**Veterans Benefits Administration M21-1, Part IV**

**Department of Veterans Affairs Change 205**

**Washington, DC 20420 September 17, 2004**

Veterans Benefits Manual M21-1, Part IV, "Authorization Procedures," is
changed as follows:

**Pages 16-ix through 16-x:** Remove these pages and substitute pages
16-ix through 16-x attached.

**Pages 16-I-5 through 16-I-8:** Remove these pages and substitute pages
16-I-5 through 16-I-8 attached.

Paragraph 16.02e(8) is added to state that any assistance and/or savings
received from the Medicare Prescription Drug, Improvement and
Modernization Act (MMA) is not countable income.

Paragraph 16.02h(1) is revised to update sources of information from the
Third Party Inquiry System (TPQY) to the Social Security Administration
database accessed through the SHARE application.

**Pages 16-IX-1 through 16-IX-4:** Remove these pages and substitute
pages 16-IX-1 through 16-IX-4 attached.

Paragraph 16.41b(1) is revised to state that any assistance and/or
savings received from the Medicare Prescription Drug, Improvement and
Modernization Act (MMA) is not countable income.

By Direction of the Under Secretary for Benefits

Renée Szybala, Director

> Compensation and Pension Service

Distribution: RPC: 2068

FD: EX: ASO and AR (included in RPC 2068)

LOCAL REPRODUCTION AUTHORIZED

**September 17, 2004 M21-1, Part IV**

**Change 205**

**SUBCHAPTER VII. IMPROVED PENSION \-- ADJUSTMENTS BASED ON CHANGES IN
STATUS**

16.36 Adjustments Based on Changes in Income or Net Worth 16-VII-1

a\. Adjustments Based on Changes in Income 16-VII-1

b\. Time Limit to Furnish Amended Income Information 16-VII-1

\(1\) Time Limit to Furnish Amended Income Information to Increase Rate
16-VII-1

\(2\) Time Limit to Submit Amended Income Information to Reduce
Overpayment 16-VII-2

