Citation Nr: 1804924 Decision Date: 01/25/18 Archive Date: 02/05/18 DOCKET NO. 14-20 016 ) DATE ) ) On appeal from the Department of Veterans Affairs Regional Office in St. Louis, Missouri THE ISSUE Entitlement to the waiver of an overpayment of VA pension benefits in the calculated amount of $48,128.00, created during the period from January 1, 2009, to July 31, 2013, to include the validity of the debt. REPRESENTATION Appellant represented by: Missouri Veterans Commission WITNESSES AT HEARING ON APPEAL Appellant and M.R. ATTORNEY FOR THE BOARD Christine C. Kung, Counsel INTRODUCTION The Veteran served on active duty from May 1967 to May 1969. This matter comes on appeal before the Board of Veterans' Appeals (Board) from August 2013 and March 2014 decisions of the Department of Veterans Affairs (VA) Debt Management Center (DMC) and Committee on Waivers and Compromises (COWC) and Regional Office (RO) in Milwaukee, Wisconsin. However, underlying jurisdiction over the appeal is with the VA Regional Office (RO) in St. Louis, Missouri, based upon the Veteran's place of residence. (Given the special nature of the Veteran's claim on appeal, i.e., waiver of an overpayment, the Milwaukee, Wisconsin, RO had original jurisdiction over the Veteran's appeal as it is the closest RO to him to have a COWC, the body that renders original decisions on whether a waiver of an overpayment is warranted). A videoconference hearing was held on July 2017 at the RO in St. Louis, Missouri. The hearing transcript is of record. FINDINGS OF FACT 1. The appellant's countable income exceeded the applicable MAPR rates for the appeal period from January 1, 2009, to December 31, 2009. 2. The overpayment of VA benefits created during the period from January 1, 2009, to December 31, 2009, was valid. 3. A lump-sum life insurance payment received in 2009 was not recurring income, and should not have been applied for the appeal period from January 1, 2010, to July 31, 2013. 4. The overpayment of VA benefits created during the period from January 1, 2010, to July 31, 2013, was not valid. 5. The creation of the overpayment during the period from January 1, 2009, to December 31, 2009, was not the result of fraud, misrepresentation, or bad faith on the part of the Veteran. 6. The Veteran was at fault in the creation of the overpayment. 7. Repayment of the overpayment debt, assessed from January 1, 2009, to December 31, 2009, would not deprive the Veteran of the basic necessities of life and would not result in financial hardship. 8. Recovery of the overpayment would not defeat the purpose which benefits were intended. 9. The failure of the Government to insist upon its right to repayment of the assessed overpayment would result in unjust enrichment of the Veteran. 10. The Veteran has not relinquished a valuable right or incurred any legal obligations resulting from reliance on VA benefits. CONCLUSIONS OF LAW 1. The overpayment of VA benefits assessed during the period from January 1, 2009, to December 31, 2009, was validly created. 38 U.S.C. §§ 1502, 1503, 1521, 5112(b) 5302 (2012); 38 C.F.R. §§ 1.963, 1.965, 3.23, 3.271, 3.272, 3.273, 3.660(a) (2017). 2. The overpayment of VA benefits assessed during the period from January 1, 2010, to July 31, 2013, was not valid. 38 U.S.C. §§ 1502, 1503, 1521, 5112(b) 5302 (2012); 38 C.F.R. §§1.963, 1.965, 3.23, 3.271, 3.272, 3.273, 3.660(a) (2017). 3. The creation of the overpayment, assessed during the period from January 1, 2009, to December 31, 2009, did not involve fraud, misrepresentation, or bad faith. 38 U.S.C. § 5302(c) (2012); 38 C.F.R. §§ 1.963 (a), 1.965(b) (2017). 4. The criteria for waiver of recovery of an overpayment of pension benefits assessed during the period from January 1, 2009, to December 31, 2009, have not been met. 38 U.S.C. § 5302 (2012); 38 C.F.R. §§ 1.963, 1.965 (2017). REASONS AND BASES FOR FINDINGS AND CONCLUSIONS Due Process The Board finds that general due process concerns have been satisfied in connection with the termination of VA pension benefits. See 38 C.F.R. §§ 3.103(b)(3)(i), 3.105(h) (2017). Prior to reducing or terminating benefits by reason of information received concerning income, VA is required to comply with pertinent VA regulations concerning due process. Specifically, VA must create a proposal for the reduction or termination that sets forth all material facts and reasons, notify the beneficiary at his or her latest address of record of the contemplated action, and furnish detailed reasons thereof. The beneficiary must be given 60 days for the presentation of additional evidence to show that compensation payments should be continued at the present level. See 38 C.F.R. §§ 3.103, 3.105. VA pension benefits were reduced and terminated based on the receipt of income verification match (IVM) information identifying sources of unreported income. An IVM conducted in April 2012, identified unreported income for the Veteran in 2009. In March 2013 correspondence, the