Citation Nr: 21039898 Decision Date: 07/01/21 Archive Date: 07/01/21 DOCKET NO. 18-51 398 DATE: July 1, 2021 ORDER The overpayment of Department of Veterans Affairs (VA) additional compensation benefits for a dependent spouse in the amount of $1,043.67 was not properly created; the appeal is granted. The overpayment of VA compensation benefits paid prior to December 1, 2013 was properly created due to a retroactive reduction in the compensation rate to the 10 percent rate as of the 61st date of the Veteran's felony conviction; the appeal is denied. The overpayment of VA compensation benefits paid after December 1, 2013 was not properly created due to the reduction in the compensation rate to the 10 percent rate; the appeal is granted. Entitlement to a waiver of recovery of the remaining overpayment of VA compensation benefits for the debt created prior to December 1, 2013 due to a retroactive reduction in the compensation rate to the 10 percent rate as of the 61st date of the Veteran's felony conviction, is denied. FINDINGS OF FACT 1. In February 2012, the Veteran and his spouse divorced. VA received prompt notification. 2. The Veteran's VA benefits were retroactively reduced to terminate his additional compensation for a spouse as of March 1, 2012, and that action resulted in the creation of a debt of $1,043.67. 3. The overpayment of $1,043.67 was not properly created. 4. The Veteran was incarcerated due to a felony in July 2012; the 61st day of incarceration was September 23, 2012. 5. The Regional Office (RO) retroactively reduced the Veteran's compensation benefits which were being paid at the 100 percent rate to the 10 percent rate and this action resulted in an overpayment in the amount of $93,278.16. 6. The portion of the debt created prior to December 1, 2013 was properly created; the portion of the debt created after December 1, 2013 was not properly created. 7. The remaining overpayment was not due to the Veteran's fraud, misrepresentation or bad faith. 8. Recovery of the remaining debt in this case is not against equity and good conscience. CONCLUSIONS OF LAW 1. The overpayment of additional VA compensation benefits for a spouse in the amount of $1,043.67 was not properly created. 38 U.S.C. §§ 5110, 5111, 5112; 38 C.F.R. §§ 3.401, 3.501. 2. The overpayment in VA compensation benefits for the debt created prior to December 1, 2013, was properly created. 38 U.S.C. § 5313; 38 C.F.R. § 3.665. 3. The overpayment in VA compensation benefits for the debt created after December 1, 2013 was not properly created. 38 U.S.C. §§ 5112, 5313; 38 C.F.R. §§ 3.500, 3.665. 4. Recovery of the remaining overpayment of the VA compensation benefits would not be contrary to the principles of equity and good conscience. 38 U.S.C. § 5302; 38 C.F.R. § 1.965. REASONS AND BASES FOR FINDINGS AND CONCLUSIONS The Veteran had active duty service in the United States Marines from August 1969 to March 1972. In June 2021, the Veteran contacted VA and reported that he was advised by his doctor that he has terminal lung cancer. However, because the issue is currently before the Board and is being decided herein, the Board need not advance the appeal on the docket (AOD). Under pertinent VA laws and regulations, any individual who is entitled to compensation or to dependency and indemnity compensation and who is incarcerated in a Federal, State, local, or other penal institution or correctional facility for a period in excess of sixty days for conviction of a felony (where, as here, committed after October 7, 1980) shall not be paid such compensation or dependency and indemnity compensation, for the period beginning on the sixty-first day of such incarceration and ending on the day such incarceration ends, in an amount that exceeds (A) in the case of a veteran with a service-connected disability rated at 20 percent or more, the rate of compensation payable under section 1114(a) of this title; or (B) in the case of a veteran with a service-connected disability not rated at 20 percent or more or in the case of a surviving spouse, parent, or child, one-half of the rate of compensation payable under section 1114(a) of this title. 38 U.S.C. § 5313(a); 38 C.F.R. § 3.665(a). In September 1991, the RO granted an increased disability rating of 30 percent from April 1991. The law provides for the rates of disability compensation, and for payment of additional compensation for dependents of veterans who are at least 30 percent disabled. 38 U.S.C. §§ 1114(c), 1115, 1134, 1135. In February 1992, the RO notified the Veteran that he was awarded additional compensation for his spouse. He was also provided a VA Form 21-8764 which indicated that the failure to notify the RO in a prompt fashion of a dependency change would result in an overpayment. This notice also advised the Veteran that, in pertinent part, that compensation is subject to future adjustment, and that "benefits will be reduced upon incarceration in a Federal, State, or local penal institution in excess of 60 days for conviction of a felony." This notice complies with VA law and regulation. Under pertinent VA laws and regulations, any individual who is entitled to compensation or to dependency and indemnity compensation and who is incarcerated in a Federal, State, local, or other penal institution or correctional facility for a period in excess of sixty days for conviction of a felony (where, as here, committed after October 7, 1980) shall not be paid such compensation or dependency and indemnity compensation, for the period beginning on the sixty-first day of such incarceration and ending on the day such incarceration ends, in an amount that exceeds (A) in the case of a veteran with a service-connected disability rated at 20 percent or more, the rate of compensation payable under section 1114(a) of this title; or (B) in the case of a veteran with a service-connected disability not rated at 20 percent or more or in the case of a surviving spouse, parent, or child, one-half of the rate of compensation payable under section 1114(a) of this title. 