Citation Nr: 20008433 Decision Date: 01/31/20 Archive Date: 01/31/20 DOCKET NO. 16-63 299 DATE: January 31, 2020 REMANDED The issue of whether the withholding of Department of Veterans Affairs (VA) disability compensation for recoupment of disability severance pay in the amount of $146,078.42 was proper is remanded. REASONS FOR REMAND The Veteran served on active duty from March 1988 to June 1998 and from July 2002 to April 2008. In January 2020, the Veteran testified at a videoconference hearing before the undersigned Veterans Law Judge (VLJ). A transcript of the hearing is of record. The recoupment of the Veteran’s separation pay from her VA disability compensation is required by law under 10 U.S.C. § 1174(h)(2). Subsection 1174(h)(2) provides that a service 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 or her receipt of such separation pay, severance pay, or readjustment pay, of any disability compensation to which 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, severance, and readjustment pay received. 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 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 Veteran separated from active service in June 1998 and April 2008. Upon separation, she received separation pay totalling $43,261.20 in 1998 and $126,184.50 in 2008. In November 1998, the Veteran was granted service connection for her disabilities. In February 2009, VA notified the Veteran that she had received $122,365.44 in separation pay, and VA would withhold that entire amount of separation pay minus the amount of Federal tax she had paid. In January 2015, VA received information from Defense Finance & Accounting Service (DFAS) stating that the Veteran’s DD 214 was in error, and her actual gross pay was $126,184.50 and not $122,365.44. After taxes, the Veteran received $94,638.37. In September 2015, a DFAS Payment Worksheet showed the actual federal taxes withheld from the Veteran’s severance pay was $11,254.14 and not $31,546.13. As such, VA determined that the Veteran owed an additional $20,291.99. In her June 2015 Notice of Disagreement, the Veteran stated that she agreed with the 1998 debt amount and the $126,184.50 amount she received in 2008 following her separation from service. However, she did not agree with the 2008 debt amount. She stated that she paid a total of $35,745.58 in taxes. To support her claim, she submitted her Defense Finance and Accounting Service Military Leave and Earnings Statement and Report of DFAS showing that she received separation pay of $91,647.22. She also submitted her 2008 Wage and Tax Statement showing she paid $35,745.58 in taxes. In November 2015, the Veteran requested an audit of her account. However, after review of the claims file, it does not appear that the audit has been conducted. Additionally, the Board notes that the DFAS Payment Worksheet and the other documents submitted by the Veteran, to include information from DFAS, contain conflicting information regarding the amount of taxes the Veteran has paid. As such, the AOJ should conduct an audit of the Veteran’s account to determine the amount of separation benefits paid after Federal income tax was withheld. The matters are REMANDED for the following action: 1. Conduct an audit of the Veteran’s account to determine the amount of separation benefits paid to the Veteran after Federal income tax was withheld from that payment and the total amount of taxes withheld. Refer to the pertinent Internal Revenue Service regulation at 26 C.F.R. § 31.3402(g)-1(a)(7)(iii). The Veteran should be afforded the opportunity to submit evidence to support her claim. 2. The AOJ should review the validity of the debt and, if the office finds the debt to be valid, issue the Veteran a Supplemental Statement of the Case. K. Conner Veterans Law Judge Board of Veterans’ Appeals Attorney for the Board T. Moore The Board’s decision in this case is binding only with respect to the instant matter decided. This decision is not precedential, and does not establish VA policies or interpretations of general applicability. 38 C.F.R. § 20.1303.