Citation Nr: 1340083 Decision Date: 12/04/13 Archive Date: 12/18/13 DOCKET NO. 06-08 353 ) DATE ) ) On appeal from the Department of Veterans Affairs Regional Office in Manila, the Republic of the Philippines THE ISSUE Whether recoupment of the Veteran's separation pay in the amount of $12,579.60 was proper. REPRESENTATION Appellant represented by: Paralyzed Veterans of America, Inc. ATTORNEY FOR THE BOARD Rutkin, Joshua M. INTRODUCTION The Veteran served on active duty from October 1986 to October 1996. This appeal before the Board of Veterans' Appeals (Board) stems from an October 2005 decision of the Department of Veterans Affairs (VA) Regional Office (RO) in Manila, the Republic of the Philippines, which determined that $12,579.60 in service separation pay must be recouped from the Veteran's VA compensation benefits. The Veteran has a number of other claims on appeal before the Board which are addressed under separate cover. See BVA Directive 8430, "Board Decision Preparation and Processing: Policies and Responsibility Assignments," ¶ 14(c)(10)(a)(7). FINDINGS OF FACT 1. In October 1996 the Veteran received separation pay in the amount of $12,579.60 based on a single period of active military service. 2. The Veteran has been in receipt of VA compensation benefits for service-connected disabilities since October 20, 1996. 3. VA notified the Veteran in a July 2005 letter of its intent to stop disability compensation benefits effective October 1, 2005 in order to recoup the $12,579.60 he received in separation pay. 4. Termination of benefit payments went into effect on October 1, 2005 until the full amount of the $12,579.60 in separation pay was recouped. CONCLUSION OF LAW The recoupment of separation pay by withholding disability compensation benefits in the amount of $12,579.60 was proper. 10 U.S.C.A. §§ 1174, 1174a (West 2002); 38 C.F.R. § 3.700 (2013). REASONS AND BASES FOR FINDINGS AND CONCLUSION I. Procedural Due Process All procedural due process requirements have been satisfied. A July 2005 letter notified the Veteran of VA's proposal to terminate compensation benefits effective October 1, 2005 in order to recoup the full amount of his separation pay of $12,579.60. He was provided an opportunity of 60 days to submit evidence showing that VA should not undertake the proposed action. He was also notified of his rights to a personal hearing and of his right of representation. The July 2005 letter, and an October 2005 letter notifying him that the withholding of benefits had been effectuated as of October 1, 2005, also clearly explained the decision, its effective date, and the reasons for why his benefits were being withheld. Further, the Veteran was scheduled to testify at a hearing before a Decision Review Officer (DRO) on March 7, 2006, and was notified of the hearing date, time, and location in a February 2006 letter. He did not report for the hearing and did not provide a reason for his failure to appear or request that the hearing be rescheduled. Accordingly, the Veteran's procedural due process rights have been satisfied. See 38 C.F.R. § 3.103(b) (2013) (providing, in relevant part, that when VA action may adversely affect the award of compensation benefits, the beneficiary must be provided notice of the action and an opportunity to be heard in accordance with the provisions of this subsection). As the issue on appeal does not involve a reduction or discontinuance of benefits based on income, net worth, dependency, or marital or other status, the provisions of 38 C.F.R. § 3.105(h) (2013) regarding the procedural safeguards that must be afforded beneficiaries prior to such action being taken do not apply. Nevertheless, these procedural safeguards were likewise satisfied for the reasons discussed in the preceding paragraph, including with regard to the effective date of the withholding of benefits. See id. Because this appeal does not arise from a claim for VA benefits, and its outcome is determined by applicable law rather than disputed facts, the notice and assistance provisions under the Veterans Claims Assistance Act of 2000 (VCAA) do not apply. See Mason v. Principi, 16 Vet. App. 129, 132 (2002); Dela Cruz v. Principi, 15 Vet. App. 143 (2001); VAOPGCPREC 5-2004 (June 23, 2004); see also 38 U.S.C.A. §§ 5103, 5103A (West 2002); 38 C.F.R. § 3.159 (2013). II. Analysis The recoupment of a veteran's separation pay from his or her VA disability compensation is