RO proposed to reduce pension benefits effective January 1, 2009 and to terminate pension benefits in favor of service-connected compensation, effective February 1, 2009, based on the unreported income information. The Veteran was afforded a period of 60 days to submit any evidence to show that the proposed action should not be undertaken. In April 2013 correspondence, the Veteran requested waiver of the overpayment, stating that the unearned income identified consisted of money withdrawn from his accounts to pay for medical expenses. In July 2013, the Veteran's pension benefits were reduced effective January 1, 2009, and terminated effective February 2, 2009. The Veteran was informed that the unearned income identified in an IVM was countable toward his income. An August 2013 letter from the Debt Management Center informed the Veteran that he received an overpayment in the amount of $48,128.00. The Veteran's request for a waiver, which was denied in March 2014. In this case, VA pension benefits were reduced and terminated based on the receipt of unreported income in 2009. Notice of the proposed reduction and termination of benefits was provided to the Veteran, and he was given 60 days to respond prior to the reduction and termination of the benefits. Therefore the reduction and termination of benefits was procedurally proper. Validity of Debt 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. § 5302; 38 C.F.R. § 1.962. A veteran who meets wartime service requirements and who is permanently and totally disabled due to disability not the result of willful misconduct is entitled to a rate of pension set by law, reduced by the amount of his countable income. 38 U.S.C. § 1521 (2012); 38 C.F.R. § 3.23 (2017). Countable income consists of payments of any kind from any source received during a 12-month annualization period (e.g., a year), unless specifically excluded. 38 C.F.R. § 3.271 (2017). Basic entitlement to pension exists only if, among other things, the Veteran's countable income is not in excess of the maximum annual pension rate specified by law. 38 U.S.C. § 1521 (a). If basic entitlement is met, the monthly rate of pension shall be computed by reducing the maximum annual pension rate (MAPR) by the countable income on the effective date of entitlement and dividing the remainder by twelve. 38 C.F.R. § 3.273 (a) (2017). Whenever there is a change in a beneficiary's amount of countable income the monthly rate of pension payable shall be computed by reducing the applicable maximum annual pension rate by the new amount of countable income on the effective date of the change in the amount of income and dividing the remainder by twelve. 38 C.F.R. § 3.273 (b)(2). The Veteran in this case has been in receipt of VA pension benefits since January 2005. His initial award and subsequent notification letters informed him that his pension rate was dependent upon income. The Veteran was also informed that he could reduce his countable income by submitting documentation of his medical expenses. The record shows that the Veteran has been in receipt of income from Social Security, paid through the Railroad Retirement Board. This income has been reported by the Veteran and had been counted toward monthly income for the purpose of calculating pension benefits during the applicable appeal period. IVM information for 2009 shows that the Veteran received payments, in the total amount of $21,425.00, from the Hartford Life Insurance Company. The Veteran has submitted statements and testimony verifying the receipt of such income, but has specified that this was a one-time, nonrecurring payment out of his mother's life insurance policy. The Board finds that the lump-sum payment received on the life insurance policy is considered a nonrecurring payment. Pension computations on income will include nonrecurring income for a full twelve-month annualization period following receipt of the income. 38 C.F.R. §§ 3.271 (a)(3); 3.273(b)(2)(c). Accordingly, the twelve-month annualization period began on January 1, 2009. The 2009 IVM also identified unearned income from Edward D. Jones and Company totaling $7,993.00, and $203.00 in interest payments from State Farm Life Insurance. The Board finds that the Veteran's annualized income for 2009 exceeded the applicable MAPR for a veteran paid at the aid and attendance rate. On January 1, 2009, the Veteran was receiving Social Security benefits, paid by the Railroad Retirement Board, at a rate of $1,446.60 a month, or an annualized income of $17,359.00. The Veteran was informed that a 2009 IVM identified income from Hartford Life Insurance Company, Edward D. Jones and Company, and State Farm Life Insurance. In Board hearing testimony and in an April 2014 notice of disagreement, the Veteran verified that he received income from these sources in 2009, but contends that they were one-time payments and not recurring income. He also testified that he did not retain the money he received from the 2009 life insurance payment on his mother's policy, but instead transferred the full amount to his children. The applicable MAPR rate for a veteran at the aid and attendance rate for 2009 calendar year was $19,736.00. In determining annual income, all payments of any kind or from any source, including salary, retirement or annuity payments, or similar income, shall be included during the twelve-month annualization period in which received, except for listed exclusions. 