Citation Nr: A21020344 Decision Date: 12/21/21 Archive Date: 12/21/21 DOCKET NO. 210303-150892 DATE: December 21, 2021 ORDER Entitlement to waiver of recovery of an overpayment of VA compensation benefits in the calculated amount of $47,453.28, to include the issue of the validity of the debt is denied. FINDINGS OF FACT 1. The Veteran was incarcerated from December 2015 to November 2017 for violation of felony parole and from April 2018 to March 2019 for violation of felony probation. 2. From February [REDACTED], 2016 to November [REDACTED], 2017 and from June [REDACTED], 2018 to March [REDACTED], 2019 the Veteran received monetary benefits to which he was not entitled as an incarcerated beneficiary. 3. At the time the funds were deposited into the Veteran's account, he should have been aware that he was not legally entitled to the amount of funds deposited. 4. The Veteran is not demonstrated to have committed fraud, misrepresentation, or bad faith in the creation of the overpayment. 5. Recovery of the debt in this case in the amount of $47,453.28 is not against equity and good conscience. CONCLUSION OF LAW The criteria for a waiver of indebtedness for an overpayment against the Veteran's account in the amount of $47,453.28, to include whether the creation of the debt was valid, have not been met. 38 U.S.C. §§ 5107, 5302, 5313; 38 C.F.R. §§ 1.911, 1.962, 1.963, 1.965, 3.500, 3.665. REASONS AND BASES FOR FINDINGS AND CONCLUSION The Veteran had an honorable period of active duty from May 1979 to May 1982. This matter comes before the Board of Veterans' Appeals (Board) on appeal from a January 2021 administrative decision. In the March 2021 VA Form 10182, Decision Review Request: Board Appeal, the Veteran elected the Direct Review docket. Therefore, the Board may only consider the evidence of record at the time of the agency of original jurisdiction (AOJ) decision on appeal. 38 C.F.R. § 20.301. As an initial matter, the Board notes that this matter was previously before the Board on appeal of a November 2019 decision of the Milwaukee Committee on Waivers and Compromises (COWC) which denied the Veteran's waiver request. In June 2020, the Board remanded the appeal to the Agency of Original Jurisdiction (AOJ) to correct a pre-decisional duty to assist error. Specifically, the AOJ was directed to adjudicate the threshold issue of the validity of the debt from retroactive reductions for periods of incarceration. While the January 2021 administrative decision on appeal addressed only the issue of whether the debt was properly created, the Board has also considered argument submitted with the March 2021 appeal, in which the Veteran's attorney asserts that the overpayment debt is invalid and that, in the alternative, entitlement to waiver of the overpayment debt is warranted. The issue of entitlement to a waiver, which was properly on appeal to the Board, has not been finally adjudicated. In the interest of judicial efficiency, the Board will address the issue of entitlement to a waiver, to include whether the debt is properly created. This appeal has been advanced on the Board's docket pursuant to 38 C.F.R. § 20.902(c). 38 U.S.C. § 7107(b). Overpayment 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. 38 U.S.C. § 5302; 38 C.F.R. § 1.962. Overpayments created by retroactive discontinuance of benefits will be subject to recovery if not waived. 38 C.F.R. § 3.660 (a)(3). The law limits the payment of compensation to persons incarcerated for a felony conviction. The law specifically provides, in relevant part, that any person entitled to compensation who is incarcerated in a state penal institution for a period in excess of 60 days for the conviction of a felony committed after October 7, 1980 shall not be paid such compensation for the period beginning on the 61st day of such incarceration and ending on the day such incarceration ends. In the case of a veteran with service-connected disability rated at 20 percent or more, he shall be paid at the rate under 38 U.S.C. § 1114 (a), which is at the rate equal to the 10 percent rate. 38 U.S.C. § 5313; 38 C.F.R. § 3.665. A March 2016 rating decision granted service connection for residuals of non-displaced fracture of the third metacarpal of the right hand at a noncompensable rate. In 2004, the Veteran was convicted of a felony and sentenced to probation. See October 2018 Report of Incarceration. In December 2015 the Veteran was incarcerated for violation of felony parole. Id. The Veteran was released in November 2017. A March 2018 rating decision granted service connection for major depressive disorder, recurrent with psychotic features, migraine headaches, and traumatic brain injury. The Veteran was assigned a combined rating of 80% effective May 28, 2016. The Veteran was again incarcerated for violation of felony probation in April 2018. See October 2018 Report of Incarceration. The Veteran was released in March 2019. In an October 2018 letter, the Veteran was notified that VA was informed that he was incarcerated from November 2015 to November 2017 and in April 2018 following violation of felony parole. The AOJ proposed to reduce the Veteran's benefits effective February [REDACTED], 2016, the 61st full day of incarceration until November [REDACTED], 2017, the date of his release for the earlier period of incarceration. Additionally, the AOJ proposed to reduce his benefits effective June [REDACTED], 2018, the 61st full day of the current period of incarceration. The Veteran was informed that the adjustment to his compensation benefits could result in an overpayment of benefits. In an April 2019 notification letter, the Veteran was notified that his benefits were reduced effective February [REDACTED], 2016, the 61st day of his first period of incarceration, and were reinstated upon his release