Citation Nr: 1416756 Decision Date: 04/15/14 Archive Date: 04/24/14 DOCKET NO. 08-19 890 ) DATE ) ) Received from the Department of Veterans Affairs Regional Office in Montgomery, Alabama THE ISSUE Entitlement to waiver of recovery of an overpayment of nonservice-connected pension benefits in the amount of $72,669.80, to include whether the overpayment was properly created. REPRESENTATION Appellant represented by: The American Legion WITNESS AT HEARING ON APPEAL The Veteran ATTORNEY FOR THE BOARD K. Neilson, Counsel INTRODUCTION The Veteran served on active duty from June 1970 to January 1973. This matter comes before the Board of Veterans' Appeals (Board) on appeal from a February 2007 decision of the Committee on Waivers and Compromises (Committee) at the Department of Veterans Affairs (VA) Regional Office (RO) in Milwaukee, Wisconsin. By that decision, the Committee denied a waiver of recovery of an overpayment of nonservice-connected pension benefits. On June 8, 2010, the Veteran presented testimony at a hearing before a Veterans Law Judge. The Veterans Law Judge who conducted the June 2010 hearing is no longer employed at the Board. In April 2012, the Veteran and his representative were informed that because the Veterans Law Judge who had conducted the June 2010 hearing was no longer available to decide the case, the Veteran was entitled to another hearing before a different Veterans Law Judge. The Veteran was told that, if no response was received within 30 days, the Board would assume that another hearing was not desired. To date, no response has been received. The Board also notes that the instant matter was previously before it in August 2010, at which time it was remanded for further development. In its prior remand, the Board pointed out that at his June 2010 hearing, the Veteran had alleged that the issue of entitlement to VA pension benefits, to include an additional amount based on the need for regular aid and attendance, was also before the Board by virtue of him having filed a VA Form 9 (Appeal to the Board of Veterans' Appeals). (A review of the record shows that entitlement to pension was denied in May 2007. The Veteran filed a notice of disagreement (NOD) in September 2007 and the RO issued a statement of the case (SOC) in August 2008.) Based on the Veteran's assertion, the Veterans Law Judge took testimony on that issue. In the August 2010 remand, however, the Board pointed out that a substantive appeal concerning entitlement to pension benefits was not currently of record and stated that the Board's jurisdiction over that issue was conditional based on the existence of a timely substantive appeal. The Board therefore directed the agency of original jurisdiction (AOJ) to, on remand, determine whether a substantive appeal concerning the issue of entitlement to pension benefits had been received and, if so, to associate it and any other relevant documents with the claims folder. The Board instructed that the issue should only be returned to the Board if a timely substantive appeal had been filed. It is not clear what, if any, actions were undertaken by the AOJ to attempt to locate the allegedly filed substantive appeal. However, as the record does not contain a VA Form 9 or any other document that can be construed as a substantive appeal concerning the issue of entitlement to pension benefits, and because the Board previously determined that its jurisdiction was conditional upon the filing of a substantive appeal, the issue was not returned to the Board post-remand, and the Veteran has submitted no additional argument or evidence to support his contention that a substantive appeal was in fact filed, the Board finds that it does not have jurisdiction over this issue. See 38 U.S.C.A. § 7105(a) (West 2002 & Supp. 2013) (providing that appellate review is initiated by an NOD and completed by a substantive appeal after an SOC has been furnished); Percy v. Shinseki, 23 Vet. App. 37, 45-46 (2009) (holding that although 38 U.S.C.A. § 7105 does not prevent the Board from exercising subject matter jurisdiction over an issue where a substantive appeal is not timely filed, the Board may decline as a prudential matter to exercise jurisdiction over such an issue). FINDINGS OF FACT 1. The Veteran's failure to disclose his receipt of income on his application for VA pension benefits constituted a material misrepresentation of fact and his actions in submitting his pension claim were done in bad faith, as he certified that his representations contained therein were true and correct to the best of his knowledge and belief. 