38 U.S.C. § 1503 (a); 38 C.F.R. § 3.271 (a). Nonrecurring income (i.e., income received or anticipated on a one-time basis during a twelve-month annualization period) is counted for a full twelve-month annualization period following receipt of the income. 38 C.F.R. § 3.271 (a)(3). As relevant, life insurance proceeds are only excluded from income if they are the result of a life insurance policy on the veteran; life insurance proceeds from a policy on a dependent are not excluded. 38 U.S.C. § 1503 (a)(12); 38 C.F.R. § 3.272 (x). The Board finds, therefore, that the $21,425.00 life insurance policy payment received by the Veteran is countable toward income. While the Veteran testified that he transferred this money to his children, 38 C.F.R. § 3.276 provides, in pertinent part, that such transfers or waivers are disregarded, and the payment is countable toward income. While the Veteran also indicated in his notice of disagreement that the withdrawal from his account with Edward D. Jones and Company in 2009 was used toward the payment of medical expenses, IRA and other disbursements from investment accounts are not among the payments that are excluded under the law and have been counted toward income. See 38 C.F.R. § 3.271 (a)(1)(2), 3.272 (2017). VA's General Counsel has expressly held that a withdrawal of retirement fund contributions constitutes income in the year received for purposes of improved pension. See VAOPGCPREC 1-97 (distributions from an IRA are fully countable as income for purposes of the improved pension program.); see also VAOPGCPREC 2-2010. In the April 2014 notice of disagreement, the Veteran also identified medical expenses in the form of nursing home expenses in the amount of $2,025.00 a month, or $24,300.00 annually. Even with consideration of the identified nursing home expenses, the Board finds that the Veteran's countable income of $23,667.00 in 2009 ($46,980.00 total income minus $23,313.00 for medical expenses in excess of 5% of the applicable MAPR rate) exceeded the applicable MAPR rate for 2009 and was a bar to the receipt of pension benefits. Pension benefits were reduced, and then terminated based on the Veteran's failure to report relevant income information for 2009. The award of VA pension benefits was adjusted from January 1, 2009, creating an overpayment. Accordingly, the Board finds that the overpayment of VA pension benefits created during the appeal period from January 1, 2009, to December 31, 2009, was valid. The Veteran contends, in his notice of disagreement, in hearing testimony, and in other statements, that a lump-sum life insurance payment received in 2009 was not recurring income, and should not have been applied for the appeal period from January 1, 2010 to July 31, 2013. A 2010 IVM, conducted in October 2012, confirms that the Veteran only received income from Edward D. Jones and Company, and State Farm Life Insurance in 2010, and the payment from Hartford Life Insurance Company was not recurring. Evidence of record shows that Social Security benefits paid by the Railroad Retirement Board continued at a monthly rate of $1,446.60 from 2010 to 2011. The Veteran continued to have medical expenses, comprised largely of nursing home expenses during the relevant appeal period from 2010 to 2013. Because the Debt Management Center erroneously applied the 2009 lump-sum life insurance payment toward the Veteran's countable income for the appeal period from January 1, 2010 to July 31, 2013, the Board finds that the overpayment of VA benefits created during the period from January 1, 2010, to July 31, 2013, was not valid. Because the portion of the overpayment debt created during the appeal period from January 1, 2010, to July 31, 2013, was not valid, the Board is granting the Veteran's appeal as to propriety of the creation of the debt during that period. Waiver of Recovery of an Overpayment Created During the Period from January 1, 2009 to December 31, 2009 A claimant has the right to dispute the existence and amount of the debt. 38 U.S.C. § 501 (2012); 38 C.F.R. § 1.911(c) (2017). In determining whether a waiver of overpayment is appropriate, the inquiry is focused on three distinct questions. First, VA must determine if the overpayment at issue was validly created. See Schaper v. Derwinski, 1 Vet. App. 430, 434-35 (1991) (noting that before adjudicating a waiver application, the lawfulness of the overpayment must first be decided). The 