\(3\) Time Limit to Submit Amended Income Information when Award is

Terminated for Excessive Income 16-VII-2

\(a\) Continuing Entitlement Established 16-VII-2

\(b\) Payment of Pension After a Break in Entitlement 16-VII-2

\(c\) Income Information Submitted to Reduce Overpayment 16-VII-3

c\. Adjustments Based on Changes in Net Worth 16-VII-3

\(1\) Terminations for Excessive Net Worth 16-VII-3

\(2\) Resumption Based on Reconsideration of Net Worth 16-VII-4

d\. COLA Adjustments 16-VII-4

\(1\) Social Security 16-VII-4

\(a\) No Reduction in Improved Pension Rate 16-VII-4

\(b\) Reduction in Rate of Improved Pension 16-VII-4

\(2\) Other Benefit Programs 16-VII-5

\(3\) Original, Reopened, Suspended Awards 16-VII-5

\(4\) Retroactive Increases 16-VII-5

16.37 Adjustment for Loss of Disability Social Security 16-VII-6

a\. Beneficiary\'s Right to Benefits During Appeal 16-VII-6

b\. Rate During Appeal 16-VII-6

c\. Report of Terminated Disability Social Security Received 16-VII-6

d\. Referral to Rating Board 16-VII-7

e\. End Products 16-VII-7

16.38 Death Pension Award Terminated \-- Other Beneficiaries 16-VII-7

a\. Method of Termination 16-VII-7

b\. Entitlement of In-Custody Children 16-VII-7

c\. Entitlement of Out-of-Custody Children 16-VII-7

d\. Remarriage of Surviving Spouse 16-VII-7

e\. Child\'s Award Terminated \-- Other Beneficiaries 16-VII-7

**SUBCHAPTER VIII. IMPROVED PENSION \-- NET WORTH/PROPERTY TRANSFERS**

16.39 Net Worth Determinations 16-VIII-1

a\. General 16-VIII-1

b\. Net Worth of Spouse Considered 16-VIII-1

c\. Net Worth of Dependent Child 16-VIII-1

d\. Net Worth of Child Entitled in Own Right 16-VIII-1

e\. Administrative Decision Requirements 16-VIII-1

f\. Effective Date of Termination or Reduction 16-VIII-1

g\. Adjustments Based on Changes in Net Worth 16-VIII-1

16.40 Sale or Transfer of Real or Personal Property 16-VIII-1

a\. General Rule 16-VIII-1

b\. Sales in Course of Business 16-VIII-2

c\. Installment Sales 16-VIII-2

d\. Asset Transfers 16-VIII-3

**16-ix**

**M21-1, Part IV September 17, 2004**

**Change 205**

e\. Life Estates 16-VIII-3

**SUBCHAPTER IX. IMPROVED PENSION \-- COUNTING SPECIFIC TYPES OF
INCOME**

16.41 Specific Items of Income \-- Exclusions and Inclusions 16-IX-1

a\. General 16-IX-1

b\. Income Exclusions 16-IX-1

\(1\) Welfare and SSI 16-IX-1

\(2\) Maintenance 16-IX-1

\(3\) Proceeds of Casualty Insurance 16-IX-1

\(4\) Profit from Sale of Property 16-IX-1

\(5\) Income from Domestic Volunteer Service Act Programs 16-IX-1

\(6\) Agent Orange Settlement Payments 16-IX-1

\(7\) Mineral Royalties 16-IX-1

\(8\) Income Tax Refunds 16-IX-2

\(9\) Withheld Social Security 16-IX-2

\(10\) Payments for Participation in a Program of Rehabilitative
Services 16-IX-2

\(11\) Home Energy Assistance Act 16-IX-2

\(12\) Interest on Individual Retirement Accounts 16-IX-2

\(13\) Chore Services Payments 16-IX-2

\(14\) Loans 16-IX-2

\(15\) Crime Victims Compensation Act Payments 16-IX-2

\(16\) Provisional Income 16-IX-2

\(17\) Scholarships and Grants for School Attendance 16-IX-2

\(18\) Survivor Benefit Annuity Under Section 653, Public Law 100-456
16-IX-3

\(19\) California State Renter\'s Credit 16-IX-3

\(20\) Relocation Expenses 16-IX-3

\(21\) Disaster Relief Payments 16-IX-3

\(22\) Farmers Home Administration Construction Grants 16-IX-3

\(23\) Insurance Dividends 16-IX-3

\(24\) Timber Sales 16-IX-3

\(25\) Payments to Foster Parents 16-IX-3

\(26\) Joint Accounts 16-IX-3

\(27\) Distributions to Members of the Seminole Nation Under Public Law
101-277 16-IX-3

\(28\) Redress Payments to WW II Japanese Internees 16-IX-3

\(29\) Proceeds of Cashed-In Life Insurance Policies 16-IX-3

\(30\) VA Burial Benefits 16-IX-4

\(31\) Interest on Irrevocable Burial Trusts 16-IX-4

\(32\) Pension as an Accrued Benefit 16-IX-4

\(33\) RECA Payments 16-IX-4

c\. Inclusions 16-IX-4

\(1\) Benefits Subject to Garnishment 16-IX-4

\(2\) Social Security Lump Sum Death Benefit 16-IX-4

\(3\) Individual Retirement Account (IRA) Distributions 16-IX-4

\(4\) Withdrawal of Contributions to Retirement Fund 16-IX-4

\(5\) Department of Labor Employment Programs 16-IX-4

\(6\) VA Benefits 16-IX-4

\(7\) Value of Room and Board 16-IX-5

\(8\) Gifts and Inheritances of Property or Cash 16-IX-5

\(9\) Waived Income 16-IX-5

\(10\) Gains from Gambling 16-IX-5

\(11\) Conservation Resource Program Payments 16-IX-5

\(12\) Vietnam Era Bonus Payments 16-IX-5

\(13\) USGLI or NSLI Insurance payments 16-IX-6

**16-x**

**September 17, 2004 M21-1, Part IV**

**Change 205**

premium when they first became eligible for Title II Social Security.
They must now pay a higher premium to compensate. A chart showing
historical standard and nonstandard SMIB rates appears in the VBA
Cost-of-living Adjustment circular that is published each year.

