapter 20, para. 20.34, reflects that any account having a total recoupment of VA benefits because of receipt of readjustment pay, or disability severance pay under 10 U.S.C.A. § 1174 or § 1174a is not subject to apportionment until recoupment is complete. In essence, the veteran is not entitled to receive VA compensation until the non-disability separation pay has not only been withheld but also paid to the Department of Defense. The Board stresses that the RO appropriately considered and deliberated on the veteran's July 21, 1999, request for an alternate repayment plan, taking into consideration the veteran's financial status report as demonstrated by the Report of Contacts dated in December 1999. The veteran claims that an alternate repayment plan could have been established in July 1999. It is important to note that the veteran's correspondence to the VA dated on July 11 was not received until July 21. While it is not impossible, it is not likely that an alternate repayment plan could have been established before August 1, 1999, since the veteran's proposed repayment plan was not evaluated by the RO as an accurate reflection of his ability to pay. It is important to note that, after the veteran filed his request for an alternate repayment plan in July 1999 and expressed the need for immediate relief, all correspondence received from the veteran thereafter was through his congressional representative. The veteran did not correspond directly with the RO until December 1999. In December 1999, the RO made concerted efforts to assist the veteran in establishing an alternate repayment plan. See 38 C.F.R. § 1.917(b). By accepting an alternate repayment plan and continuing partial payments of VA compensation benefits to the veteran, VA not only acknowledged administrative error in the reimbursement of the non-disability separation pay but also the potential financial hardship to the veteran. The Board acknowledges that VA is not limited by a three-year window to recoup the restored balance created by the reimbursement of separation pay, but recoupment must comport with the intent of the applicable regulations. With the RO establishing an expedient repayment plan with the dual purpose of avoiding a duplication of government benefits and limiting potential financial hardship, the veteran would resume receiving full monthly VA disability compensation benefits at an earlier date. See generally 38 C.F.R. § 1.917 (whenever feasible, and except as provided by law, debts owed to VA . . . shall be collected in full in one lump sum, but payments may be accepted in regular installments when the debtor is financially unable to pay the debt in one lump sum). The Board stresses that, while VA has applied this law to the veteran's case, the sum subject to recoupment is not a debt owed to VA. Having considered the evidence of record, the Board finds that there is no indication that the VARO acted in a callous or arbitrary manner in handling the veteran's claim, as suggested by the veteran in statements dated in August 1999, November 1999, and January 2000. It appears that, in modifying the recoupment terms (e.g., partial withholding versus total withholding each month), the RO considered the veteran's financial circumstances and the family's apparent disposable income. A review of the financial status report presented in July 1999 reflects that the veteran spent $600 per month for food, $100 per month for entertainment, and $200 per month for clothing, as well as saving $200 per month for vacation. That report also reflects that his wife, born in 1956, was employed. In sum, VA has considered the veteran's financial circumstances, probably not to the extent desired by the veteran, but to the extent that the intent of the law has been met so that the recoupment would not cause him or his family undue financial hardship. See 38 C.F.R. § 1.917(b). The Board stresses that the March 2001 supplemental statement of the case informed the veteran that the then current sum to be recovered was $8,951.00. Based on the current withholding of $800.00 per month, the sum of the separation pay to be recouped would be liquidated in approximately February 2002. Finally, the veteran inquired as to whether he could liquidate the remaining sum by filing bankruptcy. Case law on this issue from the United States Bankruptcy Courts reflects that, since the statutory directive to recoup the readjustment pay is not a debt or claim, there is no debt to discharge under 11 U.S.C.A. § 727 and the United States is entitled to recoup the readjustment pay. See In re Boyd, 223 B.R. 536 (1998) (citing In re Keisler, 176 B.R. 605 (1994)); 10 U.S.C.A. § 1174. Thus, there is no bankruptcy protection available to prevent recoupment of non-disability separation pay. Even considering the various other arguments advanced by the veteran with respect to the non-disability separation pay and the recoupment thereof, the outcome of this appeal, which is mandated by law, is unchanged. In cases such as this, where the law is dispositive, the claim should be denied because of the absence of legal merit. See Sabonis v. Brown, 6 Vet. App. 426 (1994). ORDER VA disability compensation benefits to which the veteran is entitled are properly subject to withholding in order to recoup the erroneous reimbursement of non-disability separation pay received by the veteran. The appeal is denied. ANDREW J. MULLEN Member, Board of Veterans' Appeals