[Federal Register Volume 70, Number 203 (Friday, October 21, 2005)]
[Proposed Rules]
[Pages 61326-61348]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-21026]



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Part II





Department of Veterans Affairs





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38 CFR Part 5



Dependency and Indemnity Compensation Benefits; Proposed Rule

Federal Register / Vol. 70, No. 203 / Friday, October 21, 2005 / 
Proposed Rules

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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 5

RIN 2900-AL89


Dependency and Indemnity Compensation Benefits

AGENCY: Department of Veterans Affairs.

ACTION: Proposed rule.

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SUMMARY: The Department of Veterans Affairs (VA) has published a series 
of Notices of Proposed Rulemaking (NPRM)s setting out new proposed 
regulations governing VA compensation, pension, burial and related 
benefits that would be located in a new part of the Code of Federal 
Regulations. This NPRM adds proposed regulations concerning dependency 
and indemnity compensation (DIC) for a veteran's surviving spouse, 
children, and parents and general rules relating to proof of death and 
service-connected cause of death to that proposed new part. The 
intended effect of the proposed revisions is to assist claimants and VA 
personnel in locating and understanding these provisions.

DATES: Comments must be received by VA on or before December 20, 2005.

ADDRESSES: Written comments may be submitted by: mail or hand-delivery 
to Director, Regulations Management (00REG1), Department of Veterans 
Affairs, 810 Vermont Ave., NW., Room 1068, Washington, DC 20420; fax to 
(202) 273-9026; e-mail to <a href="/cdn-cgi/l/email-protection#d78196a5b2b0a2bbb6a3beb8b9a497a1b6f9b0b8a1"><span class="__cf_email__" data-cfemail="e2b4a3908785978e83968b8d8c91a29483cc858d94">[email protected]</span></a> or through http://www.Regulations.gov. Comments should indicate that they are submitted 
in response to ``RIN 2900-AL89.'' All comments received will be 
available for public inspection in the Office of Regulation Policy and 
Management, Room 1063B, between the hours of 8 a.m. and 4:30 p.m., 
Monday through Friday (except holidays). Please call (202) 273-9515 for 
an appointment.

FOR FURTHER INFORMATION CONTACT: Clay Witt, Chief, Regulations Rewrite 
Project (00REG2), Department of Veterans Affairs, 810 Vermont Avenue, 
NW., Washington, DC 20420, (202) 273-9515.

SUPPLEMENTARY INFORMATION: The Secretary of Veterans Affairs has 
established an Office of Regulation Policy and Management to provide 
centralized management and coordination of VA's rulemaking process. One 
of the major functions of this office is to oversee a Regulation 
Rewrite Project (the Project) to improve the clarity and consistency of 
existing VA regulations. The Project responds to a recommendation made 
in the October 2001 ``VA Claims Processing Task Force: Report to the 
Secretary of Veterans Affairs.'' The Task Force recommended that the 
Compensation and Pension regulations be rewritten and reorganized in 
order to improve VA's claims adjudication process. Therefore, the 
Project began its efforts by reviewing, reorganizing and redrafting the 
content of the regulations in 38 CFR part 3 governing the compensation 
and pension program of the Veterans Benefits Administration. These 
regulations are among the most difficult VA regulations for readers to 
understand and apply.
    Once rewritten, the proposed regulations will be published in 
several portions for public review and comment. This is one such 
portion. It includes proposed rules regarding DIC for a veteran's 
surviving spouse, children, and parents and proposed rules relating to 
proof of death and service-connected cause of death. After review and 
consideration of public comments, final versions of these proposed 
regulations will ultimately be published in a new part 5 in 38 CFR.

Outline

Overview of New Part 5 Organization
Overview of Proposed Subpart G Organization
Table Comparing Current Part 3 Rules With Proposed Part 5 Rules
Content of Proposed Regulations

General Provisions

5.500 Proof of death.
5.501 Proving death by other means.
5.502 Proving death after 7 years of continuous, unexplained 
absence.
5.503 Establishing the date of death.
5.504 Service-connected cause of death.

Dependency and Indemnity Compensation--General

5.510 Dependency and indemnity compensation--basic entitlement.
5.511 Special monthly dependency and indemnity compensation.
5.512 Eligibility for death compensation or death pension instead of 
dependency and indemnity compensation.

Dependency and Indemnity Compensation--Eligibility Requirements and 
Payment Rules for Surviving Spouses and Children

5.520 Dependency and indemnity compensation--time of marriage 
requirements for surviving spouses.
5.521 [Reserved]
5.522 Dependency and indemnity compensation benefits for survivors 
of certain veterans rated totally disabled at time of death--offset 
of wrongful death damages.
5.523 [Reserved]
5.524 Awards of dependency and indemnity compensation benefits to 
children when there is a retroactive award to a schoolchild.

Dependency and Indemnity Compensation--Eligibility Requirements and 
Payment Rules for Parents

5.530--Eligibility for, and payment of, parents' dependency and 
indemnity compensation.
5.531 General income rules.
5.532 Deductions from income.
5.533 Exclusions from income.
5.534 When VA counts parents' income.
5.535 Adjustments to parents' DIC when income is less than 
anticipated.
5.536 Parents' dependency and indemnity compensation rates.
5.537 Payment intervals.

Effective Dates

    Note: For information concerning proposed Sec. Sec.  5.550 
through 5.572, see 69 FR 59072 (Oct. 1, 2004).

5.573 Effective date for dependency and indemnity compensation rate 
adjustments when an additional survivor files an application.
5.574 Effective dates of awards and discontinuances of special 
monthly dependency and indemnity compensation.
Omission of rule in 38 CFR 3.22(h).
Endnote Regarding Amendatory Language
Paperwork Reduction Act
Regulatory Flexibility Act
Executive Order 12866
Unfunded Mandates
Catalog of Federal Domestic Assistance Numbers
List of Subjects in 38 CFR Part 5

Overview of New Part 5 Organization

    We plan to organize the part 5 regulations so that all provisions 
governing a specific benefit are located in the same subpart, with 
general provisions pertaining to all compensation and pension benefits 
also grouped together. We believe this organization will allow 
claimants, beneficiaries, and their representatives, as well as VA 
personnel, to find information relating to a specific benefit more 
quickly than the organization provided in current part 3.
    The first major subdivision would be ``Subpart A--General 
Provisions.'' It would include information regarding the scope of the 
regulations in new part 5, delegations of authority, general 
definitions, and general policy provisions for this part.
    ``Subpart B--Service Requirements for Veterans'' would include 
information regarding a veteran's military service, including the 
minimum service requirement, types of service, periods of war, and 
service evidence requirements. This subpart was published as proposed 
on January 30, 2004. See 69 FR 4820.
    ``Subpart C--Adjudicative Process, General'' would inform readers 
about claims and benefit application filing procedures, VA's duties, 
rights and responsibilities of claimants and

[[Page 61327]]

beneficiaries, general evidence requirements, and general effective 
dates for new awards, as well as revision of decisions and protection 
of VA ratings. This subpart will be published as three separate NPRMs 
due to its size. The first, concerning the duties of VA and the rights 
and responsibilities of claimants and beneficiaries, was published on 
May 10, 2005. See 70 FR 24680.
    ``Subpart D--Dependents and Survivors'' would inform readers how VA 
determines whether an individual is a dependent or a survivor for 
purposes of determining eligibility for VA benefits. It would also 
provide the evidence requirements for these determinations.
    ``Subpart E--Claims for Service Connection and Disability 
Compensation'' would define service-connected compensation, including 
direct and secondary service connection. This subpart would inform 
readers how VA determines entitlement to service connection. The 
subpart would also contain those provisions governing presumptions 
related to service connection, rating principles, and effective dates, 
as well as several special ratings. This subpart will be published as 
three separate NPRMs due to its size. The first, concerning 
presumptions related to service connection, was published on July 27, 
2004. See 69 FR 44614.
    ``Subpart F--Nonservice-Connected Disability Pensions and Death 
Pensions'' would include information regarding the three types of 
nonservice-connected pension: Improved Pension, Old-Law Pension, and 
Section 306 Pension. This subpart would also include those provisions 
that state how to establish entitlement to each pension, and the 
effective dates governing each pension. This subpart will be published 
as two separate NPRMs due to its size. The portion concerning Old-Law 
Pension, Section 306 Pension, and elections of Improved Pension was 
published as proposed on December 27, 2004. See 69 FR 77578.
    ``Subpart G--Dependency and Indemnity Compensation, Death 
Compensation, Accrued Benefits, and Special Rules Applicable Upon Death 
of a Beneficiary'' would contain regulations governing claims for DIC; 
death compensation; accrued benefits; benefits awarded, but unpaid at 
death; and various special rules that apply to the disposition of VA 
benefits, or proceeds of VA benefits, when a beneficiary dies. This 
subpart would also include related definitions, effective-date rules, 
and rate-of-payment rules. This subpart will be published as two 
separate NPRMs due to its size. The portion concerning accrued 
benefits, special rules applicable upon the death of a beneficiary, and 
several effective date rules, was published as proposed on October 1, 
2004. See 69 FR 59072. The portion concerning DIC benefits and general 
provisions relating to proof of death and service-connected cause of 
death is the subject of this NPRM.
    ``Subpart H--Special and Ancillary Benefits for Veterans, 
Dependents, and Survivors'' would pertain to special and ancillary 
benefits available, including benefits for children with various birth 
defects.
    ``Subpart I--Benefits for Filipino Veterans and Survivors'' would 
pertain to the various benefits available to Filipino veterans and 
their survivors.
    ``Subpart J--Burial Benefits'' would pertain to burial allowances.
    ``Subpart K--Matters Affecting Receipt of Benefits'' would contain 
provisions regarding bars to benefits, forfeiture of benefits, and 
renouncement of benefits.
    ``Subpart L--Payments and Adjustments to Payments'' would include 
general rate-setting rules, several adjustment and resumption 
regulations, and election-of-benefit rules. Because of its size, 
proposed regulations in subpart L will be published in two separate 
NPRMs.
    The final subpart, ``Subpart M--Apportionments and Payments to 
Fiduciaries or Incarcerated Beneficiaries,'' would include regulations 
governing apportionments, benefits for incarcerated beneficiaries, and 
guardianship.
    Some of the regulations in this NPRM cross-reference other 
compensation and pension regulations. If those regulations have been 
published in this or earlier NPRMs, we cite the proposed part 5 
section. We also include, in the relevant portion of the Supplementary 
Information, the Federal Register page where a proposed part 5 section 
published in an earlier NPRM may be found. However, where a regulation 
proposed in this NPRM would cross-reference a proposed part 5 
regulation that has not yet been published, we cite to the current part 
3 regulation that deals with the same subject matter. The current part 
3 section we cite may differ from its eventual part 5 counterpart in 
some respects, but we believe this method will assist readers in 
understanding these proposed regulations where no part 5 counterpart 
has yet been published. If there is no part 3 counterpart to a proposed 
part 5 regulation that has not yet been published, we have inserted 
``[regulation that will be published in a future Notice of Proposed 
Rulemaking]'' where the part 5 regulation citation would be placed.
    In connection with this rulemaking, VA will accept comments 
relating to a prior rulemaking issued as a part of the Project, if the 
matter being commented on relates to both Notices of Proposed 
Rulemaking. VA will provide a separate opportunity for public comment 
on each segment of proposed part 5 regulations before adopting a final 
version of part 5.