\(5\) If a VA beneficiary receives Social Security and has an amount
deducted from the monthly Social Security check to pay the Medicare
medical insurance premium, add the amount of the deduction to the check
amount to determine countable Social Security income. For example, if
the beneficiary receives a monthly check for \$350 and has a Medicare
deduction of \$29.90, countable Social Security for VA purposes is
\$379.90. Countable annual Social Security is \$4,558 (\$379.90 X 12).

\(6\) Some private concerns reimburse their retired employees for
premiums paid under Medicare. Do not count these reimbursements as
income and do not consider them as deductible medical expenses in
protected pension cases. See 38 CFR 3.261(a)(22). Count these
reimbursements as income and as deductible medical expenses in Improved
Pension cases.

> \(7\) Some states purchase Medicare coverage for certain residents who
> receive SSI. As indicated

above (subpar. c), SSI is not countable IVAP. Likewise, Medicare
premiums paid by a state are not countable IVAP. However, if a state
pays an SSI beneficiary\'s Medicare premium, do not allow the Medicare
premium as a deductible medical expense.

> \(8\) Medicare beneficiaries have access to subsidized drug coverage
> through the Medicare

Prescription Drug, Improvement, and Modernization Act (MMA). The MMA
implements temporary Medicare-endorsed drug-discount card program where
Medicare beneficiaries secure substantial discounts on their
medications. Medicare beneficiaries at or below 135 percent of the
federal poverty level can qualify for assistance under MMA. Do not count
the assistance received under this subsidized drug coverage program as
income. Likewise, any savings associated with this program are not
counted as income. For information on the federal poverty level refer to
M21-1, Part VI, Chapter 7, Addendum A.

f\. **Gross Social Security Entitlement v. Countable Social Security.**
The Social Security Administration computes a beneficiary\'s \"monthly
benefit\" or gross monthly entitlement based on a number of factors. The
gross Social Security entitlement may be in a dollars and cents amount
but Social Security monthly checks are always rounded down to even
dollar amounts.

\(1\) If you know the monthly Social Security check amount, determine
countable monthly Social Security for VA purposes as follows:

\(a\) Determine the actual monthly check amount.

\(b\) Add in any amounts being withheld pursuant to garnishment orders
or other involuntary withholdings initiated by third parties (subpar. g
below).

\(c\) Add in the amount of the Medicare (SMIB) deduction.

\(2\) If you know the gross Social Security entitlement, determine
countable monthly Social Security for VA purposes as follows:

\(a\) Subtract any amounts withheld to recoup a Social Security
overpayment (subpar. g below).

\(b\) Subtract the Medicare deduction.

\(c\) Round down to an even dollar amount.

\(d\) Add back the Medicare deduction.

g\. **Withheld Social Security/Garnishment of Social Security**

**16-I-5**

**M21-1, Part IV September 17, 2004**

**Change 205**

\(1\) A Social Security payee\'s benefits may be reduced or withheld to
recoup an overpayment of

Social Security benefits. If this occurs, base countable IVAP on the
amount actually received by the beneficiary plus the Medicare premium.

\(2\) If there is garnishment of a payee\'s Social Security or
involuntary withholding from a payee\'s

Social Security check due to legal action initiated by a third party,
the entire benefit is countable as IVAP even though it may never be
received by the beneficiary.

\(3\) The distinction is that where Social Security is withheld to
recoup an overpayment, the overpayment was probably counted as IVAP at
the time it was received by the beneficiary. If there is garnishment of
Social Security or involuntary withholding due to legal action initiated
by a third party, it is as if the beneficiary had received the benefits
and used the funds to pay a creditor.

**NOTE:** Do not count the amount withheld to recoup a Social Security
overpayment even if the beneficiary was not in receipt of VA pension at
the time the Social Security overpayment was created.

\(4\) If notice is received that a claimant\'s Social Security has been
reduced to recoup an overpayment, initiate development to determine the
exact rate while withholding is in effect and the date full benefits
will be restored.

**EXAMPLE 1:** A veteran receives a Social Security check in the amount
of \$220.00 per month. The check would be larger except that the veteran
has a \$29.90 per month Medicare deduction and the Social Security
Administration is withholding \$114.00 per month to recoup an
overpayment. Countable IVAP is \$249.90 per month (\$220.00 + \$29.90).