38 U.S.C. § 5313(a); 38 C.F.R. § 3.665(a). The Veteran was thereafter provided additional VA Forms 21-8764 to include in March 1999, June 1999, September 2000, June 2002, and August 2006. In February 2012, the Veteran and his spouse divorced. In April 2012, the RO was notified, and the divorce papers were furnished. In September 2013, the RO received information that the Veteran was incarcerated in July 2012. In a September 2013 letter, the RO indicated that information had been received that the Veteran was convicted and sentenced on July 24, 2012, due to a felony conviction. It was proposed that his benefits would be reduced retroactively as of September 23, 2012, the 61st full day of incarceration after the conviction for a felony. He was told that this action would be taken on December 1, 2013. In January 2014, the Veteran confirmed that he was incarcerated. In March 2014, he inquired about the overpayment and the repayment of it. In December 2014, the Veteran was notified that this action had been taken. The retroactive action resulted in the creation of a debt totaling $93,278.16. In January 2015, the RO notified the Veteran that his spouse had been removed from his compensation award effective March 1, 2012, the first day of the month following the divorce. The retroactive removal resulted in the creation of a debt totaling $1,043.67. The combined total amount of both debts was $94,321.83. In February 2015, a financial status report and request for a waiver was received from the Veteran. In this case, the proper creation of the debt has been challenged on two bases: it is argued that the Veteran notified VA personnel of his incarcerated status and filled out a form in close proximity in time to his incarceration and also because VA took an inordinate amount of time to take the action to reduce the benefits while the Veteran did not know the full benefit was being directly deposited into his account which he did not have access to given his incarcerated status, which were being used by his former spouse. His representative has indicates that since the VA letter told the Veteran that the action for the retroactive reduction in his benefits would take place on December 1, 2013, from that date onward, there was sole VA error since the Veteran had no knowledge that the action had not been taken place as of that date since he had no access to the funds. Administrative errors include all administrative decisions of entitlement, whether based upon mistake of fact, misunderstanding of controlling regulations or instructions, or misapplication of law. VAOPGCPREC 2-90 (July 17, 1989); 55 Fed. Reg. 27757 (1990). Sole administrative error connotes that the Veteran neither had knowledge of nor should have been aware of the erroneous award. Further, neither the Veteran's actions nor his or her failure to act must have contributed to payment pursuant to the erroneous award. 38 U.S.C. § 5112(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. The United States Court of Appeals for Veterans Claims noted that, "[s]tated another way, when an overpayment has been made by reason of an erroneous award based solely on administrative error, the reduction of that award cannot be made retroactive to form an overpayment debt owed to VA from the recipient of the erroneous award." Erickson v. West, 13 Vet. App. 495, 499 (2000). The Board of Veterans' Appeals (Board) previously remanded this case to address the propriety of the debts and then if proper, whether a waiver of the recovery is warranted. With regard to the waiver matter, the appeal was originally denied on the basis that the request for waiver was not timely. On remand, in the September 2020 supplemental statement of the case (SSOC), the RO determined that the request for waiver was timely. With regard to the $1,043.67 debt, the divorce from the Veteran's spouse was timely received. The RO then took action to remove the spouse retroactively from the Veteran's award. Under 38 U.S.C. § 5112(b)(2), the effective date of reduction or discontinuance of compensation by reason of divorce of a dependent of a payee shall be the last day of the month in which such divorce occurs. See also 38 C.F.R. § 3.501(d)(2). The spouse was removed effective March 1, 2012, the first day of the month following the divorce. There needs to be sole VA error in order for the debt to be invalid. In this case, the notice of the divorce was timely. The RO delayed in removing the spouse from the award. Although the Veteran, per the discussion below, knew or should have known he was receiving his full compensation benefits, since the notice of the divorce was timely, the Board accepts that the Veteran was unaware that he was receiving additional compensation