Overview of Proposed Subpart G Organization

    As its title, ``Dependency and Indemnity Compensation, Accrued 
Benefits, Death Compensation Benefits, and Special Rules Applicable 
Upon Death of a Beneficiary,'' suggests, proposed subpart G will 
address a broad range of VA death benefits. Because of its length, 
subpart G will be published in two separate NPRMs. This NPRM pertains 
to those regulations governing DIC benefits and general provisions 
relating to proof of death and service-connected cause of death. 
Although these regulations have been substantially restructured and 
rewritten for greater clarity and ease of use, most of the basic 
concepts contained in these proposed regulations are the same as in 
their existing counterparts in 38 CFR part 3. However, a few 
substantive changes are proposed.

Table Comparing Current Part 3 Rules With Proposed Part 5 Rules

    The following table shows the relationship between the current 
regulations in part 3 and the proposed regulations contained in this 
NPRM:

------------------------------------------------------------------------
                                            Based in whole or in part on
   Proposed part 5 section or paragraph       38 CFR part 3 section or
                                                      paragraph
------------------------------------------------------------------------
5.500(a)..................................  New.
5.500(b)..................................  3.211(a).
5.500(c)(1)...............................  3.211(d)(1).
5.500(c)(2)...............................  3.211(d)(2).
5.500(c)(3)...............................  3.211(d)(3).
5.500(d)..................................  3.211(b).
5.500(e)..................................  3.211(c).
5.501(a)..................................  New.
5.501(b)..................................  3.211(e), first sentence.
5.501(c)..................................  3.211(e), second sentence.
5.501(d)..................................  3.211(f) and (g).
5.502(a)..................................  3.212(a).
5.502(b)..................................  3.212(b).
5.502(c)..................................  3.212(b) and (c).
5.503(a)..................................  New.
5.503(b)..................................  3.212(a).
5.503(c)..................................  New.
5.504(a)..................................  New.
5.504(b)..................................  New.
5.504(c)(1)...............................  New.
5.504(c)(2)...............................  3.312(c)(3) and (c)(4).
5.510(a)..................................  3.5(a).

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5.510(b), except for (b)(1)(ii)...........  New.
5.510(b)(1)(ii)...........................  3.5(b).
5.510(c)..................................  3.5(d).
5.510(d)..................................  3.251(a)(1).
5.511(a)..................................  3.351(a)(3), (a)(4), (b),
                                             and (c)(3).
5.511(b)..................................  3.351(c)(1) and (c)(2).
5.511(c)..................................  3.351(e).
5.512.....................................  3.5(c).
5.520(a)..................................  New.
5.520(b)(1)(i)............................  Introduction to 3.54.
5.520(b)(1)(ii)...........................  3.54(c)(2).
5.520(b)(1)(iii)..........................  3.54(c)(3).
5.520(b)(1)(iv)...........................  3.54(c)(1)
5.520(b)(2)...............................  New.
5.521.....................................  Reserved.
5.522(a) and (b)..........................  3.22(e).
5.522(c)(1)...............................  New.
5.522(c)(2)...............................  3.22(g).
5.522(c)(3)...............................  New.
5.522(c)(4)...............................  3.22(f).
5.522(c)(5)...............................  3.22(g).
5.522(d)..................................  3.22(g).
5.523.....................................  Reserved.
5.524(a), except for (a)(1)...............  3.650(c)(2).
5.524(a)(1)...............................  3.650(c)(1).
5.524(b) and (c)..........................  3.650(c)(1).
5.530.....................................  New.
5.531(a)..................................  3.251(b), Introduction to
                                             3.262(a).
5.531(b)(1)...............................  Introduction to 3.262(a).
5.531(b)(2)(i)............................  3.261(a)(7).
5.531(b)(2)(ii)...........................  3.261(a)(26).
5.531(b)(2)(iii)..........................  3.262(h).
5.531(c)..................................  Introduction to 3.262(b) and
                                             3.262(b)(1).
5.531(d)(1) and (d)(2)....................  3.262(k)(1) and (k)(2).
5.531(d)(3)...............................  New.
5.531(d)(4)...............................  3.262(k)(1).
5.531(e)..................................  3.260(b).
5.532(a)..................................  3.262(a)(2) and (a)(3).
5.532(b)..................................  3.262(j)(4).
5.532(c)..................................  3.262(o) and (p).
5.532(d)..................................  Introduction to 3.262(l),
                                             3.262(l)(4).
5.532(e)..................................  3.261(a)(22), and
                                             3.262(a)(1).
5.533(a)..................................  3.261(a)(12).
5.533(b)..................................  3.262(c), (d), and (f).
5.533(c) and (d)..........................  3.261(a)(20).
5.533(e)..................................  3.262(f).
5.533(f)..................................  3.261(a)(13).
5.533(g)..................................  Introduction to 3.262(e),
                                             (e)(4), (f), (g), (i)(2),
                                             (j)(1), (j)(2), and (j)(4).
5.533(h)..................................  Introduction to 3.262(t),
                                             (t)(1).
5.533(i)..................................  3.262(k)(5).
5.533(j)..................................  3.261(a)(31).
5.533(k)..................................  3.262(w).
5.533(l) through (n)......................  New.
5.533(o)..................................  3.262(a)(2), last sentence.
5.533(p)..................................  3.261(a)(22).
5.533(q)..................................  New.
5.534(a)..................................  3.251(b) and Introduction to
                                             3.260.
5.534(b)..................................  3.260(c), (d), and (f).
5.534(c)..................................  3.260(f).
5.535.....................................  3.660(b), Introduction and
                                             (b)(1).
5.536(a)..................................  3.25.
5.536(b)..................................  3.25, 3.27(b) and (d).
5.536(c)..................................  3.251(a)(2).
5.536(d)..................................  3.251(a)(4).
5.536(e)..................................  3.251(a)(5).
5.536(f)(1)...............................  3.25(a), (c), and (d).
5.536(f)(2)...............................  3.25(e).
5.536(g)..................................  3.260(f).
5.536(h)..................................  3.704(b).
5.537.....................................  Introduction to 3.30 and
                                             3.30(e).
5.573(a)..................................  Introduction to 3.650(a).
5.573(b)(1)...............................  3.650(a)(1).
5.573(b)(2)...............................  3.650(a)(2).
5.573(c)..................................  3.650(b).
5.573(d)..................................  Unnumbered paragraph in
                                             3.650(a).
5.573(e)..................................  Introduction to 3.650(a).
5.574(a)..................................  3.402(c) and 3.404.
5.574(b)(1)...............................  3.502(e)(1) and 3.504.
5.574(b)(2)...............................  New.
------------------------------------------------------------------------

    Readers who use this table to compare existing regulatory 
provisions with the proposed provisions, and who observe a substantive 
difference between them, should consult the text that appears later in 
this document for an explanation of significant changes in each 
regulation. Not every paragraph of every current part 3 section 
regarding the subject matter of this rulemaking is accounted for in the 
table. In some instances other portions of the part 3 sections that are 
addressed in these proposed regulations will appear in subparts of part 
5 that are being published separately for public comment. For example, 
a reader might find a reference to paragraph (a) of a part 3 section in 
the table, but no reference to paragraph (b) of that section because 
paragraph (b) will be addressed in a separate NPRM. The table also does 
not include provisions from part 3 regulations that will not be 
repeated in part 5. Such provisions are discussed specifically under 
the appropriate part 5 heading in this preamble. Readers are invited to 
comment on the proposed part 5 provisions and also on our proposals to 
omit those part 3 provisions from part 5.