**EXAMPLE 2:** A veteran is entitled to Social Security of \$410.50 per
month. The veteran has a \$29.90 Medicare deduction and \$50 per month
is being withheld for child support pursuant to a court order. The
veteran actually receives a monthly check in the amount of \$330.
Countable monthly Social Security for VA purposes is \$409.90
(\$380.00 + \$29.90).

h\. **Sources of Information About Social Security Benefits**

\(1\) The most readily accessible and accurate sources of information
concerning a beneficiary\'s Social Security benefits are the verified SS
field on the BDN M15 Screen, current Social Security award letters and
the Social Security Administration database accessed through the SHARE
application.

\(2\) If verification of Social Security rates is needed but information
is unavailable from these sources or if a beneficiary alleges that
information obtained from these sources is inaccurate, advise the
beneficiary to furnish a statement from the nearest district office of
the Social Security Administration with the specific information
required to resolve the issue.

i\. **Interpretation of BDN M15 Screen**

\(1\) Periodically, a computer match is run between VA and Social
Security benefit records. If a VA income-based benefit beneficiary is
identified as being in receipt of Social Security, the \"verified rate\"
field on the BDN M15 Screen is updated.

> \(2\) The amount in the \"verified rate\" field on the M15 Screen is
> the gross entitlement before round

down. See subparagraph f above.

\(3\) If the M15 Screen shows no Medicare deduction in the \"SMIB\"
field, round the verified Social Security amount down to the next whole
dollar to arrive at countable Social Security. If there is an amount in
\"SMIB,\" subtract SMIB from verified Social Security and round down to
an even dollar amount. Add back SMIB to arrive at countable Social
Security.

**16-I-6**

**September 17, 2004 M21-1, Part IV**

**Change 205**

**EXAMPLE 1:** M15 shows verified Social Security of \$338.40. The SMIB
field is blank. Countable Social Security for VA purposes is \$338.00.

**EXAMPLE 2:** M15 shows verified Social Security of \$338.40. The SMIB
field shows \$15.50. Countable Social Security for VA purposes is
\$337.50.

j\. **Interpretation of Social Security Award Letters**

\(1\) Social Security award letters may indicate the date that the first
check will be sent to the beneficiary or may show a date of entitlement,
e.g., July 1989. If only a date of entitlement is shown, generally
assume that the beneficiary will receive a full month\'s check for the
entitlement month, e.g., July 1989, and each month thereafter.

\(2\) However, if an offset or deduction is required for some reason,
e.g., payee employed, overpayment to be recouped, benefits may not be
payable from date of entitlement. If this is the case, the text of the
letter should state the reason why benefits are not payable from date of
entitlement.

\(3\) The Social Security award letter will generally show the amount
and date of any retroactive payment issued to the beneficiary.

k\. **Adjustments Based on Terminated Disability Social Security.** See
paragraph 16.37.

l\. **Withdrawal of Application for Social Security.** If a claimant
withdraws a Social Security application after a finding of entitlement
so as to maintain eligibility for an unreduced Social Security benefit
on attainment of age 65, do not regard the withdrawal as a waiver under
38 CFR 3.276(a). Do not count as IVAP the Social Security benefit that
would have been received but for the withdrawal of the application.

**16.03 DEFERRED DETERMINATIONS**

a\. **Parents\' DIC Cases**

\(1\) Entitlement to parents\' DIC is based on the amount of income
received during the calendar year. If a claimant is unable to predict
the amount or date of receipt of anticipated income, base the award on
the greatest amount of income expected during the calendar year. Advise
the claimant of the action taken and tell him or her that an adjustment
will be made on receipt of actual income information.

\(2\) If it appears that anticipated income may exceed the applicable
limit, disallow the claim and fully explain the reason for the
disallowance. Do not take award action until actual income information
is available or there is a basis for a more accurate prediction of
anticipated income.

b\. **Improved Pension Cases**

\(1\) Income for Improved Pension purposes is normally counted from the
first of the month after the month during which it is received. See
paragraph 16.23. Therefore, award action need not be deferred because a
beneficiary may receive income in the future.