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. Second, if the debt is valid, VA must determine if fraud, misrepresentation, or bad faith played a role in its creation. If it did, waiver of the overpayment is automatically precluded, and further analysis is not warranted. See 38 U.S.C. § 5302(a) (2012); 38 C.F.R. §§ 1.963(a), 1.965(b); see also Ridings v. Brown, 6 Vet. App. 544 (1994) (holding that the Board must independently address the matter of bad faith before addressing whether waiver would be appropriate). Finally, if VA determines that the debt is valid and that fraud, misrepresentation, and/or bad faith had no part in its creation, VA must then consider whether collection of the debt would be against equity and good conscience. See 38 U.S.C. § 5302(b); 38 C.F.R. §§ 1.962, 1.963, 1.965. 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. § 5302; 38 C.F.R. § 1.962. Any indebtedness of a veteran can be waived only when the following factors are determined to exist: 1) there is no indication of fraud, misrepresentation, or bad faith on the part of the person or persons having an interest in obtaining the waiver (5302(c); 38 C.F.R. §§ 1.963(a), 1.965(b)); and, 2) collection of such indebtedness would be against equity and good conscience. 38 U.S.C. § 5302(c); 38 C.F.R. § 1.963(a). Thus, a finding of fraud, misrepresentation, or bad faith precludes a grant of a waiver of recovery of the overpayment. The controlling legal criteria provide that the standard of "equity and good conscience" will be applied when the facts and circumstances in a particular case indicate the need for reasonableness and moderation in the exercise of the Government's rights. 38 C.F.R. § 1.965(a). The decision reached should not be unduly favorable or adverse to either side. The phrase equity and good conscience means arriving at a fair decision between the obligor and the U.S. Government. In this determination, the Board must consider the following elements, which are not intended to be all inclusive: (1) Fault of debtor. Where actions of the debtor contribute to the creation of the debt. (2) Balancing of faults. Weighing the fault of the debtor against the VA's fault. (3) Undue hardship. Whether collection would deprive the debtor or his or her family of basic necessities. (4) Defeat the purpose. Whether withholding of benefits or recovery would nullify the objective for which benefits were intended. (5) Unjust enrichment. Failure to make restitution would result in an unfair gain to the debtor. (6) Changing position to one's detriment. Reliance on VA benefits results in relinquishment of a valuable right or incurrence of a legal obligation. 38 U.S.C. § 5302(c); 38 C.F.R. § 1.965(a). Here, the Board has found that the portion of the overpayment debt assessed for the period from January 1, 2009, to December 31, 2009, was validly created. The Board will, therefore, address the question of whether a waiver of that overpayment is warranted The Board finds that the creation of the overpayment was not the result of fraud, misrepresentation, or bad faith on the part of the Veteran. 38 U.S.C. § 5302(c); 38 C.F.R. §§ 1.963(a), 1.965(b). The Board finds that while the Veteran did not inform VA of nonrecurring income from insurance payments, disbursements from an investment account, and a payment on a life insurance policy, the evidence does not establish fraud, misrepresentation, or bad faith on the part of the Veteran in the creation of the overpayment debt. It appears, based on the Veteran's statements indicating that these payments were not recurring payments, and explaining that the disbursements of funds were used to cover medical expenses, that the Veteran was not aware that such nonrecurring income was countable for the purpose of assessing his pension payment amount. As the evidence does not establish fraud, misrepresentation, or bad faith on the part of the Veteran, the Board will next determine if a waiver of recovery of the VA indebtedness is warranted on the basis of equity and good conscience under 38 U.S.C. § 5302(a); 38 C.F.R. §§ 1.963(a), 1.965(a) (2017). The Board finds that repayment of the Veteran's indebtedness incurred during the period from January 1, 2009, to December 31, 2009, would not violate principles of equity and good conscience. The Board finds that the Veteran was at fault in the creation of the indebtedness due to his failure to inform VA of the income received in 2009. While the Veteran does not appear to have been aware that nonrecurring payments were countable as income, the Board finds that he was provided with multiple notice letters which gave him notice that he should inform VA of any income received, including earned income, Social Security income, retirement income, interest income, insurance, and other income sources. See VA notification letters dated in December 2009, August 2011, July 2012, November 2012, and January 2013. For these reasons, the Board finds that the Veteran was at fault in the creation