Content of Proposed Regulations

General Provisions

5.500 Proof of death.

    Proposed Sec.  5.500 is a reorganization of rules in current Sec.  
3.211(a) through (d), which describe the kinds of evidence that would 
suffice as proof of death applicable in most cases. Section 5.500(a) is 
new. Section 5.500(a)(1) states the purpose of Sec.  5.500. Section 
5.500(a)(2) provides a rule for applying Sec.  5.500, specifically that 
VA will accept the evidence described in any relevant paragraph of 
Sec.  5.500 as proof of death. This rule reflects current VA practice 
and clarifies that the various methods of proving death set out in 
Sec.  5.500 are alternatives.
    Current Sec.  3.211(d) describes various forms of proof of death VA 
will accept when an individual dies abroad. Section 3.211(d)(3) lists 
``[a]n official report of death from the head of the department 
concerned, where the deceased person was, at the time of death, a 
civilian employee of such department.'' We propose instead to describe 
this acceptable form of proof of death, in Sec.  5.500(c)(3), as ``[a]n 
official report of death of a civilian employee of the U.S. Government 
from the employing U.S. Government entity.'' This revision serves to 
clarify that the rule applies to a U.S. Government employee and that it 
is not limited to employing Federal entities that are cabinet 
departments. Further, reports of death need not necessarily come from 
the head of the employing entity. VA's concern is that such a report is 
an authentic official report of the Federal entity. Implicit in the 
requirement for an official report is that the report will have been 
issued by a person authorized to issue it, but that person will not 
necessarily be the person who is the head of the employing entity.

5.501 Proving death by other means.

    Proposed Sec.  5.501 is based on current Sec.  3.211(e) through (g) 
and long-standing VA practice. It states the rules on how to prove 
death where the evidence described in proposed Sec.  5.500 is not 
available. It includes new Sec.  5.501(a), which describes the scope of 
the section.
    Proposed Sec.  5.501(d)(2) clarifies how VA determines whether 
death has occurred in those cases where a body has not been recovered, 
or the body cannot be identified. Current Sec.  3.211(f) provides that 
``[w]here it is indicated that the veteran died under circumstances 
which precluded recovery or identification of the body, the fact of 
death should be established

[[Page 61329]]

by the best evidence, which from the nature of the case must be 
supposed to exist.'' The ``best evidence'' requirement is not 
explained. However, it is long-standing VA practice to consider 
statements from the claimant and other witnesses describing the facts 
that led them to believe that the person in question died. We also note 
that this portion of the regulation should provide information 
regarding what to do when the death of any person, not just a veteran, 
is relevant and the body cannot be recovered or identified. Proposed 
Sec.  5.501(d)(2) addresses these issues by broadening the scope of 
this portion of the regulation to cover the death of any person whose 
body cannot be recovered or identified and by clarifying the kinds of 
evidence VA considers in this situation.
    Current Sec.  3.211(f) refers to ``an official'' authorized to 
approve a finding of the fact of death. Proposed Sec.  5.501(d)(3) 
clarifies that this means an authorized VA official.
    Current Sec.  3.211(e) requires the submission of affidavits to 
prove the fact of death. In line with VA's current practice of 
accepting somewhat less formal means of proof in most instances, 
proposed Sec.  5.501 permits the submission of either certified 
statements or affidavits. (We note that ``certified statement'' will be 
defined in subpart A of part 5, which will be the subject of a separate 
NPRM.)

5.502 Proving death after 7 years of continuous, unexplained absence.

    Proposed Sec.  5.502 provides rules regarding how a claimant may 
establish the fact of a person's death if that person has been missing 
for 7 years or more and his or her absence is unexplained. It is 
derived from current Sec.  3.212.
    Current Sec.  3.212 includes a requirement that ``satisfactory 
evidence'' be produced to show a person's continued and unexplained 
absence. In order to clarify what evidence is necessary to establish 
the death of a missing person, we propose to replace the phrase 
``satisfactory evidence'' with ``competent, credible evidence'' because 
this term more appropriately describes the qualities that make such 
evidence ``satisfactory.'' VA will propose a definition of ``competent 
evidence'' in a separate NPRM. ``Credible'' evidence is just evidence 
that is believable. (``Credible testimony is that which is plausible or 
capable of being believed.'' Caluza v. Brown, 7 Vet. App. 498, 511 
(1995).)
    All other proposed revisions to the language of Sec.  3.212 are 
structural in nature and do not change the substance of the regulation.

5.503 Establishing the date of death.

    The fact of death, that is that a person died, may be established 
through the evidence described in Sec. Sec.  5.500 and 5.501, but that 
evidence may not show exactly when death occurred. The exact date of 
death may never be known when the fact of death is established using 
the presumption in Sec.  5.502 when there has been a 7-year unexplained 
absence. Proposed Sec.  5.503 sets out rules for establishing the date 
of death for VA purposes in such circumstances.
    The current regulation concerning the 7-year-absence death 
presumption, Sec.  3.212(a), refers to an individual who has been 
absent ``from his or her home and family for a period of 7 years or 
more.'' It provides that in such cases death occurred ``as of the 
expiration of such period.'' It is not entirely clear from the language 
used whether the ``or more'' is part of ``such period.'' VA's practice 
has been to presume that death occurred seven years after the person 
was last known to be alive in cases where the fact of death is 
established under current Sec.  3.212 (proposed Sec.  5.502). This date 
of death presumption is set out more clearly in proposed Sec.  
5.503(b).
    In cases where the fact of death is proven by the evidence 
described in proposed Sec.  5.500 or Sec.  5.501, and not the 7-year-
absence rule, but the exact date of death is unknown, long-standing VA 
practice is that the date of death can be established as the date the 
deceased person was last seen alive, the date the body was found, or 
any time between those dates, depending on the circumstances. Proposed 
Sec.  5.503(c) incorporates and clarifies this practice. It includes 
standards for setting the date of death when the body of the deceased 
is found and a presumption that, if no identifiable body is found, the 
date of death is the date the deceased was last known to be alive in 
the absence of evidence to the contrary.

5.504 Service-connected cause of death.

    The next regulation in this NPRM concerns how VA determines whether 
a veteran's death was service connected. This determination is 
important to a veteran's survivors because a veteran's service-
connected death is a foundation for awarding several types of VA 
benefits. For example, see proposed Sec.  5.510, ``Dependency and 
indemnity compensation--basic entitlement,'' and Sec.  3.1600(a) 
(concerning the service-connected burial allowance). Proposed paragraph 
(a) of Sec.  5.504 sets this context and explains that the purpose of 
the section is to provide rules on how VA determines whether a 
veteran's death was service connected.
    Proposed paragraph (b) defines ``service-connected disability'' for 
purposes of proposed Sec.  5.504. An examination of 38 U.S.C. 1310(a), 
the basic authorizing statute for the award of DIC for service-
connected deaths, is instructive. The statute provides:

    (a) When any veteran dies after December 31, 1956, from a 
service-connected or compensable disability, the Secretary shall pay 
dependency and indemnity compensation to such veteran's surviving 
spouse, children, and parents. The standards and criteria for 
determining whether or not a disability is service-connected shall 
be those applicable under chapter 11 of this title.

    Chapter 11 of Title 38, United States Code, referenced in 38 U.S.C. 
1310(a), contains the provisions for determining whether living 
veterans are entitled to service connection for disabilities. In other 
words, VA determines whether a disability is service connected in death 
cases using the same principles it applies in determining service 
connection for the disabilities of living veterans. Therefore, Sec.  
5.504(b)(1) defines service-connected disability, in the context of 
service-connected cause of death, as ``(i) * * * a disability that was 
service connected at the time of the veteran's death, or (ii) [a] 
disability that is service connectable under the provisions of subpart 
E of this part, `Claims for service connection and disability 
compensation.' '' (Subpart E will be the subject of a separate NPRM.) 
To preclude an interpretation that a traumatic death in service was so 
sudden that it did not produce a ``disability'' before death and that 
the death was therefore not service-connectable, we also propose to 
state in Sec.  5.504(b)(1)(ii) that ``[f]or purposes of this section, 
VA will deem a sudden death in service from trauma to have been 
preceded by disability from the trauma.''
    There is an important exception to the principle stated in proposed 
Sec.  5.504(b)(1)(i) that (for purposes of determining service-
connected causes of death) service-connected disabilities include 
disabilities that were service connected at the time of the veteran's 
death. Congress has precluded VA from granting service connection for 
the cause of a veteran's death in some cases, even though the 
disability in question may have been service connected at the time of 
the veteran's death.
    One such case results from 38 U.S.C. 1103(a), which provides that 
``[n]otwithstanding any other provision of law, a veteran's disability 
or death shall not be considered to have resulted

[[Page 61330]]

from personal injury suffered or disease contracted in the line of duty 
in the active military, naval, or air service for purposes of this 
title on the basis that it resulted from injury or disease attributable 
to the use of tobacco products by the veteran during the veteran's 
service.'' See also Kane v. Principi, 17 Vet. App. 97, 101 (2003) 
(``Thus, the plain language of 38 U.S.C. Sec.  1103 expresses the 
Congressional intent to no longer award service connection for a 
veteran's death that results from a service connected disease that was 
`capable of being attributed' to the use of tobacco products during the 
veteran's service.'').
    Another case in which service connection may not be granted for the 
cause of death based on a disability service connected at the time of 
death is the result of 38 U.S.C. 105(a) which provides, in part, that 
``[a]n injury or disease incurred during active military, naval, or air 
service will be deemed to have been incurred in line of duty and not 
the result of the veteran's own misconduct when the person on whose 
account benefits are claimed was, at the time the injury was suffered 
or disease contracted, in active military, naval, or air service, 
whether on active duty or on authorized leave, unless such injury or 
disease was a result of the person's own willful misconduct or abuse of 
alcohol or drugs.'' See also VAOPGCPREC 11-96, 61 FR 66748, 66750 
(1996), which held that ``[s]ection 8052 of the Omnibus Budget 
Reconciliation Act of 1990, Pub. L. No. 101-508, Sec.  8052, 104 Stat. 
1388, 1388-351, applicable to claims filed after October 31, 1990, 
precludes an injury or disease that is a result of a person's own abuse 
of alcohol or drugs from being considered incurred in line of duty and, 
consequently, precludes resulting disability or death from being 
considered service connected.''
    We propose to provide for these Congressionally mandated 
exceptions, and any such exceptions that may arise in the future, by 
stating the following in proposed Sec.  5.504(b)(2):

    (2) Exception. For purposes of this section, ``service-connected 
disability'' does not include a disability that was service 
connected at the time of the veteran's death if the law in effect at 
the time of a survivor's claim precludes VA from establishing 
service connection for the cause of the veteran's death. See Sec.  
3.300 of this chapter, ``Claims based on the effects of tobacco 
products,'' and Sec.  3.301(d) of this chapter ``Line of duty; abuse 
of alcohol or drugs.''