\(2\) However, if an application or other income report indicates
possible receipt of income between the effective date of the award and
the date the award is to be authorized, the adjudicator has the option
of deferring award action pending further development or paying at the
lowest rate justified by the evidence of record.

\(3\) If award action is deferred, initiate development and continue the
pending issue. If an award is made at the lowest rate justified by the
evidence of record, close out the pending issue. The award letter must
fully inform the beneficiary of the assumptions on which the award is
based and of the evidence that should be submitted to establish
entitlement to a higher rate.

**16-I-7**

**M21-1, Part IV September 17, 2004**

**Change 205**

c\. **Surviving Spouse\'s Social Security Rate**

\(1\) If the following conditions exist, assume that a surviving spouse
claimant will receive the deceased veteran\'s rate of Social Security
from date of entitlement. Award or defer payment of benefits
accordingly.

\(a\) The deceased veteran was receiving Social Security benefits prior
to his or her death.

\(b\) The deceased veteran\'s Social Security rate is of record.

\(c\) The surviving spouse claimant is at least 60 years old on the
effective date of entitlement.

\(d\) The claimant has applied or will apply for Social Security as a
surviving spouse but is unable to predict the rate or date of receipt.

\(2\) If the deceased veteran\'s rate is assumed, fully inform the
surviving spouse of the action taken and the assumptions on which the
action was taken. Adjust the award under paragraph 16.23 when the
surviving spouse reports actual rates and dates of receipt of Social
Security benefits.

**EXAMPLE 1:** The veteran died on April 8, 1990. The surviving spouse
files for pension on April 23, 1990. The application indicates that the
surviving spouse expects to receive Social Security but the surviving
spouse does not know the date benefits will start or the rate. The
surviving spouse has no other income. The surviving spouse is 61 years
old. The veteran was receiving Social Security of \$369.90 per month
prior to the veteran\'s death. Pay from May 1, 1990, based on IVAP of
\$4,438. Fully inform the surviving spouse of the assumptions on which
the award was made.

**EXAMPLE 2:** Same facts as example 1 above. After the VA award is
made, the surviving spouse reports that the first Social Security check
was received on August 7, 1990. The check was in the amount of \$916.
This represents a retroactive payment of \$687 plus a monthly check in
the amount of \$229. The surviving spouse has a \$29.90 per month
Medicare deduction. Amend the award as follows: Pay based on IVAP of \$0
from May 1, 1990; IVAP of \$3,793 from September 1, 1990; and IVAP of
\$3,106 from September 1, 1991.

d\. **Unreliable Reporting.** If a beneficiary has a history of
unreliable reporting of income or expenses, future benefits may be
withheld or paid at a lower rate pending receipt of actual income and
expense information.

**16.04 DISALLOWANCE DUE TO EXCESSIVE INCOME OR NET WORTH**

a\. **General**

\(1\) If a claim is disallowed because of excessive income or net worth
or if dependency status for a child is disallowed due to excessive net
worth, advise the claimant of the reason for the disallowance, of the
right to reopen the claim at a later date if income or net worth is
reduced and of the right to appeal.

\(2\) Under 38 CFR 3.160d, a claim is not finally adjudicated until 1
year has elapsed from the date of notice of denial or disallowance or
the date of denial on appellate review, whichever is earlier. However,
38 CFR 3.160(d) does not extend the time limits in 38 CFR 3.660(b) for
submitting satisfactory evidence of entitlement.

b\. **Time Limit to Furnish Amended Income Information After Claim
Disallowed for Excessive**

**Income or Net Worth**

**16-I-8**

**September 17, 2004 M21-1, Part IV**

**Change 205**

**SUBCHAPTER IX. IMPROVED PENSION \-- COUNTING SPECIFIC TYPES OF
INCOME**

**16.41 SPECIFIC ITEMS OF INCOME \-- EXCLUSIONS AND INCLUSIONS**

a\. **General**

\(1\) The general rule set out at 38 CFR 3.271 is that all income is
countable unless specifically excluded by 38 CFR 3.272.