effective November [REDACTED], 2017. The Veteran was further informed that his benefits were withheld effective June [REDACTED], 2018, the 61st day of his current period of incarceration. The VA actions resulted in an overpayment debt. The Board notes there can be no dispute that the Veteran was not legally entitled to full benefits beginning the date he became entitled to VA compensation, which was after the 61st day of his first period of incarceration. See 38 C.F.R. § 3.666. For a valid debt to be created, however, the overpayment must not have been solely due to administrative error. The Veteran asserts that he timely notified VA of his incarceration, and that VA committed administrative error by paying benefits at the full rate. The Veteran also asserts that he was unaware that incarceration for misdemeanor violations constituted violation of felony parole, and that the guidance he received from VA about his entitlement to benefits during his incarceration was confusing. Administrative errors include all administrative decisions of entitlement, whether based upon mistake of fact, misunderstanding of controlling regulations or instructions, or misapplication of law. VAOPGPREC 2-90 (July 17, 1989), 55 Fed. Reg. 27,757 (1990). Sole administrative error connotes that the claimant neither had knowledge of nor should have been aware of the erroneous award. Further, neither the claimant's actions nor his or her failure to act must have contributed to payment pursuant to the erroneous award. 38 U.S.C. § 511 (b)(9), (10); 38 C.F.R. § 3.500 (b)(2); Jordan v. Brown, 10 Vet. App. 171 (1997) (sole administrative error is not present if the payee knew, or should have known, that the payments were erroneous). Thus, a finding of sole administrative error requires not only error on the part of VA, but that the beneficiary is unaware that the payments are erroneous. It is not considered administrative error for VA to continue sending monthly payments after the Veteran notified VA of his changed status, and VA's delay in administratively processing the adjustment to the rate of compensation is also not considered administrative error. Dent v. McDonald, 27 Vet. App. 362 (2015). VA issued a retroactive award in March 2018, between the two periods of incarceration. However, VA was aware that the Veteran had been incarcerated during the period covered by the retroactive award, and as such VA erred in issuing the retroactive award in the full amount. However, the Veteran is charged with constructive knowledge of the law, and thus should have been aware that the retroactive payment was erroneous. See Morris v. Derwinski, 1 Vet. App. 261 (1991), citing Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384-85 (1947) (holding that all persons dealing with the federal government are charged with knowledge of federal statutes and lawfully promulgated agency regulations). The Veteran asserts that he was unaware that his incarceration for misdemeanor violations was a violation of his felony parole. Further, his attorney asserts that the Veteran suffers from serious psychological issues as reflected by his 100 percent disability rating, and that VA also believed that the Veteran was incarcerated for a misdemeanor and that reduction was not appropriate and therefore the Veteran should not be penalized for a VA mistake. See December 2019 and March 2021 briefs from attorney. A review of the evidentiary record does not support the assertions of the Veteran and his attorney. While the Board acknowledges the severity of symptoms contemplated by the Veteran's disability rating, the Veteran has not been adjudicated incompetent or otherwise unable to manage his affairs. On the contrary, the Veteran communicated regularly with VA and filed claims for VA compensation during the relevant period. The Veteran was informed in October 2018 of the proposal to reduce his benefits due to his incarceration and was provided with options to reduce any overpayment amount, to include requesting an apportionment and by requesting that VA reduce his payments while reviewing his. The Board notes that the Veteran completed an application for apportionment but did not request that VA reduce his benefits while reviewing his case. The Veteran also acknowledges, and the record shows, that he requested and received a copy of the 2016 Federal Benefits for Veterans, Dependents and Survivors Booklet, and that he was aware of the requirement to reduce his compensation after the 61st day of incarceration after a felony conviction. The Veteran's actions indicate that his service-connected disabilities were not a bar to his ability to understand and respond to VA communications. Further, even after he had actual knowledge that he was not entitled to benefits during his incarceration, his failure to act contributed to the amount of the overpayment debt. Regarding the Veteran's attorney's assertion that VA believed that the Veteran was incarcerated for a misdemeanor and that reduction was not appropriate, a December 2016 phone record shows that VA contacted the Bureau of Prisons to obtain the Veteran's inmate ID but did not obtain additional information because the Veteran was not currently receiving VA benefits. A March 2016 award print shows that the Veteran was assigned a noncompensable disability rating during this period. A March 2018 record shows that the Veteran was sentenced to 90 days in jail for misdemeanor theft. Upon further inquiry, VA was notified in October 2018 of the Veteran's original felony conviction in March 2004, and that his subsequent periods of incarceration were violations of felony probation or felony parole. VA proposed to reduce the Veteran's compensation that same month. As such, the record contradicts the attorney's assertions. The Veteran was not receiving a benefit that would have been subject to reduction during his first period of incarceration. Once VA was notified of his second period of incarceration, the required development was undertaken to process this notification and confirm that reduction was required due to the Veteran's incarceration for a felony parole violation. Under these circumstances, the Board must find that the overpayment at issue in this case was not due to sole administrative error. 