    We note that current Sec.  3.301(d), cross-referenced in proposed 
Sec.  5.504(b)(2), does not yet include provisions based on Allen v. 
Principi, 237 F.3d 1368 (Fed. Cir. 2001) (concluding that 38 U.S.C. 
1110 does not preclude compensation for an alcohol or drug abuse 
disability secondary to a service-connected disability). However, we 
anticipated that we will address that issue in the part 5 equivalent of 
Sec.  3.301(d) and that part 5 regulation would be the one cross-
referenced in the final version of proposed 5.504.
    Proposed Sec.  5.504(c) addresses the kind of link that must exist 
between a service-connected disability and the veteran's death in order 
for VA to determine that the death was service connected. It is based 
on the provisions of current Sec.  3.312(c). Current Sec.  3.312(c) 
distinguishes between ``principal'' and ``contributory'' causes of 
death and includes elaborate provisions concerning ``contributory'' 
causes of death. We believe that these provisions can be simplified 
considerably.
    The causation question can be adjudicated using two relatively 
simple standards that better reflect VA's long-standing practice and 
interpretation of the authorizing statutes. The first standard would be 
to determine if the veteran's death would have occurred in the absence 
of the service-connected disability, or the combined effects of 
multiple service-connected disabilities. If the answer is that the 
death would not have occurred in the absence of the service-connected 
disability, or disabilities, service connection should be awarded for 
the cause of the veteran's death.
    Answering this ``in the absence of'' question should resolve a 
broad spectrum of cases. Sometimes the answer to the question will 
depend upon medical evidence. For example, if the medical evidence 
(such as autopsy reports, reports of the veteran's final 
hospitalization, etc.) shows that the veteran died of a particular kind 
of cancer, then clearly the veteran would not have died in the absence 
of that cancer. If that cancer was service connected or service 
connectable, the death should be service connected.
    The ``in the absence of'' standard should also work well in other 
types of cases that may involve fact finding beyond the purely medical 
realm, such as cases involving service-connected or service-connectable 
disabilities that produce impairment of balance or physical mobility 
that plays a role in the death of a veteran. For example, a veteran 
with a service-connected leg amputation might have died as the result 
of a slip and fall accident. A veteran who was bedridden due to the 
service-connected residuals of a stroke might have died in a home fire. 
The literal cause of death might be the injuries sustained in the 
accident or fire, but the evidence might show that the impaired 
mobility due to the service-connected disabilities caused the accident 
in one case and prevented the veteran from escaping from the fire in 
the other. In both cases, the veteran would not have died in the 
absence of the service-connected disability and determining that the 
death is service connected would be appropriate under the proposed 
test.
    However, there are circumstances where death would be service 
connected under the provisions in current Sec.  3.312(c) even though 
such death would not satisfy the ``in the absence of'' test described 
above. Specifically, current Sec.  3.312(c)(3) and (4) provide:

    (3) Service-connected diseases or injuries involving active 
processes affecting vital organs should receive careful 
consideration as a contributory cause of death, the primary cause 
being unrelated, from the viewpoint of whether there were resulting 
debilitating effects and general impairment of health to an extent 
that would render the person materially less capable of resisting 
the effects of other disease or injury primarily causing death. 
Where the service-connected condition affects vital organs as 
distinguished from muscular or skeletal functions and is evaluated 
as 100 percent disabling, debilitation may be assumed.
    (4) There are primary causes of death which by their very nature 
are so overwhelming that eventual death can be anticipated 
irrespective of coexisting conditions, but, even in such cases, 
there is for consideration whether there may be a reasonable basis 
for holding that a service-connected condition was of such severity 
as to have a material influence in accelerating death. In this 
situation, however, it would not generally be reasonable to hold 
that a service-connected condition accelerated death unless such 
condition affected a vital organ and was of itself of a progressive 
or debilitating nature.

    While stated in different ways, the basic concept in these 
provisions is the same. Even though a veteran may have died of a 
nonservice-connected disability, VA may grant service connection for 
the cause of death if the service-connected disability was so 
debilitating that death was materially hastened. VA proposes to 
preserve this concept in Sec.  5.504(c)(2), together with the 
presumption that such a degree of debilitation is presumed where a 
service-connected disability rated as 100% disabling affects vital 
organs. ``Vital organs'' are also defined in this proposed paragraph as 
``those organs necessary to sustain life, including the heart, lungs, 
central nervous system, liver, and kidneys.'' (``The word `vital' means 
necessary to life or essential.'' Federal Tel. & Radio Corp. v. 
Associated

[[Page 61331]]

Tel. & Tel. Co., 169 F.2nd 1012, 1015 (3rd Cir. 1948). ``[V]ital * * * 
1. Of or characteristic of life: vital processes. 2. Necessary to the 
continuation of life; life sustaining: vital functions.'' The American 
Heritage Dictionary of the English Language 1433 (New College Ed. 
1976). ``[V]ital * * * necessary to or pertaining to life.'' Dorland's 
Illustrated Medical Dictionary 1834 (28th ed. 1994).)

Dependency and Indemnity Compensation--General

5.510 Dependency and indemnity compensation--basic entitlement.

    Proposed Sec.  5.510 is the first of several sequential proposed 
regulations explaining DIC benefits for a veteran's surviving spouse, 
children, and parents. It serves as an introduction to the DIC program 
and outlines basic requirements for DIC entitlement. It includes 
provisions from current 38 CFR 3.5(a), (b), and (d).
    Proposed paragraph (a) defines DIC and is derived from current 
Sec.  3.5(a).
    Proposed Sec.  5.510(b) sets out the three statutory bases for the 
award of DIC: (1) Service-connected death during or after service (38 
U.S.C. 1310, ``Deaths entitling survivors to dependency and indemnity 
compensation''); (2) service-connected disability that had been rated 
as totally disabling for certain specified periods of time prior to the 
veteran's death (38 U.S.C. 1318, ``Benefits for survivors of certain 
veterans rated totally disabled at time of death''); and (3) death due 
to incidents occurring during certain VA-furnished medical, training, 
rehabilitation, or compensated work therapy services (38 U.S.C. 1151, 
``Benefits for persons disabled by treatment or vocational 
rehabilitation'').
    Proposed paragraph (b) also includes provisions from current Sec.  
3.5(b). Current Sec.  3.5(b) includes three different date of death 
requirements for basic entitlement to DIC based upon the interplay 
between DIC and a benefit program called death compensation that DIC 
replaced in the 1950s. VA data shows that fewer than 1,000 persons, 
primarily the parents of veterans, are still receiving death 
compensation benefits. On the other hand, more than 300,000 persons are 
receiving DIC benefits. Detailed information about the relationship 
between DIC and death compensation was desirable years ago when current 
Sec.  3.5 was drafted and VA was transitioning between the two death-
benefit programs. However, a simpler explanation of DIC benefits will 
now be more useful to most claimants and VA personnel adjudicating 
claims. Therefore, we propose to place death compensation rules in a 
portion of subpart G dealing with death compensation (published as part 
of a separate NPRM, see 69 FR 59072, Oct. 1, 2004) and include only 
essential information about the relationship between DIC and death 
compensation in VA's DIC regulations, such as proposed Sec.  5.510.
    Specifically, we state in proposed Sec.  5.510(b)(1)(ii) that ``DIC 
is not payable unless the service-connected death occurred after 
December 31, 1956, except in the case of certain individuals receiving 
or eligible to receive death compensation who elect to receive DIC in 
lieu of death compensation.''. The few users seeking more information 
about death compensation and the election of DIC in lieu of death 
compensation would be referred to other sections that address those 
topics.
    In keeping with the simplification of Sec.  5.510 in comparison 
with current Sec.  3.5, we have intentionally not repeated in Sec.  
5.510 some of the details in current Sec.  3.5(b)(2) concerning 
entitlement to elect DIC in lieu of death compensation. Current Sec.  
3.5(b)(2) provides that one of the bases for DIC entitlement is that 
``[d]eath occurred prior to January 1, 1957, and the claimant was 
receiving or eligible to receive death compensation on December 31, 
1956 (or, as to a parent, would have been eligible except for income), 
under laws in effect on that date or who subsequently becomes eligible 
by reason of a death which occurred prior to January 1, 1957.'' 
Instead, as previously indicated, we propose to merely state in Sec.  
5.510(b)(1)(ii) that ``DIC is not payable unless the service-connected 
death occurred after December 31, 1956, except in the case of certain 
individuals receiving or eligible to receive death compensation who 
elect to receive DIC in lieu of death compensation.'' We intend no 
substantive change. A person could not be ``receiving, or eligible to 
receive, death compensation'' unless they were ``receiving or eligible 
to receive death compensation on December 31, 1956 `` under laws in 
effect on that date or * * * subsequently bec[a]me[] eligible by reason 
of a death which occurred prior to January 1, 1957.'' And, as also 
mentioned previously, rules concerning death compensation entitlement 
are addressed elsewhere in proposed part 5. The same is true of rules 
concerning the election of DIC in lieu of death compensation.
    Finally, in paragraph (d) of proposed Sec.  5.510, we state that 
DIC for parents is subject to income limitations. This provision is 
derived from current 38 CFR 3.251(a).

