# Veterans Benefits Administration M21-1, Part IV

**Department of Veterans Affairs Change 198**

# Washington, DC 20420 May 20, 2004

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

**Pages 25-II-1 and 25-II-2:** Remove these pages and substitute pages
25-II-1 and 25-II-2 attached.

Note 1 in paragraph 25.04a is removed because the \$1,500 estate
limitation for institutionalized incompetent veterans has been
eliminated. The subsequent notes are renumbered.

Note 2 in paragraph 25.04a (renumbered as Note 1) is updated to include
instructions to notify the appropriate Regional Processing Office of a
beneficiary's incarceration if the BDN M21 screen shows that educational
benefits are being paid.

Paragraph 25.04a(5) is revised to include instructions to count the
first *full* day of imprisonment following conviction as the first day
of imprisonment when determining the 61^st^ day of imprisonment for the
purpose of terminating or reducing an award.

Paragraphs 25.04a(1), 25.04b(1) and 25.04b(2)(b) are revised to insert
the phrase "or veteran's fiduciary" after "veteran."

> By Direction of the Under Secretary for Benefits
>
> Carolyn F. Hunt, Acting Director
>
> Compensation and Pension Service

Distribution: RPC: 2068

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

**May 20, 2004 M21-1, Part IV**

**Change 198**

**SUBCHAPTER II. IMPRISONMENT**

**25.04 IMPRISONMENT IN PENAL INSTITUTIONS**

a\. **Discontinuance or Reduction Because of Imprisonment.** Reduce
payments of compensation (38 CFR 3.665) and discontinue payments of
pension (38 CFR 3.666) to a payee as provided in this paragraph. The
following provisions apply equally for reducing compensation or
discontinuing pension payments to an imprisoned veteran, surviving
spouse, child or parent. See paragraph 26.04.

**NOTE 1:** When reducing compensation or discontinuing pension because
of incarceration, review the BDN M21 screen to determine if any
educational benefits are being paid which also require adjustment. If
educational benefits are being paid, furnish the Regional Processing
Office (RPO) of jurisdiction with a copy of the official notice of
imprisonment on which the adjustment of disability benefits was based.

**NOTE 2:** See paragraph 25.09d concerning payment of clothing
allowance during incarceration.

**NOTE 3**: A veteran is not subject to reduction of compensation and
pension benefits while incarcerated in a foreign prison. However, if a
veteran is transferred to a Federal, State, or local penal institution
in the U.S. to serve the remainder of the sentence, he/she is subject to
reduction of compensation and pension benefits under 38 U.S.C.
paragraphs 5313 and 1505. The effective date of reduction is the
sixty-first day of incarceration.

\(1\) **Unofficial Notice.** If VA receives unofficial notice that a
veteran in receipt of disability benefits is imprisoned, send an
individually composed letter to the veteran or veteran's fiduciary at
the last address of record informing him or her of the information
received and the action required. Cite the applicable statutory
authority (38 U.S.C. 1505 or 5313). In addition, send VA Form 21-4193,
\"Notice to Department of Veterans Affairs of Veteran or Beneficiary
Incarcerated in Penal Institution,\" to the appropriate authorities
requesting information concerning the incarceration.

\(2\) **Official Information \-- Discontinuance of Pension.**
Discontinue pension payments effective the 61st day of imprisonment (use
termination reason code 28) if official information is received showing:

\(a\) Conviction of a felony or misdemeanor and

\(b\) Imprisonment in a Federal, State, or local penal institution
exceeding 60 days. This includes any period of incarceration
representing initial confinement following conviction or reincarceration
for parole violation.

\(3\) **Official Information - Reduction of Compensation.** Reduce
compensation payments following incarceration for more than 60 days
following conviction of a felony committed after October 7, 1980. This
also applies to a veteran or beneficiary serving a period of
incarceration after September 30, 1980, if compensation or DIC is
awarded after that date. Pay the full amount of any benefit due for
periods prior to October 1, 1980.