required by 10 U.S.C.A. § 1174(h)(2), which provides that a member of an armed force 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 or she is entitled under the laws administered by VA, 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. See 38 U.S.C.A. § 1174a(g) (providing, in pertinent part, that the provisions of 10 U.S.C.A. § 1174(h) also apply to the payment of special separation benefits to members of the Armed Forces); see also 38 C.F.R. § 3.700(a)(5) (VA's implementing regulation); VAOGCPREC 14-92 (holding, in pertinent part, that VA disability compensation should be offset to recoup the amount of special separation benefits received by a former member of the armed forces); VAOGCPREC 12-96 (holding that VA must recoup from a veteran's VA disability compensation the amount of "nondisability severance pay" received by the veteran under section 631 of Pub. L. No. 96-513). Where entitlement to VA disability compensation was established on or after September 15, 1981, a veteran who has received separation pay may receive disability compensation for disability incurred in or aggravated by service prior to the date of receipt of separation pay subject to recoupment of the separation pay. 38 C.F.R. § 3.700(a)(5). Where payment of separation pay was made on or before September 30, 1996, VA will recoup from disability compensation an amount equal to the total amount of separation pay. Id. Where payment of separation pay was made after September 30, 1996, or payment of special separation benefits under 10 U.S.C. 1174a was made on or after December 5, 1991, VA will recoup from disability compensation an amount equal to the total amount of separation pay less the amount of Federal income tax withheld from such pay. Id. The Federal income tax withholding amount is the flat withholding rate for Federal income tax withholding. Id. The receipt of separation pay does not affect the payment of disability compensation based on a subsequent period of service. 38 C.F.R. § 3.700(a)(5)(ii). Compensation payable for service-connected disability incurred or aggravated in a subsequent period of service will not be reduced for the purpose of offsetting separation pay based on a prior period of service. Id. The Veteran has been in receipt of VA service connection benefits since October 20, 1996. Service connection benefits for additional disabilities was established effective October 13, 2004. The Veteran only had one period of active service, and thus all service-connected disabilities were incurred or aggravated in the same period with respect to which he received separation pay. Therefore, compensation for all of the Veteran's service-connected disabilities is subject to recoupment. See 38 C.F.R. § 3.700(a)(5). The U.S. Department of the Navy informed VA that a separation payment of $12,579.60 had been made, and this payment is documented in the record. Accordingly, pursuant to 38 U.S.C.A. § 1174(h)(2) and 38 C.F.R. § 3.700(a)(5), VA terminated the Veteran's compensation benefits effective October 1, 2005 in order to recoup the $12,579.60 of separation pay. The Veteran has not disputed any of these facts, including whether the amount of $12,579.60 was correct. He has not stated and there is no other evidence showing that any Federal income taxes were withheld from this amount. Accordingly, the recoupment of the separation payment of $12,579.60 from the Veteran's VA disability benefits was proper, and indeed required by law. See id.; see also Sabonis v. Brown, 6 Vet. App. 426 (1994). The only arguments advanced by the Veteran for disputing the recoupment are based in interpretation and application of the law. He argued in an April 2006 statement that the recoupment was improper because he submitted his claims for VA disability compensation after he received his separation pay. However, the regulation makes clear that with regard to timing, the propriety of recoupment only turns on whether the disabilities for which compensation is received were incurred or aggravated in a period of service prior to the date of receipt of separation pay, rather than on when a claim for benefits was submitted. See 38 C.F.R. § 3.700(a)(5)(i). As the Veteran only had one period of active service, his service-connected disabilities all pertain to service that occurred prior to, and indeed for which, he received separation pay. Thus, the recoupment was proper with regard to chronology and the period