5.511 Special monthly dependency and indemnity compensation.

    Proposed Sec.  5.511, based on current 38 CFR 3.351(a)(3), (a)(4), 
(b), (c), and (e), provides for payment of increased DIC benefits to a 
surviving spouse or parent based on the need for regular aid and 
attendance or being permanently housebound.

5.512 Eligibility for death compensation or death pension instead of 
dependency and indemnity compensation.

    Proposed Sec.  5.512 explains that VA may not pay death 
compensation or death pension to a person eligible for DIC based upon a 
death occurring after December 31, 1956, subject to the right of a 
surviving spouse to elect death pension in lieu of DIC. This proposed 
section is based on current Sec.  3.5(c), which is, in turn, based on 
38 U.S.C. 1317, ``Restriction on payments under this chapter.''
    Current Sec.  3.5(c) states:

    No person eligible for dependency and indemnity compensation by 
reason of a death occurring on or after January 1, 1957, shall be 
eligible by reason of such death for death pension or compensation 
under any other law administered by the Department of Veterans 
Affairs, except that, effective November 2, 1994, a surviving spouse 
who is receiving dependency and indemnity compensation may elect to 
receive death pension instead of such compensation.

    The November 2, 1994, date referenced in current Sec.  3.5(c) is 
the effective date of Pub. L. 103-446, which added subsection (b) to 38 
U.S.C. 1317, thereby permitting DIC recipients to elect to receive 
death pension instead of DIC. See Veterans' Benefits Improvements Act 
of 1994, Pub. L. 103-446, section 111(a), 108 Stat. 4645, 4654. 
Including the date was helpful during the time when the right to elect 
death pension in lieu of DIC was new. However, we propose to omit it 
from this revision inasmuch as elections are prospective and its 
inclusion is no longer necessary.
    Current Sec.  3.5(c) speaks of the right of a surviving spouse 
``receiving'' DIC to elect death pension. However, under 38 U.S.C. 
1317(b), the surviving spouse need only be eligible for DIC in order to 
make this election. Proposed Sec.  5.512(b) uses the statutory term. No 
other substantive changes are proposed.

[[Page 61332]]

Dependency and Indemnity Compensation--Eligibility Requirements and 
Payment Rules for Surviving Spouses and Children

5.520 Dependency and indemnity compensation--time of marriage 
requirements for surviving spouses.

    A surviving spouse must meet various requirements in order to 
qualify for DIC benefits. These include requirements that the date of 
his or her marriage to the veteran, or the length of that marriage, 
must fall within certain parameters. Proposed Sec.  5.520, based on 
portions of current Sec.  3.54 and applicable statutory provisions, 
sets out the time of marriage requirements and the ways in which the 
requirements can be met.
    The first way in which the requirements can be met is set out in 
the introduction to current Sec.  3.54, which explains that a surviving 
spouse who married the veteran before, or during, the veteran's service 
may qualify for DIC. Three alternative time-of-marriage requirements, 
which apply when the veteran and the surviving spouse were married 
after the veteran's separation from service, are listed in current 
Sec.  3.54(c). These alternative requirements are that the surviving 
spouse was married to the veteran:

    (1) Before the expiration of 15 years after the termination of 
the period of service in which the injury or disease causing the 
death of the veteran was incurred or aggravated, or
    (2) For 1 year or more, or
    (3) For any period of time if a child was born of the marriage, 
or was born to them before the marriage.

    This list in current Sec.  3.54(c) is based on 38 U.S.C. 1304, 
``Special provisions relating to surviving spouses,'' which applies to 
a surviving spouse who is seeking DIC under 38 U.S.C. 1310. However, 
current Sec.  3.54 does not explain time of marriage requirements for 
surviving spouses who married the veteran after service and who are 
seeking DIC under 38 U.S.C. 1151 or 38 U.S.C. 1318. Proposed Sec.  
5.520 explains how the time of marriage requirement applies to claims 
for DIC under any of the three statutory bases for DIC.
    The time of marriage requirements are not specifically addressed in 
38 U.S.C. 1151. However, subsection 1151(a) provides that ``[DIC] under 
chapter 13 of this title shall be awarded for a qualifying * * * death 
of a veteran in the same manner as if such * * * death were service-
connected.'' (Emphasis added.) Therefore, we conclude that the three 
methods in current Sec.  3.54(c) for meeting the time of marriage 
requirements under 38 U.S.C. 1310 also apply to cases in which DIC is 
awarded based upon the provisions of 38 U.S.C. 1151. Proposed Sec.  
5.520(b) includes this information.
    Proposed Sec.  5.520(b)(1)(ii) resolves an ambiguity in the current 
regulation. As noted above, the time of marriage requirements for 
eligibility for DIC under 38 U.S.C. 1151 or 1310 may be met if the 
surviving spouse was married to the veteran for one year or more. We 
propose to state that multiple periods of marriage can be added 
together to meet this 1-year marriage requirement. The one-year 
marriage requirement is designed to prevent abuse by sham ``death bed'' 
marriages to obtain benefits. We believe that there is much less risk 
of such abuse where the veteran and the surviving spouse have had an 
ongoing close relationship demonstrated by previous marriage. This 
information has been included to fill a gap in the current regulation.
    We believe that this interpretation, favorable to surviving 
spouses, is reasonable. The statute authorizing the time of marriage 
requirement, 38 U.S.C. 1304, does not prohibit adding multiple periods 
of marriage together. On the other hand, 38 U.S.C. 1318 does provide 
such a prohibition. Specifically, 38 U.S.C. 1318(c)(1) provides that 
benefits may not be paid under that section to a surviving spouse of a 
veteran unless ``the surviving spouse was married to the veteran for 
one year or more immediately preceding the veteran's death.'' Inasmuch 
as Congress prohibited combining multiple marriages together to meet 
the 1-year marriage requirement in 38 U.S.C. 1318 and did not do so in 
38 U.S.C. 1304, we believe it was Congress' intent not to apply the 
prohibition to other claims for DIC. Norman J. Singer, Sutherland On 
Statutory Construction Sec.  46:06 (6th ed. 2000) (``when the 
legislature uses certain language in one part of the statute and 
different language in another, the court assumes different meanings 
were intended. In like manner, where the legislature has carefully 
employed a term in one place and excluded it in another, it should not 
be implied where excluded.''). Therefore, we have included in proposed 
Sec.  5.520(b)(1)(ii) that multiple periods of marriage may be combined 
to meet the 1-year marriage requirement for claims of DIC based on 38 
U.S.C. 1151 or 1310.
    Proposed Sec.  5.520(b)(2) describes the methods of meeting the 
time of marriage requirements under 38 U.S.C. 1318, which only provides 
for two methods of meeting the requirements. Following the statute, 
proposed paragraph (b)(2) omits the provision for marriage ``[b]efore 
the expiration of 15 years after the termination of the period of 
service in which the injury or disease causing the death of the veteran 
was incurred or aggravated.''
    Concerning the one-year marriage requirement in claims based on 38 
U.S.C. 1318, we have previously noted that the statute provides that 
benefits may not be paid to a surviving spouse unless ``the surviving 
spouse was married to the veteran for one year or more immediately 
preceding the veteran's death.'' 38 U.S.C. 1318(c)(1) (emphasis added). 
VA interprets this provision to mean that multiple periods of marriage 
cannot be added together to meet the 1-year marriage requirement for 
purposes of eligibility for DIC under 38 U.S.C. 1318. In order to 
satisfy the one-year marriage requirement, the veteran and spouse must 
have been married continuously for a year or more immediately prior to 
the veteran's death. Therefore, we propose to add the requirement for 
continuity of the marriage during the year prior to the veteran's death 
to paragraph Sec.  5.520(b)(2).

5.521 [Reserved]

    VA proposes to set out in Sec. Sec.  5.521 and 5.522 the rules 
concerning the payment of DIC benefits to the survivors of certain 
deceased veterans who received, or were entitled to receive, 
compensation for service-connected disability rated as totally 
disabling. These rules would be based on the statute that authorizes 
DIC on this basis, 38 U.S.C. 1318, and VA's implementing regulation, 
current Sec.  3.22.
    However, we propose to simply reserve Sec.  5.521 for purposes of 
this NPRM. VA is undertaking a separate rulemaking to respond to a 
decision by the United States Court of Appeals for the Federal Circuit 
in National Organization of Veterans' Advocates, Inc. v. Secretary of 
Veterans Affairs, 314 F.3d 1373 (Fed. Cir. 2003). See 69 FR 62229 
(2004). This proposed rulemaking involves revision of provisions of 
current Sec.  3.22(b), which defines ``entitled to receive'' for 
purposes of determining whether a veteran's survivors are entitled to 
benefits under 38 U.S.C. 1318. See 38 U.S.C. 1318(b). We propose to 
reserve Sec.  5.521 as the eventual location for a part 5 regulation 
that will repeat the material in Sec.  3.22(b) after the final 
amendment of Sec.  3.22(b) is adopted.

