Citation Nr: 1817700 Decision Date: 03/22/18 Archive Date: 04/03/18 DOCKET NO. 14-16 115 ) DATE ) ) On appeal from the Committee on Waivers and Compromises (Committee) of the Department of Veterans Affairs (VA) Regional Office (RO) in Milwaukee, Wisconsin THE ISSUES 1. Whether an overpayment debt in the amount of $61,158, resulting from the overpayment of VA pension benefits, was validly created. 2. Entitlement to waiver of debt in the amount of $61,158, resulting from the overpayment of VA pension benefits. REPRESENTATION Veteran represented by: Disabled American Veterans WITNESS AT HEARING ON APPEAL Veteran ATTORNEY FOR THE BOARD Heather J. Harter, Counsel INTRODUCTION The Veteran served on active duty from June 1968 to June 1970. This matter comes before the Board of Veterans' Appeals (Board) from a January 2014 Committee decision. The Veteran presented sworn testimony during a March 2015 videoconference hearing from the Cleveland, Ohio Regional Office, which otherwise has jurisdiction of the claims folder. The Debt Management Center (DMC) originally declared a debt in the amount of $65,111 resulting from the overpayment of VA pension benefits over a period of approximately five years. In January 2014, the VA's Pension Management Center (PMC) recalculated the debt at $61,158. It is this figure which the Board will use herein, although as explained below, we are not satisfied with the calculation of this debt and are requesting further documentation and review as to the exact amount of the debt. The appeal is REMANDED to the Agency of Original Jurisdiction (AOJ). VA will notify the Veteran when further action on his part is required. REMAND The Veteran contends the VA has calculated his annual income and his annual medical expenses inaccurately. He asserts VA has mixed up his business earnings with his personal earnings, and that he has greater medical expenses than VA has credited him with. He also complains that VA let the debt pile up for too long, that it should not have taken five years to compare his earnings with the annual pension ceiling, especially since he was candid with VA throughout in providing information regarding his income and expenses. The purpose of the VA pension program is to provide a subsistence living for Veterans of a period of war who have no alternative means of support. 38 U.S.C. §§ 1502, 1503. Historically, the Veteran applied for VA pension benefits in May 2006. On this application, he noted that he was self-employed as the owner of an automobile repair shop. He reported that his net total annual earnings were $13,000. He also reported that he rented a house for a loss of $2,000 per year. On the same form, he stated that his income, consisting of gross wages and salary for the next twelve months would be $20,000. In June 2006, the RO acknowledged his application for pension benefits and informed him that because he had not yet attained the age of sixty-five, he must show he was permanently and totally disabled and that his net worth and income must not exceed certain requirements. The RO granted pension benefits in December 2007. According to the decision, the RO based its decision upon information regarding the Veteran's various disabilities, and the fact that he had "last worked in 12-04 as an auto mechanic." The same month, the RO mailed him a letter requesting more information to generate the pension award. Specifically, they requested a reporting of all income he had received and expected to receive from May 2006 through December 2007. He was provided with a separate form for reporting his business and rental income. He was also requested to report the total amount of medical expenses he had paid for himself and his wife. He was instructed not to report medical expenses for which he had received or expected to receive payment. In January 2008, the Veteran submitted an Improved Pension Eligibility Verification Report, on which he indicated that he was married, living with his wife, and that they had no monthly income from any source. He contradictorily indicated that either he or his wife had received wages or been employed during the past twelve months, however. An accompanying written statement reflects that he had a business that was doing badly, that he had had two really bad years, that he had shoulder surgery, that medical expenses for his wife and himself were "some $2,000 a month," and that rent was $2,100 a month. Apparently in reference to income, he provided the figures of $9,000 from May 2006 to December 2006, and $6,800 from January 2007 to December 2007, although the significance of these figures was not precisely identified. He submitted a VA Form entitled Report of Income from Property or Business, which reflected yearly expenses including $5,000 in taxes, $3,500 in utility expenses, insurance of $1,300, mortgage interest of $10,000, rent of $24,000, $30,000 for the cost of goods sold, and interest on business debt of $130,000 at 9.75 percent. He reported that he paid no employee salaries. He estimated that his total expenses were about $60,000 and that his