\(2\) Certain items are not countable either because they are not
considered to be \"income\" under 38 CFR 3.271 or because they are
deemed to fall under one of the specific exclusions in 38 CFR 3.272.

\(3\) This paragraph furnishes guidance on treatment of specific types
of income. Obviously, not all situations can be covered. If questions
arise about how to handle specific types of income, contact Compensation
and Pension Service Projects Staff (213B).

b\. **Income Exclusions**

\(1\) **Welfare, SSI, and Subsidized Drug Program.** Generally, any type
of benefit which is payable based on the claimant\'s financial need is
not counted. Additionally, any savings received under the Medicare
Prescription Drug, Improvement, and Modernization Act (MMA) is not
counted. See 38 CFR 3.272(a)

\(2\) **Maintenance.** The value of maintenance is not counted. In other
words, if someone furnishes a claimant free room and board or pays the
claimant\'s bills, the value of room and board or the amount of the
extinguished debt is not countable. Regular cash contributions can be
considered maintenance (and not be counted as income) if the evidence
establishes that the donor has assumed all or part of the burden of
regular maintenance of the claimant and that cash contributions are used
by the claimant to pay for basic necessities such as food, housing, etc.
Cash contributions which are sporadic or in amounts in excess of what is
required for regular maintenance should be considered gifts which are
countable for Improved pension purposes. See paragraph 16.41c(8).

\(3\) **Proceeds of Casualty Insurance.** If a claimant loses property
due to fire, flood, theft, etc., and the claimant collects on an
insurance policy, the amount received is not countable as long as it
does not exceed the value of the lost property. See 38 CFR 3.272(d).

\(4\) **Profit from Sale of Property.** If a claimant enters into an
occasional sale of property, the claimant does not receive countable
income (unless it is an installment sale) even if the amount received
exceeds the value of the property. However, profit from sale of property
is countable if the claimant sells the property as part of a regular
business. See paragraph 16.40.

\(5\) **Income from Domestic Volunteer Service Act Programs.** In
general, income received from participation in an ACTION agency program
is not countable unless amounts received by the volunteer equal or
exceed the federal minimum wage or the minimum wage of the state where
the volunteer served, whichever is greater. See 38 CFR 3.272(k). Note
that the Older Americans Community Service Employment Act is a
Department of Labor program. Income received from participation in
Department of Labor employment programs is countable income regardless
of whether it exceeds the minimum wage.

> \(6\) **Agent Orange Settlement Payments.** Payments received in
> settlement of the case [In Re Agent Orange]{.underline}

[Product Liability Litigation]{.underline} in the US District Court for
the Eastern District of New York are not countable. See 38 CFR 3.272(o).

> \(7\) **Mineral Royalties.** Royalties received for extracting
> minerals are not countable. Royalties are considered

to be a conversion of assets. The claimant is deemed to be exchanging
mineral assets for cash assets. However, bonus payments and delay
rentals which do not involve depletion of mineral assets are countable.

**16-IX-1**

**M21-1, Part IV September 17, 2004**

**Change 205**

\(8\) **Income Tax Refunds.** Income tax refunds (including the Federal
Earned Income Credit) are not countable.

\(9\) **Withheld Social Security.** Social Security or similar benefits
withheld to recoup a prior overpayment are not countable. Count the
check amount received, if any, plus any Medicare deduction. However, if
the withholding is due to legal action by a third party (such as a
garnishment order), count the gross benefit. See paragraph 16.02g.

\(10\) **Payments for Participation in a Program of Rehabilitative
Services.** Payments made as a result of a claimant\'s participation in
a therapeutic or rehabilitation activity under 38 U.S.C. 1718 are not
countable. See 38 CFR 3.272(l). Prior to November 4, 1992, this
exclusion applied only to therapeutic and rehabilitation activities
under the auspices of a VA medical center. Public Law 102-585 which was
effective November 4, 1992, extends the exclusion to approved
rehabilitative services programs furnished in State homes. Contact
Compensation and Pension Service Authorization Procedures Staff (213B)
to determine if a State home rehabilitative services program is
approved.

