ࡱ> LNKG Qbjbjَ 4bF;]       8Xt    $     4         '     ʘX  X "Department of Memorandum Veterans Affairs Date: February 14, 2001 VAOPGCPREC 07-2001 From: Acting General Counsel (022) Subj: Effective Date of Reduction of VA Compensation When Veteran Is Receiving Military Retired or Retirement Pay To: Chairman, Board of Veterans Appeals (01) QUESTION PRESENTED: Whether a recipient of military retired or retirement pay whom VA has determined is entitled to compensation under title 38, United States Code, and who has submitted a waiver of entitlement to that pay is a payee for purposes of 38 U.S.C. 3012(b)(6) (1964) (currently 38 U.S.C. 5112(b)(6)). COMMENTS: 1. This issue arises in the context of a remand order issued by the United States Court of Veterans Appeals (CVA) in William M. Downs v. Togo D. West, Jr., Acting Secretary of Veterans Affairs, Vet. App. No. 97-890 (Apr. 22, 1998). The remand order vacated a Board of Veterans Appeals (Board) March 21, 1997 decision which held that a May 9, 1968 administrative decision reducing the veterans rate of special monthly compensation (SMC) was not the result of clear and unmistakable error (CUE). 2. On December 7, 1967, the Veterans Administration (now Department of Veterans Affairs (VA)) received from the veteran VA Forms 21-526e, Veterans Application for Compensation or Pension At Separation From Service, and 8-651, Election of Compensation or Pension In Lieu of Retirement or Waiver of Retirement Pay to Secure Compensation or Pension from Veterans Administration. In a March 21, 1968 rating decision, the VA regional office awarded a 100 percent rating for the veterans service-connected fracture dislocation of the fifth and sixth cervical vertebrae with secondary quadriparesis, status post surgical fusion of the fifth and sixth vertebrae, and special monthly compensation for loss of use of both feet. The effective date of the award was February12, 1968. VA notified the veteran by letter dated March 26, 1968, that VA Form 21-651, Election of Compensation or Pension in Lieu of Retired Pay or Waiver of Retired Pay to Secure Compensation or Pension From Veterans Administration 38 U.S.C., 3104(a)-3105, which he had furnished was being forwarded to the service department so that a waiver of his retirement pay could be processed. Based upon VA hospital records concerning the period from December 1967 to April 1968, the VA regional office, in a May 9, 1968 rating decision, determined that the veteran was entitled to special monthly compensation based on loss of use of only one foot, effective April21, 1968, thereby reducing the amount of compensation to which he was entitled. VA advised the veteran of this decision in a May15, 1968 letter as well as his right to appeal it. VA received the completed VA Form21-651 from the service department on June17, 1968, which stated that the veterans military retired pay had been reduced effective June 1, 1968, and shortly thereafter the veteran began to receive VA monthly compensation in the amount of $400 for the period February 12, 1968, through April 20, 1968, and $347 effective April 21, 1968. The veteran filed a notice of disagreement with the May 1968 rating decision, but he withdrew his appeal in a statement received by VA on October 23, 1968. 3. On September 20, 1994, the veteran filed a notice of disagreement with a May 10, 1994, rating decision that denied his claim for increased SMC. He also inquired as to whether VAR1105(E) (currently 38 C.F.R. 3.105(e)) was applicable to the 1968 reduction of his SMC. In an October 18, 1994, rating decision, the VA regional office increased the veterans rate of SMC claim pursuant to 38U.S.C. 1114(o) and (r), effective March 22, 1993, and denied his claim regarding the effective date for the reduction in SMC in the May 9, 1968, rating decision. The veteran appealed to the Board, and in its March 21, 1997, decision, the Board also concluded that there was no CUE in the May 9, 1968, rating decision. The Board found that 38U.S.C. 3012(b)(6)(1964) (currently 5112(b)(6)) and 38C.F.R. 3.105(e) are not applicable to the claim because the veteran did not become a payee of VA compensation until the service department processed his waiver of retired pay and notified VA. The veteran appealed to the CVA which remanded the case on April 22, 1998, pursuant to an April21, 1998, joint motion for remand and for stay of further proceedings signed by representatives of the veteran and VA. The joint motion stated that the parties agree that the Boards decision did not contain an adequate statement of reasons or bases for its conclusions or address many of the arguments presented by the veterans representative. The joint motion also stated that [a] reading of 3104(a) suggests . . . that Mr.Downs receipt of retirement pay from the service department may make him a payee for VA compensation purposes, thereby entitling him to 60days notice before the reduction in special monthly compensation was made. Your inquiry concerns the effect of 38U.S.C. 3104(a) (1964) on the May 1968 rating decision. 