gross income from rental expenses and net income from business was $9,000. He also offered that he would provide copies of his tax forms, if VA requested them. Lastly, he submitted a medical expense form, upon which he stated his private medical insurance cost $2000 a month, pills cost approximately $500 a month, and he paid the dentist approximately $100 a month. One month later, in February 2008, he submitted another medical expense report, on which he indicated his medical coverage was $1,794 per month, while pills cost $200 per month. Also in February 2008, he submitted the first page of a federal tax return statement from 2006, showing that married, filing jointly, he and his wife had total income of $10,183, consisting of wages in the amount of $2,906, business income of $6,420, and rental real estate income of $827. None of these figures on the tax form, which was presumably filed with the Internal Revenue Service, match up to the VA forms he had completed the month previously, in January 2008. Also in February 2008, he submitted a copy of an invoice for one month of medical insurance for his wife in the amount of $1,794. In April 2008, the RO calculated the Veteran's monthly pension entitlement for himself and his wife as $1154 from June 2006 through November 2006, $1192 from December 2006 through November 2007, and $1220 from December 2007. A hand-written notation reflects that the RO considered his business income of $10,183 from June 2006 through December 2007, and had monthly medical insurance expenses of $1,794. The same month, the RO wrote the Veteran and informed him of this award. The letter included the notification that he was responsible for reporting any change in his marital status, his income, and his medical expenses. He was also informed that if he failed to report any such changes, VA might pay him too much money and that he would then have to pay back this overpayment. The next piece of correspondence in the file is a letter from the VA's Pension Management Center (PMC) dated in November 2008. The letter informs the Veteran that his monthly pension rate beginning in December 2008 would be $1,291. However, the letter provided that VA was using his formerly-reported income of $10,183, and medical expenses of $21,528 to calculate this pension rate. If the Veteran's financial information had changed, he was informed he needed to furnish an accurate statement of his income. Apparently in response to the PMC's November 2008 letter, the Veteran submitted another Eligibility Verification Report in February 2009, showing he had earned $9,000 in wages and approximately $450 in interest and dividends in 2008. He also reported that his wife had $20,000 in a bank account, and that they owned a second home worth $80,000. Lastly, he estimated he would pay $20,000 to $25,000 in medical expenses during 2008. The PMC responded to the Veteran's Eligibility report in February, requesting more information about the source of the couple's interest and dividends, the real property, and his medical expenses. The letter also informed that based upon the income information provided in the Eligibility report, his benefits would have to be stopped effective in January 2008, thus causing an overpayment in benefits, unless he could provide further information regarding his income and expenses. In April 2009, the RO performed a Corpus of Estate Determination, in which they noted that the Veteran's second house was worth $80,000, but that because the Veteran had encumbered the property with two mortgages worth $130,000, he was not in a position to convert the property asset into cash to pay off the mortgages. Thus, the RO concluded net worth was not a bar to receipt of pension benefits. Also in April 2009, the RO recalculated the Veteran's pension entitlement, offsetting his business and interest income by his medical expenses. The letter explained that the RO would project his same income and medical expenses for the following year and that it was incumbent upon the Veteran to report any changes in income, expenses, or dependency status, so as to avoid the creation of any overpayment debt. In January 2010, the RO wrote him requesting verification that the Veteran had actually paid the medical expenses he had reported. In response the Veteran submitted another Eligibility Verification report, along with a number of random receipts, cancelled checks, and bills. In June 2010, the RO noted that the Veteran had many outstanding medical expenses and reminded him that only paid medical expenses could serve to reduce his income for pension purposes. The RO proposed to reduce his monthly pension benefits by approximately $800 a month beginning in January 2008. The Veteran contested this calculation and submitted additional receipts. He also asserted that he was so upset by his pension issues in addition to his other medical issues that he needed to see a psychiatrist for stress and that he was unemployed as of June 2010. While this was going on with the RO, in August 2010, the PMC issued an Award analysis continuing the Veteran's