\(11\) **Home Energy Assistance Act.** Grants for heating and cooling
homes under the Home Energy Assistance Act (PL 96-223) are not
countable.

\(12\) **Interest on Individual Retirement Accounts.** Such interest is
generally not countable if it cannot be withdrawn without incurring a
substantial penalty. However, when the claimant starts drawing down the
IRA, all payments (interest and principal) are countable income.

\(13\) **Chore Services Payments.** Amounts paid by a governmental
entity to an individual to care for a disabled VA claimant in the
claimant\'s home are not countable provided eligibility for the payments
is based on the disabled VA claimant\'s financial need. Payments are not
countable if they are paid to a dependent of the disabled VA claimant
where counting the payments would reduce the disabled VA beneficiary\'s
rate of pension and eligibility for the payments is based on the VA
beneficiary\'s financial need.

**EXAMPLE 1:** A spouse of a veteran beneficiary is paid by the state to
take care of the veteran in their home under a chore services program.
The income is not countable. It makes no difference whether the state
pays the spouse directly or pays the veteran.

**EXAMPLE 2:** A surviving spouse beneficiary is paid by the state to
take care of a neighbor in the neighbor\'s home under a chore services
program. The chore services payments are countable earned income since
eligibility for the payments derives from the neighbor\'s financial need
\-- not the financial need of the VA beneficiary.

\(14\) **Loans.** Amounts loaned to a claimant are not countable income
as long as the claimant incurs a legally binding obligation to repay the
loan. Loans must be distinguished from gifts. A gift disguised as a loan
is countable.

\(15\) **Crime Victims Compensation Act Payments.** Amounts paid by
governmental entities to compensate crime victims are not countable
provided eligibility for the payments is based on financial need.

**Note**: This includes government payments to aid victims of terrorism.

\(16\) **Provisional Income.** If a claimant is awarded some benefit,
e.g., Black Lung benefits, but it is later determined that the claimant
is not eligible for the amount awarded and the claimant makes a complete
repayment, the income is not countable. However, satisfactory evidence
of repayment must be received by VA within the time limit specified in
38 CFR 3.660(b) for amending an income report. See paragraph 16.36b. If
the claimant repays less than the total amount awarded, count the
difference between the amount awarded and the amount repaid.

\(17\) **Scholarships and Grants for School Attendance.** Payments
earmarked for specific educational purposes are not countable income
provided the payments are actually used for school purposes (tuition,
fees, etc.). Any amounts in excess of amounts actually paid for school
expenses are countable income.

**16-IX-2**

**September 17, 2004 M21-1, Part IV**

**Change 205**

\(18\) **Survivor Benefit Annuity Under Section 653, Public Law
100-456.** Amounts paid by the Department of Defense under Public Law
100-456 to the surviving spouse of a veteran who died prior to November
1, 1953, are not countable. However, Survivor Benefit Plan (SBP) annuity
payments and SBP Minimum Income Widower/ers Annuity Plan (MIW-SBP)
payments are countable. See paragraph 26.25.

\(19\) **California State Renter\'s Credit.** This is considered to be a
welfare payment under 38 CFR 3.272(a) and is not countable.

\(20\) **Relocation Expenses.** Relocation expenses paid under the
Uniform Relocation Assistance Act (42 U.S.C. 4601) to assist persons
displaced by Federal and Federally-assisted projects are not countable.

\(21\) **Disaster Relief Payments.** Voluntary payments in the nature of
relief after widespread national disaster such as floods and hurricanes
are considered to be welfare under 38 CFR 3.272(a) and are not
countable. This exclusion does not apply to disaster relief payments
made in a commercial context (e.g., drought relief to farmers). If the
operator of a business receives disaster relief, it must be treated as
any other business income. See paragraph 16.35a.

\(22\) **Farmers Home Administration Construction Grants.** Grants made
by the Farmers Home Administration to needy families in rural areas for
repairs or improvements to structures are not countable.

\(23\) **Insurance Dividends.** Insurance dividends are considered to be
a return of excess premium payments and are not countable income.
However, if insurance dividends are left on deposit, any interest earned
is countable. Also, Total Disability Insurance payments (cash payments
to totally disabled policyholders) are countable income.