4. It is a well-established rule of statutory construction that the meaning and effect of statutes are to be determined with reference to other provisions in the statutory scheme. See Bailey v. United States, 516 U.S. 137, 146 (1995); Gustafson v. Alloyd Co., 513 U.S. 561, 569 (1995). Therefore, 38 U.S.C. 3104(a) (1964) must be construed in conjunction with other provisions of title 38, United States Code, including 38U.S.C. 3105 and 3012(b)(6) (1964). Section 3104(a) of title 38, United States Code (currently codified as amended at 38 U.S.C. 5304(a)(1)), provided that, [e]xcept to the extent that retirement pay is waived under other provisions of law, not more than one award of pension, compensation, emergency officers, regular, or reserve retirement pay . . . shall be made concurrently to any person based on his own service. Section 3105 (currently codified as amended at 38 U.S.C. 5305) provided: Any person who is receiving pay pursuant to any provision of law providing retired or retirement pay to persons in the Armed Forces, . . . , and who would be eligible to receive pension or compensation under the laws administered by [VA] if he were not receiving such retired or retirement pay, shall be entitled to receive such pension or compensation upon the filing by such person with the department by which such retired or retirement pay is paid of a waiver of so much of his retired or retirement pay as is equal in amount to such pension or compensation. The other statutory provision at issue in this case, 38 U.S.C. 3012(b)(6) (1964), concerns the effective date of a reduction in VA compensation. Section3012(b)(6), which was added to title 38, United States Code, by Pub. L. No.87-825, 2(b), 76 Stat. 558, 949 (1962), provided that the effective date of a reduction of compensation by reason of . . . change in physical condition shall be the last day of the month following sixty days from the date of notice to the payee ... of the reduction. See also 38C.F.R. 3.105(e), 3.501(g) (1968). 5. The term payee is not defined in title38 of the United States Code. VA had the authority under 38U.S.C. 210(c)(1)(1964) (currently codified as amended at 38 U.S.C. 501(a)) to promulgate regulations to implement the provisions of title 38. Pursuant to this authority, VA implemented what is now 38 U.S.C. 5112(b)(6) by regulation in 38 C.F.R. 3.105(e) (1968). In that regulation, the term payee is interpreted to refer to a person currently receiving compensation payments for whom a reduction in evaluation of a service-connected disability or employability status would result in a reduction or discontinuance of such payments. This language defining payee was added to the regulation in 1962 when VA amended VAR1105(E) (currently 38C.F.R. 3.105(e)). Transmittal Sheet236 (May 8, 1962). Transmittal Sheet 236 stated: Subparagraph E has been amended to show clearly that the 60-day grace period for a proposed reduction in disability evaluation is applicable only to running awards. This procedure is not for application where, for example, there is no change in the rate of disability compensation being paid because the reduction in evaluation for one disability is offset by assignment of the same or a higher evaluation for another service-connected disability or where the award has been suspended because of a veterans failure to report for examination. 6. This amendment clarified VAs practice since 1937, when VAR 1105(E) was originally promulgated as R. & P. R-1009(E) (March 25, 1937). A VA memorandum proposing the regulation which became R. & P. R-1009(E) stated that [s]ubparagraph1009(E) has reference to the action to be taken when a reduction of an existing award for a service-connected disability is contemplated by reason of a change in physical condition. Administrators Decision No. 550 (Dec.29, 1943) (emphasis in original). The memorandum regarding the proposed regulation further stated that, if adopted, the regulation will result in an undetermined increase of expenditures due to the continuance of payments where a reduction of an award is otherwise deemed warranted. Id. (emphasis in original). Administrators Decision No. 550 concluded that [i]t is clearly apparent that R. & P. R-1009 (E) was intended to be applicable only to running awards. Administrators Decision No. 550 therefore held that the effective date of a reduction in a veterans rating that occurred during a period when payment of VA compensation had been suspended while he was hospitalized at a State hospital was the last day of the month in which the reduction was approved. This regulatory history indicates that a payee for purposes of section 3012(b)(6) is a person who is in continuous receipt of VA compensation, dependency and indemnity compensation, or pension. 