pension at the same rate, assuming the same amount of wages and interest. There is no indication in the file as to whether the two offices were in communication with each other at this time. In October 2010, the RO awarded the Veteran a 10 percent compensation benefit, effective in July 2009, for a medical malpractice claim he had filed under the provisions of 38 U.S.C. § 1151. However, because the law precludes the dual receipt of compensation and pension benefits, the RO informed him they would continue to pay him the greater pension benefit. In January 2011, he Veteran submitted another Eligibility Verification Report showing increased income from his business. He also submitted another Medical Expense Report, along with a statement indicating that he continued to lose money on his rental property. The RO recalculated his pension benefits and notified him in May 2011 that his monthly pension payment would decrease by approximately $200 effective in February 2010 to reflect the increased income. In October 2011, the PMC conducted an income verification match with information from the Internal Revenue Service (IRS) pertaining to the year 2008. This match revealed income the Veteran had not previously reported to VA. The PMC wrote the Veteran, requesting the he confirm the information from the IRS, and informed him that the extra income, if confirmed, would place him above the pension ceiling limit for the year 2008. In February 2012, the Veteran called the RO to inform that he had received his first Social Security payment of $1,071 in January 2012. The Debt Management Center (DMC) reacted promptly to this information, and declared an overpayment debt of $472 on account of one month of duplicative Social Security and VA payments. The Committee denied a waiver of this debt in April 2012. In December 2012, the PMC readjusted the Veteran's monthly pension payment to reflect his new Social Security award, with the result that his new monthly pension rate, effective in December 212 would be $676, or approximately half of his prior monthly rate. In May 2013, the PMC wrote the Veteran about his income in 2008 and 2009. The observed that with the Veteran's assistance, they had verified his 2008 and 2009 income, and that therefore, that income must be used to retroactively readjust his 2008 and 2009 pension payments. The letter essentially informed the Veteran that his income since February 2008 had exceeded the defined pension ceiling and proposed to reduce his monthly pension payments to $0 from February 2008. Because the Veteran had been awarded compensation benefits effective in July 2009, the PMC explained that he would be paid the compensation as the greater benefit, beginning in August 2009. He was also informed that this adjustment would result in an overpayment debt. In June, the Veteran corresponded with the VA and vigorously disputed many of the findings which had been explained in the May 2013 letter. He asserted that the depreciation of his rental property which he had used in the preparation of his 2008 and 2009 taxes was not really income and should not be counted as such. He asserted that he never made any "real money." He disputed two of the smaller income amounts reported by the IRS, one for $53 and one for $457, claiming he never received these monies. He asserted that he should not have his interest income counted for VA pension purposes, because the interest was paid on money he had received from VA in the first place. He disputed approximately $2000 reported as his wife's income, because he stated she was working for him, meaning that money would have been counted twice. He also felt that because he was losing money overall on his rental property, he should not have the income it generated count for VA pension purposes. He again reminded VA of his significant medical expenses. Lastly, he submitted copies of various forms and statements, to include some of his tax forms. The PMC again wrote the Veteran in September 2013, explaining that VA pension benefits are intended to provide a minimum level of financial security, rather than to protect assets or build up the beneficiary's estate for the benefit of heirs. They also explained that their treatment of the Veteran's income from the rental depreciation and the interest earned was correct under the law. They again provided information as to how the Veteran could challenge to the two payments he did not recall receiving. Later in September 2013, the DMC wrote the Veteran explaining that they had calculated the Veteran's overall overpayment debt as $65,111, and providing information as to how he could request a waiver and/or repay the debt. The Veteran promptly requested a waiver, asserting that the VA had miscalculated his medical expenses, and that the VA's practice of assuming his income each year would be the same as the previous year also contributed to the creation of the debt. He provided multiple copies of statements and receipts related to the couple's medical expenses. He also stated he had had no intention to gain benefits to which he was