2. During the time period covered by the overpayment (January 1, 2002, to September 30, 2006), the Veteran received 72,669.80 in nonserivce-connected pension benefits. CONCLUSIONS OF LAW 1. The debt created by the payment of VA nonservice-connected pension benefits in the amount of $72,669.80 is valid. 38 U.S.C.A. §§ 501, 3323 (West 2002 & Supp. 2012); 38 C.F.R. §§ 1.911 (2013). 2. Waiver of recovery of the overpayment of VA educational benefits in the calculated amount of $72,669.80 is precluded by reason of misrepresentation of a material fact and bad faith on the part of the Veteran. 38 U.S.C.A. § 5302 (West 2002); 38 C.F.R. §§ 1.962, 1.963, 1.965 (2013). REASONS AND BASES FOR FINDINGS AND CONCLUSIONS In August 2001, the Veteran was granted nonservice-connected pension benefits, effective February 1, 2001. At that time, the Veteran reported having no income. Subsequently, VA learned that the Veteran was in receipt of both earned income and Social Security Administration (SSA) benefits. As a result, it appears that sometime in or around October 2006, the AOJ informed the Veteran that his pension benefits had been retroactively terminated on account of the fact that he had earned income, which he failed to disclose. In October 2006, the VA Debt Management Center (DMC) notified the Veteran of the overpayment amount of $72,669.80, and advised him of his right to appeal the determination or to request a waiver. The following month, the Veteran submitted a request for a waiver of the overpayment. He stated that he did not have the means to repay the debt and also submitted a pension eligibility verification report with his waiver request, indicating, among other things, that he had received wages from employment for the period from January 1, 2002, to December 31, 2002. In February 2007, the Committee at the Milwaukee RO found that the debt was created through misrepresentation or bad faith and the request for a waiver was thus denied. In disagreeing with the denial of his request for waiver, the Veteran argued that he "wasn't trying to fraudulently take or receive money," stating that he "just needed it." In his VA Form 9, the Veteran asserted that he "did not misrepresent in any way," but rather, "did what [he] had to do to keep [his] family in a house at the time." As noted in the introduction, the Veteran presented testimony at a Board hearing in June 2010 during which he questioned how the amount of the overpayment was derived and requested an audit of his account. The Veteran also reported that he kept working after receiving his award of nonservice-connected pension benefits in order to pay off bills and stated that he then applied for SSA benefits to help supplement his VA pension benefits, admitting that he failed to disclose this income to VA. At the outset, the Board notes that the preliminary issue of the validity of a debt is a threshold determination that must be made prior to a decision on a request for waiver of the indebtedness. Schaper v. Derwinski, 1 Vet. App. 430 (1991). Where the validity of a debt is challenged that issue must be developed before the issue of entitlement to waiver of the debt can be considered. VAOGCPREC 6-98 (1998), 63 Fed. Reg. 31264 (1998). As noted above, the Veteran was granted nonservice-connected pension benefits in August 2001, the payment of which was effective February 1, 2001. Basic entitlement to VA pension benefits exists if, among other things, the Veteran's income is not in excess of the applicable maximum annual pension rate (MAPR) specified in 38 C.F.R. § 3.23, as changed periodically and reported in the Federal Register. See 38 U.S.C.A. § 1521 (West 2002 & Supp. 2013); 38 C.F.R. §§ 3.3(a)(3), 3.23(a), (b), (d)(4) (2013). The MAPR is published in Appendix B of VA Manual M21-1 (M21-1) and is to be given the same force and effect as if published in VA regulations. 38 C.F.R. §§ 3.21, 3.23. The MAPR is revised every December 1st and is applicable for the following 12-month period. The MAPR shall be reduced by the amount of the countable annual income of the Veteran. 38 U.S.C.A. §§ 1503, 1521; 38 C.F.R. §§ 3.3, 3.23 (2013). In determining annual income for pension purposes, all payments of any kind or from any source (including salary, retirement or annuity payments, or similar income, which has been waived) shall be included during the 12 month annualization period in which received, except for listed exclusions. 