38 U.S.C. § 5112 (b)(10); 38 C.F.R. § 3.500 (b)(2) (2015); see also Dent at 380 (noting that "[a]n error resulting in an overpayment will not be classified as a VA administrative error or error in judgment if the error is 'based on an act of commission or omission by the beneficiary, or with the beneficiary's knowledge.'''). Waiver The COWC determined that there was no fraud, misrepresentation, or bad faith on the Veteran's part with respect to the creation of the overpayment at issue, but the COWC further determined that recovery of the overpayment of VA compensation benefits would not be against equity and good conscience. VA law provides that recovery of overpayment of any benefits shall be waived if 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 and recovery of the indebtedness from the payee who received such benefits would be against equity and good conscience. 38 U.S.C. § 5302; 38 C.F.R. § 1.963 (a). The standard "Equity and Good Conscience" will be applied when the facts and circumstances in a particular case indicate a need for reasonableness and moderation in the exercise of the government's rights. In making this determination, consideration will be given to the following elements, which are not intended to be all-inclusive: (1) Fault of the debtor. Where actions of the debtor contribute to the creation of the debt. (2) Balancing of faults. Weighing fault of the debtor against VA fault. (3) Undue hardship. Whether collection would deprive debtor or 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 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. See 38 U.S.C. § 5302; 38 C.F.R. § 1.965 (a). In this case, the COWC found, and the Board agrees, that there is no evidence demonstrating that the indebtedness resulted from fraud, misrepresentation, or bad faith on the Veteran's part. Therefore, waiver of indebtedness is not precluded if shown that it would be against the principles of equity and good conscience to require the Veteran to repay the debt to the government. 38 C.F.R. §§ 1.963, 1.965. With regard to fault, both VA and the Veteran bear some fault in the creation of the overpayment debt. The RO was aware that the Veteran had been incarcerated at the time the Veteran was first assigned a compensable disability rating in 2016 but did not process the debt until October 2018. However, the Veteran continued to accept funds he was not entitled to after he was notified that his incarceration required a reduction in his benefits. The Board also finds that the Veteran's receipt of VA compensation in excess of what he was entitled to receive because he was incarcerated results in unfair enrichment to him. As to whether the recovery of the assessed overpayment would deprive the Veteran of basic necessities, the Veteran submitted a financial status report which indicates that the income exceeds expenses by over $1,000 per month. The Board acknowledges the assertion of the Veteran's attorney that he is homeless. However, the financial status report submitted by the Veteran shows that the Veteran has a housing expense and has also purchased a car. The Board notes that at various places in the record the Veteran has been identified as homeless, but that the Veteran acknowledges that he has been living with family members. A June 2019 VA treatment record notes that the Veteran reported living in stable housing and not having concerns about housing or food insecurity. An October 2019 VA program note indicates that the Veteran contacted homeless staff requesting assistance in finding housing and acknowledged that he was living with his daughters. While the Veteran indicates that he has consumer debt, the government is to be afforded the same consideration as his other creditors. As such, the Board finds that the Veteran has not been deprived of basic necessities. As to whether collection of the debt would defeat the purpose of paying the benefits by nullifying the objective for which the benefits were intended, the Board notes that the rating schedule is intended to compensate a claimant for average impairments in earning capacity resulting from service-connected disability in civil occupations. 38 U.S.C. § 1155. "Generally, the degrees of disability specified in the rating schedule are considered adequate to compensate for considerable loss of working time from exacerbations or illnesses proportionate to the severity of the several grades of disability." 38 C.F.R. § 4.1. However, the Veteran received the excessive monies due to his incarcerated status and therefore had no earning capacity. Therefore, the Board finds that collection of the debt would not defeat the purpose of paying the benefits. Lastly, the Board finds that there is no indication in the record that reliance on the overpaid benefits resulted in the Veteran's relinquishment of a valuable right or the incurrence of a legal obligation. After weighing all the evidence of record, the Board finds that recovery of the overpayment would not be against equity and good conscience. Although the RO bore some fault in the creation of the debt, the Veteran was also at fault and none of the other elements are likewise in the Veteran's favor in this case. TANYA SMITH Veterans Law Judge Board of Veterans' Appeals Attorney for the Board T. Bynum, Associate Counsel 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.