of the debt assessed during the period from January 1, 2009 to December 31, 2009. The first two elements for consideration under 38 C.F.R. § 1.965(a) are the fault of the debtor, and balancing the fault of the debtor and VA. The Board finds that there is no contributory fault on the part of VA in the creation of the debt. The Board finds that that repayment of the debt would not deprive the Veteran of the basic necessities of life. As to the element of undue financial hardship, the regulation provides that consideration should be given to whether collection of the indebtedness would deprive the debtor or family of the basic necessities. In a March 2012 Improved Pension Eligibility Verification Report, the Veteran reported having a total monthly net income of $1,598.00 a month from Social Security and $1,499.10 from U.S. Railroad Retirement. A July 2011 letter from the Railroad Retirement Board clarifies, however, that his Social Security benefits were paid by the U.S. Railroad Retirement Board, and that he received a single monthly payment in the amount of $1,446.60 for the 2010 and 2011 calendar years after the deduction of Medicare. Additionally, the 2010 IVM shows that the Veteran received income from Edward D. Jones and Company and State Farm Life Insurance in the total amount of $7,795.00. In the March 2012 Improved Pension Eligibility Verification Report, the Veteran identified expenses, to include $21,600.00 paid toward his nursing home in 2011, which the Board will assume covers basic necessities such as shelter and food. He also identified other amounts paid for hospital visits and doctor's appointments. More recent financial status reports have not been submitted. After taking care of basic necessities such as shelter and food, the Board finds that the Veteran's income, estimated at $25,154.00 annually based on his Social Security and Railroad Retirement benefits and other income identified in a 2010 IVM, exceeds his monthly expenses represented by his nursing home costs. Moreover, the Veteran has unidentified net worth amounts held in an investment account with the Edward D. Jones and Company. Given the Veteran's income and net worth, the Board finds that repayment of the debt would not deprive him of the basic necessities of life. Moreover, because the record shows that the overpayment debt has been largely repaid, a current waiver would not alleviate any past hardship that was imposed. With regard to the other elements pertaining to the principles of equity and good conscience as set forth by 38 C.F.R. § 1.965(a), the Board finds that recovery of the overpayment would not defeat the purpose for which benefits were intended. The award and disbursement of VA pension benefits are made for the support of veterans; however, pension benefits are an income based benefit. Because the Veteran failed to inform VA of relevant income received during the period from January 1, 2009, to December 31, 2009, he received benefits to which he was not entitled. Additionally, because the overpayment debt has already been repaid, a waiver of such an overpayment would essentially require VA to pay the Veteran additional benefits that were not due to him. Thus, the collection of the debt did not defeat the purpose for which the benefits were intended. The Board finds that the failure of the Government to insist upon its right to repayment of the assessed overpayment which has already been recovered would result in unjust enrichment of the Veteran as he would be able to recuperate funds which he was not entitled to. The Board finds that there is no evidence showing that the Veteran relinquished a valuable right or incurred any legal obligations resulting from reliance on VA benefits. For the reasons discussed above, the Board finds that the recovery of the overpayment would not be against the principles of equity and good conscience. See 38 C.F.R. §§ 1.963, 1.965 (2017). Because the preponderance of the evidence is against the claim for a waiver of recovery of the overpayment of VA benefits assessed during the period from January 1, 2009, to December 31, 2009, the appeal with regard to that portion of the assessed overpayment is denied and the benefit of the doubt doctrine is not for application. See 38 U.S.C. § 5107; 38 C.F.R. § 3.102. ORDER The reduction and termination of VA pension benefits for the period from January 1, 2009, to December 31, 2009, was proper, and the overpayment debt assessed during that period was validly created. The termination of VA pension benefits for the period from January 1, 2010, to July 31, 2013 was not proper, and the Veteran's appeal as to the validity of the debt created during that period is granted. A waiver of recovery of an overpayment of VA benefits assessed during the period from January 1, 2009, to December 31, 2009, is denied. ____________________________________________ S. B. MAYS Veterans Law Judge, Board of Veterans' Appeals Department of Veterans Affairs