5.522 Dependency and indemnity compensation benefits for survivors of 
certain veterans rated totally disabled at time of death--offset of 
wrongful death damages.

    VA is required by 38 U.S.C. 1318(d) to offset the value of money or 
property

[[Page 61333]]

a surviving spouse or child may receive ``pursuant to an award in a 
judicial proceeding based upon, or a settlement or compromise of, any 
cause of action for damages'' for the death of a veteran against any 
death benefits to which the spouse or child may be entitled under 38 
U.S.C. 1318. Current Sec.  3.22(e) implements this requirement. In 
proposed Sec.  5.522, the part 5 replacement for Sec.  3.22(e), we have 
restructured this material in more readily understandable language and 
to provide additional information about how the offset should be 
calculated.
    An opinion by the United States Court of Appeals for Veterans 
Claims in Bryan v. West, 13 Vet. App. 482 (2000), shows the need for 
regulatory guidance concerning how offsets are calculated. In Bryan the 
Court remanded a case to the Board of Veterans' Appeals in order for 
the Board to decide the following matters with respect to a 38 U.S.C. 
1318(d) offset: ``(1) How much money was received by a plaintiff other 
than [the VA claimant]; (2) Whether the money received by such a 
plaintiff was received ultimately by [the VA claimant] through estate 
distribution; (3) If so, whether such distribution was considered 
received by [the VA claimant]; and (4) Whether the money received by 
her attorney was, in contemplation of law, `received' by [the VA 
claimant].'' Proposed Sec.  5.522 addresses these and other practical 
issues.
    Proposed Sec.  5.522(c)(1) incorporates a concept favorable to VA 
claimants (because it would reduce the amount of offset) from a 1997 
Precedent Opinion by VA's General Counsel, VAOPGCPREC 3-97, which 
states:

    Section 1318(d) of title 38, United States Code, requires offset 
against survivors' benefits payable under section 1318 of amounts 
received by the beneficiary pursuant to an award, settlement, or 
compromise based on a claim for damages resulting from the death of 
a veteran, i.e., the types of damages typically recoverable under 
state wrongful death statutes, but does not require offset of 
amounts received pursuant to a survival action as compensation for 
injuries suffered by the veteran prior to his or her death.

    Legislative history is of some assistance in determining other 
aspects of how the offset should be calculated. VAOPGCPREC 3-97 
includes the following information, at paragraph 10:

    The legislative history indicates that the purpose of providing 
DIC in the case of such non-service-connected deaths was to provide 
a measure of income to the surviving spouse or child to replace the 
support lost when the veteran died. In a report prepared during 
consideration of that legislation, the Senate Committee on Veterans' 
Affairs stated that ``[t]he appropriate Federal obligation to these 
survivors should, in the Committee's view, be the replacement of the 
support lost when the veteran dies.'' S. Rep. No. 1054, 95th Cong., 
2d Sess. 28 (1978), reprinted in 1978 U.S.C.C.A.N. 3465, 3486. 
Similarly, the basis for authorizing such benefits was described 
during floor debates as follows:
    The purpose of those benefits is to provide income security to 
the survivors. This reflects the Committee's view that the veteran's 
total disability endured over a lengthy period of time, necessarily 
results in a substantial impairment of the veteran's ability to 
provide for his or her survivors; and that the primary purpose of 
the new benefit is to compensate for that impairment.

124 Cong. Rec. S12687 (daily ed. Aug. 7, 1978) (statement of Sen. 
Cranston). * * *

    Particularly in view of Congressional intent that 38 U.S.C. 1318 
benefits are to provide for the survivors' support, we propose to look 
to whether the money or property received is actually available to meet 
the claimants' needs and obligations, rather than the technical form in 
which the money or property is passed to the claimant, in calculating 
the offset under 38 U.S.C. 1318(d). In this regard, we propose to adopt 
the rationale in paragraph 13 of VAOPGCPREC 3-97:

    13. Finally, we note that the reference in section 1318(d) to 
amounts received ``pursuant to'' an award, settlement, or compromise 
may be intended to indicate that the surviving spouse or child need 
not have been an actual party to the action, but need only have 
received money or property of value ``pursuant to'' the action. Many 
state statutes require wrongful death actions to be brought by a 
representative of the estate or other designated representative, 
although such actions are for the exclusive benefit of the actual 
beneficiaries. 22A Am. Jur. 2d Death Sec.  399. The phrase 
``pursuant to'' may be read as clarifying that offset will be 
required against amounts received by the actual beneficiaries 
pursuant to a wrongful death action regardless of whether the 
beneficiaries were individually named as parties in the award, 
settlement, or compromise.

    Under proposed Sec.  5.522(c)(2), any amounts used to pay a third 
party to satisfy a legal obligation of the claimant would be considered 
as ``received'' by the claimant regardless of whether the claimant 
receives the damages and pays the third party directly or whether the 
third party is paid on the claimant's behalf by the party liable for 
the damages. This view is consistent with long-standing VA policy that 
attorney's fees, court costs and other expenses incident to a civil 
claim are not deductible from the total amount awarded or accepted. For 
example, current Sec.  3.22(g) provides that when a VA beneficiary 
reports money or property received, ``[e]xpenses incident to recovery, 
such as attorney's fees, may not be deducted from the amount to be 
reported.'' However, in providing that damages going to pay attorney's 
fees and costs be included in the offset, proposed Sec.  5.522(c)(2) 
limits the amount included to the particular claimant's proportional 
share of fees and costs in cases where the recovered damages are 
payable to multiple parties.
    The 38 U.S.C. 1318(d) offset would not normally include damages 
payable to another person or entity. However, because the focus of 38 
U.S.C. 1318(d) is on who receives the money or property, that exclusion 
does not apply where the other person or entity is merely acting as a 
conduit to pass the money or property recovered to the claimant. For 
example, a wrongful death award paid to a veteran's estate that is then 
distributed to the claimant, or paid into a trust for the benefit of 
the claimant, would be included in the offset. We propose to address 
this situation in Sec.  5.522(c)(3).
    Another addition to proposed Sec.  5.522 provides for determining 
the date of the valuation of property for purposes of this section. 
Current Sec.  3.22(g) requires, in part, that a beneficiary receiving 
DIC under 38 U.S.C. 1318 report the value of property received as 
damages for the death of a veteran at fair market value, but is silent 
as to the time of valuation of such property. The statute, 38 U.S.C. 
1318, is also silent as to the time of valuation. We propose to fill 
this gap by providing, in Sec.  5.522(c)(5), that the property be 
valued at its fair market value at the time the claimant receives it. 
We believe that this is most consistent with the expressed 
Congressional intent that these DIC benefits serve to provide for the 
support of the veteran's survivors.
    Proposed paragraph (d), based on current Sec.  3.22(g), states the 
DIC beneficiary's obligation to report wrongful death recoveries to VA. 
We propose to add that overpayments created by failure to report will 
be subject to recovery if not waived. The instructions for VA Form 21-
534, ``Application for Dependency and Indemnity Compensation, Death 
Pension and Accrued Benefits by a Surviving Spouse or Child (Including 
Death Compensation if Applicable),'' notify claimants of the reporting 
requirement described in proposed Sec.  5.522(d).

5.523 [Reserved]

    As indicated in the discussion concerning reservation of Sec.  
5.521, VA is undertaking a separate rule-making to respond to a 
decision by the United

[[Page 61334]]

States Court of Appeals for the Federal Circuit in National 
Organization of Veterans' Advocates, Inc. v. Secretary of Veterans 
Affairs, 314 F.3d 1373 (Fed. Cir. 2003). See 69 FR 62229 (2004). That 
proposed rulemaking involves revision of provisions of current Sec.  
3.5(e) relating to the rates of DIC payable to surviving spouses and 
moving those provisions into new Sec.  3.10. We propose to reserve 
Sec.  5.523 as the eventual location for the part 5 regulation that 
will repeat the material in proposed Sec.  3.10 when Sec.  3.10 is 
adopted as a final rule.

5.524 Awards of dependency and indemnity compensation benefits to 
children when there is a retroactive award to a school child.

    Under 38 U.S.C. 1313, ``Dependency and indemnity compensation to 
children,'' DIC is payable to eligible children when there is no 
surviving spouse entitled to DIC. The total amount payable to the 
children, which varies according to the number of eligible children, is 
divided and paid to the children in equal shares. However, there is an 
exception to the equal-share rule that applies to a retroactive payment 
to a child whose entitlement terminated when he or she reached eighteen 
years of age, but who later reestablished entitlement because he or she 
is pursuing a course of instruction at an approved educational 
institution.
    We have addressed rules concerning this exception, currently found 
in Sec.  3.650(c), in proposed Sec.  5.524. In an effort to make them 
more understandable, we have substantially restructured the text. In 
proposed Sec.  5.524(a), ``Applicability,'' we have also provided more 
context by including a description of the equal-share rule and a better 
description of the exception to that rule that Sec.  5.524 addresses.
    Because of requirements of 38 U.S.C. 5111, ``Commencement of period 
of payment,'' payment of newly awarded or increased DIC does not begin 
to accrue until the first day of the calendar month following the month 
in which the award or increased award became effective. For that 
reason, proposed Sec.  5.524 refers to the ``payment commencement 
date,'' rather than the ``effective date,'' in some instances.
    We have not included the provisions in Sec.  3.650(c)(3) that state 
the method for determining retroactive awards to a school child for 
periods prior to October 1, 1981 (a date established by Congress in the 
Veterans' Disability Compensation, Housing, and Memorial Benefits 
Amendments of 1981, Pub. L. 97-66, 95 Stat. 1026). We propose to omit 
this provision because we believe that all eligible dependents who 
could be affected by the provision have already received their 
benefits. In the unlikely event that the need should arise, VA could 
process the retroactive award relying on applicable statutory 
authority.