entitled, and that repaying the debt would cause a financial hardship to his family. Based upon this new information, and a November 2013 Financial Status Report, the PMC recalculated the Veteran's monthly pension entitlement in 2008 and 2009. In a December 2013 letter, they informed him that his recalculated medical expenses reduced his income to allow a small monthly pension payment of $192 from February 2008 through November 200January 2008 through 8, $260 in the month of December 2008, and $199 from January 2009 through December 2009. As of January 2010, the PMC calculated that the compensation benefit was greater. The letter also provided detail as to the total medical expenses the PMC accepted for purposes of reducing his income. The letter also informed him that he still owed the VA some money and that VA would take all or part of his monthly check to apply toward the debt. The DMC followed this letter with a January 2013 letter explaining that based upon the PMC's new calculations, the DMC had redefined the total amount of the Veteran's debt to $61,158. The DMC then proceeded to deny waiver of debt in this amount because they felt the Veteran had been at significant fault in the creation of the debt, when he failed to immediately report changes in his household income. The Committee concluded that the Veteran's fault and the resulting unjust enrichment outweighed his claims of financial hardship. The Veteran submitted a notice of disagreement with this determination in January 2014. He argued that instead of using the money reported on his Form 1099s, the PMC should have used his Adjusted Gross Income from his tax returns, because he asserted that 1099 forms included payments for materials and labor, rather than his income after expenses. In April 2014, the PMC issued a Statement of the Case, upholding the waiver denial. The Statement of the Case only partly explains the creation of the total debt, finding that because the Veteran failed to report all of his income to VA, he was overpaid. Furthermore, the Statement of the Case refers to the original debt amount of $65,111, and also in the body of the explanation, to the lesser amount of $33,146. We can only assume the first figure was mere carelessness and that the second figure represents a typographical error. These errors, however, cast some doubt upon whether the PMC performed a careful review as to the creation of the debt and especially as to the exact amount of the debt. In the Veteran's May 2014 Substantive Appeal, he again reiterated that he had been self-employed throughout the time period at issue, and that he had lost money in his business each year. He also accurately noted that he had provided the VA with annual reports of his earnings each year, and he questioned why VA waited until 2013 to review his earnings and declare the debt. Lastly, he again claimed that he had no money to repay the debt and that to require him to repay it would cause additional financial hardship. During the hearing on appeal, the Veteran testified that he is offended that the VA is calling him a liar in reporting his income over the years. He again questioned the length of time that VA let his debt pile up before verifying his income and adjusting his benefits. Lastly, he reasserted that VA was mixing up his business earnings with his personal earnings, especially in that VA was not using his Adjusted Gross Income, and that VA was counting the wages he paid his wife as additional income. In the analysis of a waiver of indebtedness case, VA must make an initial determination regarding whether the debt is valid before deciding whether a waiver of the debt is in order. Schaper v. Derwinski, 1 Vet. App. 430, 433-7 (1991). In this case, the debt was created because the Veteran accepted VA pension payments predicated upon his having less income and greater medical expenses than he in fact did. He had been informed that his pension benefits were predicated upon his disability status and his lack of income. He had also been informed that he was required to report any changes in his income and medical expenses to the VA. See 38 C.F.R. § 3.256. Upon review, it appears that the Veteran was candid with VA, but was also sloppy and imprecise in his reporting to VA. The Veteran is not a typical pension recipient, because he continued to run his own businesses, including an autobody shop and a rental property, while receiving VA pension benefits, based upon the premise that his overall earnings fell below the defined pension ceiling for subsistence-level benefits. This complicated financial situation required more consistent oversight than apparently the VA gave his situation, especially in the first few years of his pension entitlement. Importantly, we observe that the Veteran has provided his own copies of his tax returns for 2008, 2009, and partial copies for the year 2010, in the attempt to support his challenge to the creation of the debt and his request for waiver of the debt. Thus, although some of the income information was obtained through the income verification process, the