38 U.S.C.A. § 1503(a); 38 C.F.R. §§ 3.271(a). SSA income is not specifically excluded under 38 C.F.R. § 3.272, nor is the income of a spouse. The Veteran's annual income in fact includes the annual income of the Veteran, his dependent spouse, and children in the Veteran's custody or to whose support the Veteran is reasonably contributing. 38 C.F.R. § 3.23(d)(4). Unreimbursed medical expenses in excess of 5 percent of the MAPR, which have been paid, may be excluded from an individual's income for the same 12-month annualization period to the extent they were paid. 38 C.F.R. § 3.272(g)(1)(iii). In order to be excluded from income, these medical expenses must be paid during the time period at issue, regardless of when they were incurred. In addition, they must be out-of-pocket expenses, for which the Veteran received no reimbursement, such as through an insurance company. Moreover, medical insurance premiums themselves, as well as the Medicare deduction, may be applied to reduce countable income. An overpayment is created when VA determines that a beneficiary or payee has received monetary benefits to which he or she is not entitled. See 38 U.S.C.A. § 5302; 38 C.F.R. § 1.962. For pension benefits, it is the responsibility of the recipient of VA pension benefits to notify VA of all circumstances which will affect entitlement to receive the rate of the benefit being paid. That is, the recipient of VA benefits must notify VA when he or she acquires knowledge that income, marital status, or dependency status will change or other circumstances which would affect his or her entitlement to receive, or the rate of, the benefit being paid. 38 C.F.R. § 3.660(a)(1) (2013). Moreover, where reduction or discontinuance of a running award of improved pension is required because of an increase in income, the reduction or discontinuance shall be made effective the end of the month in which the increase occurred. 38 C.F.R. § 3.660(a)(2). Overpayments created by retroactive discontinuance of benefits will be subject to recovery if not waived. 38 C.F.R. § 3.660(a)(3). At the time that he applied for VA pension benefits, the Veteran reported having no income and indicated that his spouse was receiving SSI. The Veteran continued to deny having countable income. The AOJ, however, became aware of the fact that the Veteran earned income in excess of the MAPR limit set by law for payment of VA nonservice-connnected pension benefits and thus retroactively terminated his pension benefits, effective January 1, 2002, which created an overpayment in the amount of $72,669.80. Notably, in an October 2006 letter, apparently written in response to a letter informing him that it had received information that he had countable income in years prior, the Veteran admitted to having been employed from July 2001 to February 2003 and indicated that he thereafter began drawing Social Security benefits. As indicated above, during his June 2010 hearing, the Veteran questioned the amount of the debt, stating that VA had not informed him how it had arrived at the $72,669.80 total. In January 2012, the Veteran was provided with an explanation of how the debt had been calculated. The attached audit sheet showed the monthly rates of pension and amounts paid, to include a one-time payment, for the period from January 1, 2002, to September 30, 2006, the total amount of which was calculated to be $72,669.80. As noted above, the Veteran does not dispute that he earned, but failed to report, income. The Veteran also does not dispute the fact that his earned income exceeded the MAPR limit set by law for payment of VA nonservice-connected pension benefits. Nor does the Veteran allege error with regard to period of time for which the overpayment was calculated. Rather, the Veteran's only argument was that the debt seemed excessive. However, the audit worksheet shows clearly how the debt was calculated and the Board can find no error in the AOJ's accounting of the Veteran's debt. Accordingly, based on the foregoing, the Board finds that the indebtedness was properly created. Having determined that the debt was validly created, the Board turns to the question of whether the Veteran may be entitled to a waiver of recovery of the overpayment. The law provides that recovery of an overpayment may be waived if there is no indication of fraud, misrepresentation, or bad faith, on the part of the person or the persons having an interest in obtaining the waiver, and recovery of such indebtedness would be against equity and good conscience. See 38 U.S.C.A. § 5302(c) (West 2002); 38 C.F.R. §§ 1.962, 1.963 (2013). However, waiver of recovery of an overpayment or waiver of collection of any indebtedness is precluded by law where any one of the following elements is found to exist: (1) fraud; (2) misrepresentation of a material fact; (3) bad faith. 