benefits for his spouse and did not contribute to the error with regard to that payment. There was therefore sole VA error in continuing the additional compensation for a spouse payment. With regard to the debt of $93,278.16, information was received in September 2013, that the Veteran was incarcerated for a felony in July 2012. The 61st day of incarceration was September 23, 2012. In accordance with VA law and regulation, the RO retroactively reduced the Veteran's compensation benefits which were being paid at the 100 percent rate to the 10 percent rate and this action resulted in the overpayment. The initial consideration is whether the reduction to the 10 percent compensation rate was proper. As noted, the Veteran was incarcerated for a felony offense, so VA was required to reduce the Veteran's VA disability compensation to the amount payable for a disability evaluated as 10 percent disabling, the 61st day following the felony conviction. The Veteran contends that VA is solely at fault for creating this debt because of two assertions. First, he notified VA personnel of his incarcerated status and filled out a form in close proximity in time to his incarceration; and second, VA took an inordinate amount of time to take the action to reduce the benefits while the Veteran did not know the full benefit was being directly deposited into his account which he did not have access to given his incarcerated status, which were being used by his former spouse. It has been asserted that the Veteran believed the benefits were reduced beginning December 1, 2013, because that is what the VA letter stated. As noted, sole administrative error may be found to occur only in cases where the Appellant neither had knowledge of, nor should have been aware of, the erroneous award. Further, such error contemplates that neither the Appellant's actions nor his failure to act contributed to the erroneous award. In this case, the Veteran was repeatedly notified of his obligation to notify VA of his incarcerated status. Although he claims that he filled out paperwork with VA personnel, there is no documentary record of any notice from the Veteran at all during the timeframe. It is the Veteran's responsibility to ensure notice to the RO and he was fully notified of that obligation. The Board does not find that assertion credible. With regard to the delay by VA combined with the assertion that the Veteran did not know he was receiving full benefits, the Board acknowledges some delay by VA. The March 2014 letter of the Veteran tends to show that he believed that the RO had reduced the benefits as of December 1, 2013, per the September 2013 letter. The Board therefore finds that there was sole administrative error as of December 1, 2013. There was significant delay by the RO in taking the proposed action and it is credible that the Veteran did not have the knowledge or should have had the knowledge that he was still receiving the higher benefit amount. Accordingly, there is sole VA error as of December 1, 2013, but not before that date. Therefore, the creation of the debt prior to December 1, 2013, was proper. With regard to the request for a waiver of the recovery of the overpayment, there was no fraud, misrepresentation, or bad faith on the Veteran's part with respect to the creation of the overpayment at issue. As such, it must be determined if recovery of the overpayment of VA compensation benefits would 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, 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. As to the principles of equity and good conscience, the record shows the Veteran was at fault in the creation of the remaining debt in failing to report his change to incarcerated felon. Following his conviction, VA was required to reduce his benefits to the 10 percent rate from the 61st date of incarceration, as indicated above. The Board finds that the Veteran's receipt of disability compensation at the 100 percent rate when he should have received funds at the 10 percent rate represented monies that he was not entitled to because he was incarcerated and such receipt resulted in unfair enrichment to him. 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, due to his incarcerated status, he had no earning capacity at that time. Therefore, the Board finds that collection of the debt would not defeat the purpose of paying the benefits. The Board also 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. As to whether the recovery of the assessed overpayment would deprive the Veteran of basic necessities, the current July 2018 financial status report shows no financial hardship. The Board notes that the Veteran receives all of his care from the penal institution. His representative has indicated that the Veteran does not have sufficient money to cover his incidental monetary needs at the prison. As such, there is some financial hardship. Nonetheless, the Board finds that the elements of equity and good conscience that are not in the Veteran's favor outweigh the finding that there is some financial hardship. After weighing all the evidence of record, the Board finds that recovery of the overpayment created prior to December 1, 2013 would not be against equity and good conscience. MARTHA R. LUBOCH Acting Veterans Law Judge Board of Veterans' Appeals Attorney for the Board J. Connolly 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.