7. It is clear from the legislative history of section3012(b)(6) that Congress intended to codify VAs practice under 38 C.F.R. 3.105(e) and its predecessor regulations. In 1962, when section 3012(b)(6) was enacted, Congress stated that this provision substantially follows administrative practice of some 30 years standing and provides a person receiving service-connected disability benefits a reasonable time to adjust to the reduction or discontinuance of his compensation benefits or, on the other hand, a period of time within which he may submit evidence to show that such reduction or discontinuance is not justified. S. Rep. No.87-2042, at 8 (1962), reprinted in 1962U.S.C.C.A.N. 3260, 3267; H.R. Rep. No. 87-2123 at 8 (1962). See also VAOPGC4-86 (9-4c Reduction-Compensation). 8. The next question that must be resolved is whether a veteran who is receiving a running award of military retired or retirement pay and whom VA has determined is entitled to compensation is a payee for purposes of section3012(b)(6). Former section 3105 stated: Any person who is receiving pay pursuant to any provision of law providing retired or retirement pay to persons in the Armed Forces . . . and who would be eligible to receive pension or compensation under the laws administered by [VA] if he were not receiving such retired or retirement pay, shall be entitled to receive such pension or compensation upon the filing by such person with the department by which such retired or retirement pay is paid of a waiver of so much of his retired or retirement pay as is equal in amount to such pension or compensation. To prevent duplication of payments, the department with which any such waiver is filed shall notify [VA] of the receipt of such waiver, the amount waived, and the effective date of the reduction in retired or retirement pay. The VA Solicitor interpreted section 3105 to mean that, when a veteran is receiving military retired or retirement pay and has been determined to be entitled to VA compensation, the effective date of the award of VA compensation is the effective date of the reduction in military pay. 97Op. Sol. 545 (Apr. 7, 1948); 113Op. Sol. 13 (Aug.22, 1951); 114Op. Sol. 1 (Jan. 2, 1952).104.a. The Veterans Benefits Administration Adjudication Procedure Manual M21-1, para.29.28d.(1) (March 4, 1965), which was in effect when VA decided the claim in the instant case, also provided that, where a veteran waives a portion of his or her military retired pay, the initial award is effective from the date following the date of reduction of retired pay as determined by the service department. See also Emergency Interim Issue 21-94 (Apr.10, 1962). 9. Assuming arguendo that the veteran could be considered a payee effective February 12, 1968, when VA granted service connection, 38 U.S.C. 3012(b)(6) is nonetheless not applicable to his claim. Section 3012(b)(6) stated that the effective date of a reduction in compensation is the last day of the month following sixty days from the date of notice to the payee ... of the reduction. Based on the plain language of section 3012(b)(6), it is applicable only when there is a reduction in compensation payments to a payee. As discussed above, the purpose of this provision is to provide a person receiving VA compensation with a period in which to adjust to a reduction or discontinuance of the compensation. VAOPGCPREC 31-97; VAOPGCPREC 71-91 (O.G.C. Prec. 71-91). It must be recognized that reduction in evaluation is not synonymous with reduction in compensation, required by section 3012(b)(6). For example, the VA General Counsel held that 38 C.F.R. 3.105(e), which implements this statutory provision, does not apply to a proposed reduction in evaluation of individual disabilities where there is no reduction in the amount of compensation payable. VAOPGCPREC 71-91. In the instant case, VA determined in a May 9, 1968, rating decision that the veteran was entitled to special monthly compensation based on loss of use of only one foot. The veteran, however, suffered no reduction in the compensation received following that decision because he continued to receive the same amount of retirement pay to which he was entitled as a result of his military service until VA began making payments after receiving his completed VA Form 21-651 from the service department. The amount of the compensation payments that began after receipt of the VA Form 21-651 were not less than the retirement pay he had been receiving prior to that date. Accordingly, the reduction in SMC without a corresponding reduction in compensation being paid to the veteran does not meet the criteria of 38 U.S.C. 3012(b)(6). 