\(24\) **Timber Sales.** Occasional sales of timber are considered a
conversion of assets unless the claimant is in the business of selling
timber in which case proceeds from the sale of timber constitute
business income.

\(25\) **Payments to Foster Parents.** Do not count as income payments
made by a state or subdivision of a state to foster parents for care of
foster children.

\(26\) **Joint Accounts.** If a joint owner of property (such as a bank
account) acquires the other joint owner\'s share because of the death of
that person, the amount acquired is not countable income. See 38 CFR
3.272(f). However, if one joint owner transfers his or her share of
property to another joint owner (Improved pension claimant) during the
transferor\'s lifetime, the amount acquired is countable as a gift of
property. See subparagraph c(8) below.

\(27\) **Distributions to Members of the Seminole Nation under Public
Law 101-277.** These distributions are not countable since they
represent compensation paid to the Seminole Nation for the cession of
land.

\(28\) **Redress Payments to WW II Japanese Internees.** These payments
are not countable income.

\(29\) **Proceeds of Cashed-In Life Insurance Policies.** These payments
are not countable to the extent that they represent return of premiums.
However, they are countable to the extent that they represent interest
on the policy holder\'s contributions. Ask the claimant to furnish a
statement from the insurance company breaking down the payment between
interest and return of premiums. If the claimant does not furnish the
statement, count the entire amount.

**16-IX-3**

**M21-1, Part IV September 17, 2004**

**Change 205**

\(30\) **VA Burial Benefits.** VA burial benefits are not countable
income. However, if a beneficiary claims a final expense deduction
(paragraph 16.32) and subsequently receives VA burial benefits as
reimbursement for paying those same expenses, adjust the award under
paragraph 16.32i.

\(31\) **Interest on Irrevocable Burial Trusts.** Certain prepaid burial
plans (often characterized as irrevocable burial trusts) earn interest
which is added to the value of the policy to offset the effects of
inflation. Typically, the interest earned is not available to the holder
of the policy. If interest on such a burial plan is not available to the
VA claimant, do not count it as income.

\(32\) **Pension as an Accrued Benefit**. In [Martin v.
Brown]{.underline}, 6 Vet. App. 272 (1994), the Court held that when
pension benefits are paid as an accrued benefit, that payment meets the
pension-income-exclusion provision of 38 U.S.C. 1503(a)(2), and,
therefore, is not income for VA purposes.

\(33\) **RECA Payments**. Payments received under the Radiation Exposure
Compensation Act (RECA), Public Law 101-426, are not income for VA
purposes.

c\. **Inclusions.** Income from earnings, retirement or survivors\'
programs, interest, dividends, life insurance, unemployment compensation
and operation of a business are all countable income for Improved
pension. The following are additional sources of income which have been
determined to be countable.

\(1\) **Benefits Subject to Garnishment.** If a claimant\'s benefits
(such as Social Security) are subject to involuntary withholding due to
legal action initiated by a third party, count the entire amount even
though the claimant does not receive it all. Note that if benefits are
withheld to recoup an overpayment of the benefit, only the actual amount
received is countable.

\(2\) **Social Security Lump-Sum Death Benefit.** This is countable like
any other Social Security benefit.

\(3\) **Individual Retirement Account (IRA) Distributions.** When an IRA
or similar instrument starts paying benefits, the entire amount is
countable even though it represents a partial return of principal.

\(4\) **Withdrawal of Contributions to Retirement Fund.** If a claimant
receives a distribution of retirement benefits, the entire amount
received is countable. This is the case even though all or part of the
distribution might represent a return of withheld wages which were
previously counted as IVAP as part of the claimant\'s gross wages.

\(5\) **Department of Labor Employment Programs.** Income received by
participants in programs operated by the Department of Labor such as the
Green Thumb Program and the Older Americans Community Service Employment
Program is countable.

\(6\) **VA Benefits**

\(a\) VA education or compensation (including DIC) benefits are
countable. Also, VA benefits paid to a claimant as accrued amounts based
on the entitlement and death of another beneficiary are countable as
income, **EXCEPT** for pension benefits paid as an accrued amount. See
subparagraph b(32) above.

**16-IX-4**