Dependency and Indemnity Compensation--Eligibility Requirements and 
Payment Rules for Parents

5.530 Eligibility for, and payment of, parents' dependency and 
indemnity compensation.

    Proposed Sec.  5.530 serves as an introduction to a group of 
regulations concerning parents' DIC and provides a brief overview of 
that VA benefit program.
    As noted previously, proposed Sec.  5.510(b) sets out the three 
statutory bases for the award of DIC. Proposed paragraph Sec.  5.530(a) 
explains that only two of those bases are applicable to parents' DIC. 
This is because 38 U.S.C. 1318, which provides for payment of DIC to 
the survivors of certain veterans with a service-connected disability 
rated as totally disabling at the time of their death, only provides 
benefits to the veteran's surviving spouse and children.
    Unlike DIC benefits payable to surviving spouses and children, 
parents' DIC is an income-based benefit program. Under 38 U.S.C. 
1315(b) the amount of parents' DIC payable bears an inverse 
relationship to the amount of the parents' income and no DIC is payable 
if the parents' income exceeds statutory limits. Proposed paragraph 
5.530(b) states these principles and, through a cross-reference, points 
readers to subsequent part 5 sections that provide income and payment 
rate rules.
    Some income-based VA benefit programs also consider the claimant's 
net worth in determining payments. For example, eligibility for certain 
benefits requires a specific finding that a parent was actually 
``dependent'' upon the veteran, and VA considers the parent's net worth 
in making such findings. See 38 U.S.C. 102, 1115, 1121, 5121; 38 CFR 
3.263(a). However, that is not the case with parents' DIC, as 38 U.S.C 
1315 does not require a specific finding of dependency, but merely 
provides that DIC may be paid to a veteran's parent, subject to 
reduction based on the parent's income. We therefore propose to state 
in paragraph 5.530(c) that net worth is not a factor in determining 
entitlement to parents' DIC or the amount of parents' DIC payable.

5.531 General income rules.

    Proposed Sec.  5.531 is based on 38 U.S.C. 1315(f), which contains 
the basic statutory rules for determining what counts as income for 
parents' DIC purposes, and portions of current Sec. Sec.  3.251, 3.260, 
3.261 and 3.262 that implement that statute.
    Proposed paragraph 5.531(a) states the basic statutory rule that VA 
must count all payments of any kind from any source in determining 
income. Beginning with this basic rule permits simplification of the 
proposed regulation because the all-inclusive nature of the basic rule 
eliminates any need to catalog types of countable income. All income 
that a parent receives is income for parents' DIC purposes unless there 
is a specific exclusion. For example, with this beginning point, 
provisions such as the first sentence of current Sec.  3.262(j)(2) 
(providing that, with respect to life insurance, ``the full amount of 
payments is considered income as received'') become redundant and need 
not be carried forward. We have also included a cross-reference to 
proposed Sec.  5.533, ``Exclusions from income,'' where the exceptions 
to the general rule in paragraph (a) may be found.
    Because VA must count all payments, it is necessary to know what VA 
includes in and excludes from the term ``payments.'' Proposed Sec.  
5.531(b) serves that function. It is based on various rules from 
portions of current Sec. Sec.  3.261 and 3.262. See the ``Table 
comparing current part 3 rules with proposed part 5 rules'' earlier in 
the supplementary information.
    Proposed Sec.  5.531(c) provides that if a parent is married, 
``income'' is the combined income of the parent and the parent's 
spouse, except if the marriage has been terminated or the parent is 
separated from his or her spouse. We also propose to state in paragraph 
(c) that ``[i]ncome is combined whether the parent's spouse is the 
veteran's other surviving parent or the veteran's stepparent.'' We 
believe that this is a clearer statement of the principle in the 
introduction to current Sec.  3.262(b), which provides that ``[i]ncome 
of the spouse will be determined under the rules applicable to income 
of the claimant.'' The income rules in proposed Sec.  5.531 are 
applicable to a parent. The spouse of a claimant-parent will always be 
either the veteran's other parent (in which case the rules would 
expressly apply) or the veteran's stepparent.
    Proposed paragraph (d) provides the rules VA uses to determine 
whether income from property is the income of a parent. Property 
ownership is an important indicator of the right to income from that 
property, but it is not always controlling. In keeping with

[[Page 61335]]

long-standing VA practice, we propose to state in paragraph (d)(3) that 
if a parent transfers ownership of income-producing property to another 
person or legal entity, but retains the right to that income, the 
income will be counted.
    Current Sec.  3.262(k)(1) provides, in part, that ``if property is 
owned jointly each person will be considered as owning a proportionate 
share. The claimant's share of property held in partnership will be 
determined on the facts found.'' Current Sec.  3.262(k)(2) provides, in 
part, that the ``claimant's share [of income] will be determined in 
proportion to his right according to the rules of ownership.'' We 
propose to combine these provisions in Sec.  5.531(d)(4) by stating 
that ``[i]n the absence of evidence showing otherwise, VA will consider 
a parent who owns property jointly with others, including partnership 
property, to be entitled to a share of the income from that property 
proportionate to the parent's share of ownership. VA will accept the 
claimant's statement concerning the terms of ownership in the absence 
of evidence to the contrary.'' The last sentence of paragraph (d)(4) 
follows the last sentence of current Sec.  3.261(k)(1).
    Current Sec.  3.260(b) provides rules for how VA calculates income 
when there is uncertainty about the amount of income a parent will 
receive during a calendar year. We propose, in Sec.  5.531(e), to more 
clearly explain the process involved. We also propose to include a 
cross-reference to proposed Sec.  5.535, ``Adjustments to parents' DIC 
when income is less than anticipated,'' to assist users of the proposed 
regulation in finding information about submitting amended income 
information.

5.532 Deductions from income.

    While all income is counted except where there is statutory 
authority to exclude it, VA permits deductions from countable income in 
some instances. That is, the amount of income ultimately counted is the 
difference between income and certain deductible expenses directly 
associated with that income. Proposed Sec.  5.532 lists permitted 
deductions. These deductions are the same as those included in current 
Sec.  3.262. However, we propose to add some clarifications, as 
described in the following paragraphs.
    Proposed Sec.  5.532(a) continues a rule in current Sec.  
3.262(a)(2) that permits the deduction of expenses incident to the 
operation of businesses and professions from income from those sources. 
We propose to clarify that ``business'' includes the operation of a 
farm and transactions involving investment property. Because of this 
definitional change, it is only necessary to state in Sec.  5.532(a) 
that losses sustained in operating a business or profession may not be 
deducted from income from any other source. This is consistent with the 
rule in current Sec.  3.262(a)(3) that states that ``[a] loss sustained 
in operating a business, profession, or farm or from investments may 
not be deducted from income derived from any other source.'' Note also 
that current Sec.  3.262(a)(3) implies that investment income is 
counted and that current Sec.  3.262(k)(5) provides, with respect to 
DIC, that profit from the sale of nonbusiness property is not counted. 
With respect to investments, VA only counts income when the investment 
property is sold and does not constantly adjust income based on 
increases or decreases in the market value of investment property due 
to market fluctuations. Therefore, VA essentially already treats 
investment transactions as business transactions.
    Proposed Sec.  5.532(b) continues a provision in current Sec.  
3.262(j)(4) that permits deduction of related medical, legal, or other 
expenses from sums recovered under disability, accident, or health 
insurance. Of course the same expenses cannot be deducted twice. 
Therefore, we propose to state in Sec.  5.532(b) that if medical 
expenses are deducted under that paragraph, they cannot be deducted as 
unusual medical expenses under Sec.  5.532(d).
    Proposed Sec.  5.532(d) states the rules for deducting unusual 
medical expenses, as authorized by 38 U.S.C. 1315(f)(3) and described 
in current Sec.  3.262(l). Among other things, the latter permits 
deduction of the unusual medical expenses of relatives of a parent or, 
under some circumstances, of a parent's spouse who are ``constructive 
members'' of the household. See Sec.  3.262(l)(4). However, there is no 
definition of what a ``constructive'' household member is. In 
VAOPGCPREC 61-90, VA's Office of General Counsel discussed exceptions 
that had been carved out of the general rule that a ``household'' is 
comprised of those who dwell under the same roof and compose a family. 
The General Counsel then observed that:

    We regard the foregoing exceptions with respect to the language 
``who is a member of a veteran's household'' generally as 
recognizing any situation where it may be reasonably assumed that 
the parties would be dwelling under one roof but for unusual or 
unavoidable circumstances, such as one temporary in nature or one 
beyond the control of the parties and wherein the family ties and 
relationship continue and the parties considered themselves morally 
bound to care for each other.