Veteran has now confirmed his tax status for these years for the record. At this point, it appears that a debt was validly created, apparently due to sloppy reporting regarding his income and expenses on the part of the Veteran and inadequate oversight on the part of the VA. Which party bears the greater fault is yet unclear. Furthermore, the exact calculation of the debt remains a mystery. We are unable to follow the numbers which the DMC has used to arrive at the total of $61,158. Especially given the Veteran's assertion that he is in financial hardship and the fact that VA appears to be recouping the debt by withholding the Veteran's 10 percent compensation payments, precise calculation is of paramount importance. The Board notes that the debt at issue was created during the time period from January 2008 through 2012 or 2013, when the VA eventually stopped paying pension benefits. However, the income verification was conducted only with regard to the Veteran's income in 2008 and 2009. It is unclear whether the calculation regarding the overpayment pertaining to the following years relied upon the Veteran's own reports as to his income during those years, or whether the PMC simply carried forward the verified earnings from 2009 for purposes of calculating his pension entitlement in 2010, 2011, and 2012. Because the Veteran's income was shown to vary each year, a correct calculation as to his income and expenses during these subsequent years must be accomplished so as to yield the most accurate estimate of the overpayment. Therefore, prior to further review of the creation issue, a paid and due audit must be accomplished, showing the amounts of money paid to the Veteran for each year at issue, and the amounts of money which were subsequently determined to be due to the Veteran each year, as well as the pension ceiling limit (MAPR) for each year at issue. The sources for each figure used should be clearly identified to facilitate appellate review. The Veteran's argument regarding the use of his Adjusted Gross Income, as reflected on his 2008 and 2009 tax forms should also be addressed and the reasons for either doing so or not doing so should be fully explained. Lastly, the amount of money already recouped for payment of this debt should be clearly delineated. Because the element of the Veteran's financial hardship involves to his current ability to repay the debt without hardship, the Veteran should be requested to provide current information as to his financial position, including medical expenses. Accordingly, the case is REMANDED for the following action: 1. A paid and due audit should be prepared showing the exact amount and date of each pension payment made to the Veteran from January 2008 until his pension was ceased; the amount of money subsequently determined to be due to the Veteran each month, as well as the pension ceiling limit (MAPR) for each year at issue. The sources for each figure used should be clearly identified to facilitate appellate review. The Veteran's verified and reported income for each year at issue should be identified, to include an explanation as to the choice not to use his adjusted gross income for VA purposes. The goal of this exercise is to clearly identify the total amount of the Veteran's overpayment debt. 2. A second audit showing the amount of money already recouped for payment of this debt should be prepared. 3. The AOJ should undertake any additional notification and evidentiary development necessary and then should render a fully-informed decision which includes a reviewable explanation regarding the validity of the creation of the debt at issue. 4. If the debt, or any portion of the debt, is determined to have been validly created, the Committee should proceed to review the Veteran's claim for a waiver of the debt based upon the standard of equity and good conscience, to include appropriate evidentiary development in obtaining updated information about his current financial status and his ability to repay the debt without financial hardship. If any debt remains, the Veteran and his representative should be furnished a supplemental statement of the case and given the opportunity to respond The Veteran has the right to submit additional evidence and argument on the matters the Board has remanded. Kutscherousky v. West, 12 Vet. App. 369 (1999). This claim must be afforded expeditious treatment. The law requires that all claims that are remanded by the Board or by the United States Court of Appeals for Veterans Claims for additional development or other appropriate action must be handled in an expeditious manner. See 38 U.S.C. §§ 5109B, 7112 (2012). _________________________________________________ MICHAEL D. LYON Veterans Law Judge, Board of Veterans' Appeals Under 38 U.S.C. § 7252 (2012), only a decision of the Board of Veterans' Appeals is appealable to the United States Court of Appeals for Veterans Claims. This remand is in the nature of a preliminary order and does not constitute a decision of the Board on the merits of your appeal. 38 C.F.R. § 20.1100(b) (2017).