\(a\) Reduce compensation payments to the 10 percent rate for any
veteran with an evaluation of 20 percent or greater. Reduce payment to
one half of the 10 percent rate for a veteran with a disability
evaluation of less than 20 percent, a zero percent combined evaluation
with (k) or a statutory (q) rate and for any payee in receipt of DIC or
death compensation. If the 10 percent rate is an odd dollar amount, the
incarceration rate will end in \$.50. Reduce the award using reason code
28, effective the 61st day of imprisonment when official information is
received of:

[1]{.underline}. Conviction of a felony and

[2]{.underline}. Imprisonment in a Federal, State, or local penal
institution exceeding 60 days. This includes any period of incarceration
representing initial confinement following conviction or reincarceration
for parole violation.

\(b\) Do not reduce payments for any period during which the payee is
participating in a work-release program, residing in a halfway house or
under community control.

\(c\) Establish a type 1 withholding for the amount of compensation not
payable during incarceration.

**25-II-1**

**M21-1, Part IV May 20, 2004**

**Change 198**

\(4\) **Liaison with Penal Institutions.** To enable compliance with the
provisions regarding the incarceration of VA benefit recipients, each
regional office will establish and maintain a liaison with the State
correctional authority and with any Federal penal institution within the
regional office\'s jurisdiction to provide systematic notification of
incarceration of VA beneficiaries in receipt of either compensation,
pension or educational benefits on or after October 1, 1980. Advise the
authorities of the importance of notifying VA on a timely basis to avoid
the necessity of creating overpayments.

\(5\) **Suspended Sentence, Confinement Awaiting Trial, etc.** The
counting to the 61^st^ day begins only with the first *full* day of
imprisonment following conviction. For example, if a veteran was
convicted on May 30 and remains in custody, begin counting on May 31.
Confinement awaiting trial or for examination or treatment does not
warrant termination of pension benefits.

\(6\) **Notice of Discontinuance or Reduction to Payee.** A claimant is
entitled to due process before reduction or termination of benefits.
Cite the applicable statutory authority (38 U.S.C. 1505 or 5313) in the
predetermination notice. Include information about the dependent\'s
rights to an apportionment and other information as applicable. If the
address of the dependents is available, develop for an apportionment
with them at the same time the payee is notified. Inform the payee VA
may resume payments effective the date of release from prison if notice
of release is received within 1 year of that date. If notice is not
received within 1 year of the release date, VA may only pay from the
date the notice is received (38 CFR 3.665 (i) and 3.666 (c)).

**NOTE:** Make an entry in the INCARCERATION IND field of the M15 Screen
using the CORR command in conjunction with amended award action. Enter
YES to identify any pension case if the benefit is apportioned and for
any compensation or DIC case reduced due to incarceration. Enter NO on
release from incarceration.

b\. **Veteran Imprisoned**

\(1\) **Veteran Entitled Only to Pension.** If an imprisoned veteran is
married or has children, advise the veteran or veteran's fiduciary in
the predetermination notice VA may apportion benefits to any of these
dependents on receipt of a claim from the veteran, veteran's fiduciary,
or the eligible dependents.

\(a\) The income of the dependents must not exceed the income limits
applicable to payment of Improved Pension death benefits.

\(b\) The apportioned award cannot exceed the lesser of the death
pension rates payable under the Improved death pension law or the amount
the veteran was receiving at the time of imprisonment.

\(c\) Apportioned awards are effective the first day of the veteran\'s
nonentitlement provided the claim is received within 1 year from that
date or later date of notice. If the request is later than 1 year,
authorize the apportionment as of the date of claim. Offset the award by
the amount of prior payments to the veteran over the same period, if
any, and pay the differential rate for that period.

\(2\) **Veteran Entitled to Compensation.** Disability compensation
payments are subject to reduction under 38 CFR 3.665.

\(a\) If a veteran without a spouse or child is entitled to compensation
and pension, award the reduced compensation rate specified in
subparagraph a(3) above effective the date of termination of the pension
entitlement using reason code 28. No formal election is needed (38 CFR
3.666(d)). See paragraph 20.04.

\(b\) If the veteran has a spouse or children, use the predetermination
notice to inform the veteran or veteran's fiduciary VA may apportion the
pension benefits to them if the veteran or veteran's fiduciary advises
in writing he or she desires this. Furnish the veteran or veteran's
fiduciary an explanation of the effect of electing compensation and how
such an election would reduce the amount available for apportionment. If
the veteran or veteran's fiduciary requests compensation, award it from
the date the veteran or veteran's fiduciary requests VA to take such
action.

**25-II-2**