of service concerned. The Veteran also argued in the April 2006 statement that because the separation payment was received from the Department of Defense rather than VA, it was not subject to recoupment by VA. However, as already discussed, these benefits are closely coordinated with each other, and may not be paid concurrently. See 38 C.F.R. § 3.700(a)(5) (citing 10 U.S.C.A. §§ 1174 and 1174a as statutory authority); see also VAOGCPREC 14-92 (discussing legislative history of 10 U.S.C.A. § 1174(h)(2) and 38 C.F.R. § 3.700(a)(5), and noting that the "effect" of subsection 3.700(a)(5) of the regulation was to "prevent duplication of payments of compensation and military separation and readjustment pay") (quoting 52 Fed. Reg. 27339 (July 21, 1987))). Put another way, VA has not withheld the payment the Veteran received from the Navy, but rather has offset its own benefits payments by the amount of compensation he received from the Navy for his service in order to prevent "duplication of payments," as required by law. Finally, in a January 2006 statement, the Veteran requested that if the $12,579.60 is considered a debt resulting in an overpayment of benefits, the overpayment be waived based on principles of equity and good conscience. See 38 C.F.R. §§ 1.962, 1.963, 1.965 (2013) (concerning waiver of overpayments when collection of the debt would be against equity and good conscience). In this regard, he cited financial hardship and his lack of fault in the matter. The Board empathizes with the financial hardships related by the Veteran. However, the Board does not find the $12,579.60 in separation pay that VA must recoup is properly characterized as a debt resulting in an overpayment of benefits, which would be subject to a waiver in certain circumstances, but rather is a statutorily-mandated offset of benefits under 38 U.S.C.A. § 1174(h)(2) and 38 C.F.R. § 3.700(a)(5). See Majeed v. Principi, 16 Vet. App. 421, 432 (2002) (observing that the Board failed to provide adequate reasons or bases in not addressing whether the amount of recoupment of special separation benefits was "properly classified as a 'debt' rather than part of the original statutorily-mandated offset under section 1174(h)(2)"). As defined in the regulations, "[T]he term overpayment refers only to those benefit payments made to a designated living payee or beneficiary in excess of the amount due or to which such payee or beneficiary is entitled." 38 C.F.R. § 1.962 (italics in original). In this case, there was no payment of benefits in excess of the amount due, but rather a stopping of payment of benefits in order to recoup the amount of separation pay the Veteran received, in what the United States Court of Appeals (Court) termed a "statutorily-mandated offset" in distinguishing this action from the recovery of overpayment of benefits resulting from a debt. Majeed, 16 Vet. App. at 432. Although the Veteran was informed in the July 2005 letter that if he accepted benefits during the 60-day period he was provided to contest the proposed recoupment action prior to its taking effect, it would result in an "overpayment" of the benefits he received during that period which must be paid back, in practical terms the recoupment action was simply delayed by two months. If the Veteran was charged interest on the benefits he received during that 60-day period, then at least the interest on, if not the entire amount, of benefits allocable to that period might be classified as a "debt" subject to waiver (the Board need not decide, since this issue is not before it), but there is no indication that such interest was charged. Thus, the provisions regarding waiver of overpayment of VA benefits resulting from the existence of a debt based on equitable principles, including financial hardship, do not apply to the mandatory prospective recoupment of military separation pay from such benefits. Accordingly, the Veteran's challenge of the recoupment must be denied as a matter of law. See Sabonis v. Brown, 6 Vet. App. 426 (1994). Because the law, rather than the facts, is dispositive of the outcome of this appeal, the benefit-of-the-doubt rule does not apply. See 38 U.S.C.A. § 5107 (West 2002); 38 C.F.R. § 3.102 (2013). ORDER Recoupment of separation pay was proper and the appeal is denied. ____________________________________________ P.M. DILORENZO Veterans Law Judge, Board of Veterans' Appeals Department of Veterans Affairs