38 U.S.C.A. § 5302(c) (West 2002); 38 C.F.R. § 1.965(b) (2013). Only one of the three elements (fraud, misrepresentation, or bad faith) need be shown to preclude consideration of waiver of recovery of the indebtedness. 38 U.S.C.A. § 5302(c). In other words, any indication that a claimant committed fraud, misrepresentation of a material fact, or bad faith in connection with his receipt of VA benefits precludes the Board from granting a waiver of recovery of the overpayment. VA regulations define "bad faith" as unfair or deceptive dealing by one who seeks to gain thereby at another's expense. Thus, a debtor's conduct in connection with a debt arising from participation in a VA benefits/services program exhibits bad faith if such conduct, although not undertaken with actual fraudulent intent, is undertaken with intent to seek an unfair advantage, with knowledge of the likely consequences, and results in a loss to the government. Richards v. Brown, 9 Vet. App. 255 (1996); 38 C.F.R. § 1.965(b) (2013). In the instant case, the Veteran's claim for a waiver of the debt was denied by the AOJ on the basis of misrepresentation and bad faith. Specifically, the AOJ determined that the Veteran was familiar with the VA pension program, to include his obligation to disclose any sources of income. The AOJ noted that in August 2001, the Veteran reported having no income despite the fact that he was employed at that time. The AOJ's findings are supported by the Veteran's own testimony during his June 2010 hearing. Indeed, the Veteran himself reported that he kept working after receiving his award of nonservice-connected pension benefits in order to pay off bills and stated that he then applied for SSA benefits to help supplement his VA pension benefits, admitting that he failed to disclose this income to VA. After consideration of the record, the Board agrees with the AOJ's finding of bad faith. In addition, the Board finds that the Veteran misrepresented a material fact in his application for VA pension benefits. Consequently, a waiver of recovery of that overpayment is automatically precluded. Specifically, when the Veteran submitted the application seeking a VA pension benefits, he certified that he had no monthly income. He maintained that he had no income on subsequent requests for income verification. As outlined above, the evidence of record demonstrates that the Veteran was in fact receiving income in excess of the MAPR limit set by law for payment of VA nonservice-connected pension benefits and knowingly failed to report this income to VA. The Board thus concludes that the Veteran's application for VA pension benefits included a misrepresentation of a material fact, and that his actions in submitting the application constituted bad faith. Specifically, the Veteran committed a misrepresentation of material fact when he certified having no income on his application for pension benefits. He further misrepresented himself when he continued to fail to disclose his income sources. Additionally, in completing the application form, he certified that his representations contained therein were true and correct to the best of his knowledge and belief. Consequently, his actions in submitting his pension claim were done in bad faith. Accordingly, as the Veteran committed a material misrepresentation of fact and acted in bad faith in the creation of the $72,669.80 pension benefits overpayment, waiver of recovery of this amount is precluded by law. 38 U.S.C.A. § 5302(c); 38 C.F.R. §§ 1.962, 1.965. Hence, the principles of equity and good conscience, such as any current financial hardship, are not applicable. Material misrepresentation of fact and bad faith are shown by the preponderance of the evidence; thus, the benefit-of-the-doubt rule also does not apply. See 38 U.S.C.A. § 5107(b). Waiver of recovery of overpayment is therefore denied. Lastly, the Board points out that the Veterans Claims Assistance Act of 2000, codified in pertinent part at 38 U.S.C.A. §§ 5103, 5103A (West 2002 & Supp. 2013), and the pertinent implementing regulation, codified at 38 C.F.R. § 3.159 (2013), is not applicable to cases involving the waiver of recovery of overpayment claims. Barger v. Principi, 16 Vet. App. 132 (2002). ORDER Waiver of the recovery of an overpayment of VA disability benefits in the amount of $72,669.80 is denied. ____________________________________________ THOMAS J. DANNAHER Veterans Law Judge, Board of Veterans' Appeals Department of Veterans Affairs