10. We note that section 5301(e), which was added to title 38 of the United States Code by the Veterans Disability Compensation and Survivors Benefits Act of 1978, Pub. L. No. 95-479, 301, 92 Stat. 1560, 1564, provides that the filing of a waiver of retired or retirement pay in the amount of VA pension or compensation before the end of the one-year period from the date of the veterans notification of eligibility for VA compensation shall exempt the retired pay from taxation in the amount of the VA pension or compensation which would have been paid but for the receipt of such pay. This provision was enacted in response to Strickland v. Commr Internal Revenue, 540 F.2d 1196 (4th Cir. 1976), in which the Fourth Circuit pointed out that 38 U.S.C. 3010(a)(currently codified at 38 U.S.C. 5110(a)) governing effective date of awards of disability compensation conditions the effective date of any award upon receipt of an application and not upon the waiver of retirement or other service-connected income. Explanatory Statement of H.R. 11886, 124 Cong. Rec. S16896 (daily ed. Oct. 2, 1978), reprinted in 1978U.S.C.C.A.N. 3526, 3532. There is no reference in the legislative history, however, to section 3012(b)(6). The intent of Congress to exempt retired pay from taxation if the waiver is filed within one year of notification of VA compensation, evidence in section 5301(e), is not relevant to this inquiry. We note that Congress did not, in enacting current section 5301(e), accomplish its purpose by deeming the military retired or retirement pay (received by the veteran between notification of VA compensation and the filing of the waiver) to be veterans compensation. We thus conclude that section 5301(e) does not change the result here. 11. Based upon 38 C.F.R. 3.105(e) and its history, the legislative history of 38U.S.C. 3012(b)(6)(1964), and opinions of the VA Solicitor and General Counsel, we conclude that the effective date of the veterans award of VA compensation in the instant case was June1, 1968, the effective date of the reduction in his military pay. As a result, the veteran was not in receipt of a running award of VA compensation, and therefore was not a payee pursuant to former section3012(b)(6) when his rating was reduced. HELD: A. A payee for purposes of 38 U.S.C. 3012(b)(6) (1964) (currently 38U.S.C. 5112(b)(6)) is a person who is in continuous receipt of VA compensation, dependency and indemnity compensation, or pension. The effective date of an award of VA compensation to a recipient of military pay or retirement pay who has submitted a waiver of entitlement to that pay is the date upon which the service department reduces such pay. B. Section 3012(b)(6) of title 38, United States Code (1964) (currently 38 U.S.C. 5112(b)(6)), does not apply where there is no reduction in the amount of compensation being paid to a claimant. Therefore, if a veterans evaluation is reduced by VA while the veteran is receiving military retired or retirement pay during the period in which a service department is processing a waiver of such pay, section3012(b)(6) is not applicable because, at the time of the reduction, the reduction decision does not result in the veteran getting any less retired or retirement pay than the veteran had been receiving before the decision was made. John H. Thompson Attachment  The CVA was redesignated the United States Court of Appeals for Veterans Claims, effective March1, 1999. Veterans Programs Enhancement Act of 1998, Pub. L. No.105-368, 511(a) and 513, 112 Stat. 3315, 3341, 3342.  Laws pertaining to veterans benefits have prohibited duplication of benefits since 1891. Act of March 3, 1891, ch.548, 1, 26 Stat. 1081, 1082. The World War Veterans Act 1924, tit. II, 212, 43Stat. 607, 623, for example, stated that compensation under this title shall not be paid while the person is in receipt of active service or retirement pay, and Vet. Reg. No. 10, para.XIII, stated that [n]ot more than one pension shall be payable to any one individual. See also Act of June29, 1936, ch. 867, 303, 49 Stat. 2031, 2033; Act of July13, 1943, ch. 233, 15, 57 Stat. 554, 559. The Federal Circuit stated that, when the waiver was first enacted, the stated congressional purpose was to save money. Absher v. United States, 805 F.2d 1025, 1026 (Fed. Cir. 1986), cert. denied, 481U.S. 1028 (1987). In subsequent years, Congress has considered amendments to the provision, but it has not changed its view that the basic legislation represents sound fiscal policy. Id.  Section 210(c)(1) of title 38, United States Code, authorized the VA Administrator to make all rules and regulations which are necessary or appropriate to carry out the laws administered by [VA] and are consistent therewith.  Veterans Benefits Administration Adjudication Procedure Manual M21-1, PartIV, para.21.02a.(2)(b) currently provides that, if a veteran waives a portion of retired pay, the full rate of VA compensation payments will begin as of the effective date of the reduction of retired pay.  PAGE 7. 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