    We believe that this statement captures the meaning of 
``constructive'' household membership. However rather than referring to 
constructive household members and then defining that term, we propose 
to use a simpler approach by stating in Sec.  5.532(d)(1)(i) that ``[a 
family member] includes a relative who would normally be a resident of 
the household, but who is physically absent due to unusual or 
unavoidable circumstances, such as a child away at school or a family 
member confined to a nursing home.''
    We have not repeated in proposed Sec.  5.532(d) a restriction in 
current Sec.  3.262(l)(4) that limits the exclusion of unreimbursed 
amounts a parent pays for the unusual medical expenses of the parent's 
relatives who are members, or ``constructive members,'' of the parent's 
household to relatives ``in the ascending as well as descending 
class.'' We construe this to mean relatives in the parents' direct 
line. (Ascendant means ``[o]ne who precedes in lineage, such as a 
parent or grandparent.'' Black's Law Dictionary 121 (8th ed. 2004). 
Descendant means ``[o]ne who follows in lineage, in direct (not 
collateral) descent from a person. Example are children and 
grandchildren.'' Id. at 476.) This would appear to exclude, for 
example, the medical expenses of an orphaned niece or nephew who had 
been taken into the parent's household.
    This restriction to the ascending and descending class is not 
required by statute. The authorizing statute, 38 U.S.C. 1315(f)(3), 
merely states that ``[t]he Secretary [of Veterans Affairs] may provide 
by regulation for the exclusion from income under this section of 
amounts paid by a parent for unusual medical expenses.'' We do not 
believe that the restriction is necessary, particularly because the 
deduction is already limited in several ways that should serve to deter 
any abuse. The deduction is limited to expenses of persons who are 
relatives, who are members of the parent's household (or who would be a 
member of the household absent unusual or unavoidable circumstance), 
and to whom the parent has a moral or legal obligation of support. We 
also note that there is no such restriction with respect to medical 
expenses deductions used in calculating VA's largest income-based 
program, Improved Pension. See current Sec.  3.272(g)(1)(i). We believe 
that VA's rules for determining income for purposes of administering 
its income-based programs should be consistent unless the law requires 
otherwise.
    The term ``medical expenses'' is used in a number of regulations in 
current part 3 and would similarly appear in a

[[Page 61336]]

number of regulations in proposed part 5. Therefore, we will propose a 
centralized definition of that term in a separate NPRM as part of the 
Project. This is the definition referenced in proposed Sec.  
5.532(d)(1)(ii).

5.533 Exclusions from income.

    Income that VA does not count when calculating parents' income is 
listed in proposed Sec.  5.533. Paragraph (a) is based on 38 U.S.C. 
1315(f)(1)(A), which excludes ``payments of the six-months' death 
gratuity.'' However, we propose to change the description to ``death 
gratuity payments by the Secretary concerned under 10 U.S.C. 1475 
through 1480.'' The phrase ``six-months' death gratuity'' is obsolete. 
While the death gratuity consisted of six-months' pay when originally 
enacted (see Pub. L. 66-99, 41 Stat. 367 (1919)), that is no longer the 
case. Over the years these death gratuity payments have evolved into a 
fixed sum, rather than a variable amount equal to six-months' pay. See 
10 U.S.C. 1478. As would be provided in proposed paragraph (a), this 
exclusion extends to death gratuity payments in lieu of payments under 
10 U.S.C. 1478 made to certain survivors of ``Persian Gulf conflict'' 
veterans as authorized by the Persian Gulf Conflict Supplemental 
Authorization and Personnel Benefits Act of 1991. See Pub. L. 102-25, 
Title III, Part A, Sec.  307, 105 Stat. 82 (1991). (Note that the 
phrase ``Secretary concerned'' is defined currently in Sec.  3.1(g). It 
will also be defined in Sec.  3.1's part 5 equivalent, to be published 
in another NPRM.)
    Subsection (f)(1)(B) of 38 U.S.C. 1315 excludes ``donations from 
public or private relief or welfare organizations'' from income for 
parents' DIC purposes. Proposed Sec.  5.533(b) would combine material 
from several portions of current Sec.  3.262 that explain how VA 
interprets this exclusion. One of these is current Sec.  3.262(f), 
which states that ``[b]enefits received under noncontributory programs, 
such as old age assistance, aid to dependent children, and supplemental 
security income are subject to the rules contained in paragraph (d) of 
this section applicable to charitable donations.'' We propose to remove 
the references to the Old Age Assistance program and the Aid to 
Dependent Children program because these programs no longer exist. The 
Old Age Assistance program was phased out and totally replaced by the 
Supplemental Security Income program in 1972 and the Aid to Dependent 
Children program became a federal block grant known as Temporary 
Assistance to Needy Families in 1996.
    Section (f)(1)(C) of 38 U.S.C. 1315 provides that several types of 
VA benefit payments are not counted in determining income for parents' 
DIC purposes. These include payments made under 38 U.S.C. chapter 15, 
the chapter that authorizes VA's current Improved Pension program, and 
``under the first sentence of section 9(b) of the Veterans' Pension Act 
of 1959.'' The referenced sentence preserved the rights of persons 
receiving earlier types of pension to continue to receive that pension 
at the time that Section 306 pension was introduced. The Veterans' and 
Survivors' Pension Improvement Act of 1978, Pub. L. 95-588, 92 Stat. 
2497 (1978), introduced the current Improved Pension program. Section 
306(b)(1) of that public law explicitly repealed section 9(b) of the 
Veterans' Pension Act of 1959. See 92 Stat. 2509. However, section 
306(b)(3) of Pub. L. 95-588 provides that those who do not elect to 
receive Improved Pension ``shall continue to receive pension at the 
monthly rate being paid to such person on December 31, 1978, subject to 
all provisions of law applicable to basic eligibility for and payment 
of pension under section 9(b) of the Veterans' Pension Act of 1959, as 
in effect on December 31, 1978.'' 92 Stat. 2509. We interpret these 
various provisions together as excluding all VA nonservice-connected 
disability and death pension payments from income for parents' DIC 
purposes, as currently provided in Sec.  3.261(a)(20). That rule is 
stated in Sec.  5.533(c)(3).
    Another exclusion from parents' countable income, found at 38 
U.S.C. 1315(f)(1)(G), is ``10 percent of the amount of payments to an 
individual under public or private retirement, annuity, endowment, or 
similar plans or programs.'' VA has traditionally construed this ten-
percent exclusion to apply to a broad range of payments for disability 
or death, including payments pursuant to insurance policies, statutory 
retirement or disability-compensation programs, and tort damages 
collected pursuant to employer's liability statutes. In a 1966 opinion, 
designated as VA Administrator's Decision 989, the Administrator of 
Veterans' Affairs applied the principle that statutes should be 
construed in favor of veterans and reasoned that such payments are 
sufficiently similar to payments under a retirement program to come 
within the meaning of statutory language essentially identical to that 
in 38 U.S.C. 1315(f)(1)(G). That interpretation is reflected in current 
VA regulations at 38 CFR 3.262(f), (g), (i)(2), (j)(1), (j)(2), and 
(j)(4). We propose to aggregate in proposed Sec.  5.533(g) all of the 
various Sec.  3.262 ten-percent exclusions based on the 38 U.S.C. 
1315(f)(1)(G) exclusion.
    One of these 10-percent exclusions, found at current Sec.  
3.262(i)(2), is for ``payments based on permanent and total disability 
or death * * * received from the Bureau of Employees' Compensation.'' 
The Bureau of Employees' Compensation was abolished in 1974. See 20 CFR 
1.5. Its functions are now carried out by the Office of Workers' 
Compensation Programs of the U.S. Department of Labor. See 20 CFR 
1.6(b). This change is reflected in proposed paragraph (g)(4).
    Section 1315(f)(1)(K) of 38 U.S.C. 1315 excludes ``profit realized 
from the disposition of real or personal property other than in the 
course of a business'' from being counted as income for parents' DIC 
purposes. Current Sec.  3.262(k)(5) states, in part, that ``[a]ny 
amounts received in excess of the sales price will be counted as 
income. Where payments are received in installments, principal and 
interest will not be counted separately.'' We interpret this last 
statement to mean that where payments are received in installments, the 
installments received will not begin to count as income until the total 
of installments received is equal to the sales price without interest. 
That rule is more clearly stated at proposed Sec.  5.533(i).
    Section 38 U.S.C. 1315(f)(1)(F) excludes, among other things, 
``payments of servicemen's indemnity.'' We propose to omit this 
exclusion because it is now obsolete. The Servicemen's Indemnity Act of 
1951, Pub. L. 82-23, 65 Stat. 33, 34 (1951), authorized VA to pay 
indemnity in the form of $10,000 automatic life insurance coverage to 
the survivors of members of the Armed Forces who died in service. 
However, the Act authorizing this benefit was repealed in 1956. See 
sec. 502(9) of the Servicemen's and Veterans' Survivor Benefits Act, 
Pub. L. 84-881, 70 Stat. 857, 886 (1956).
    Current Sec.  3.262(e)(4) provides, in part, that:

    Where a parent was receiving or entitled to receive dependency 
and indemnity compensation and retirement benefits based on his or 
her own employment on December 31, 1966, the retirement payments 
will not be considered income until the amount of the claimant's 
personal contribution (as distinguished from amounts contributed by 
the employer) has been received. Thereafter the 10 percent exclusion 
will apply.

    Similarly, current Sec.  3.262(j)(1) provides in part that:

    In dependency and indemnity compensation claims, where the 
parent is receiving or entitled to receive dependency

[[Page 61337]]

and indemnity compensation on December 31, 1966, and is also 
receiving or entitled to receive annuity payments on that date, or 
endowment insurance matures on or before that date, no part of the 
payments received will be considered income until the full amount of 
the consideration has been received, after which 10 percent of the 
amount received will be excluded.

    We propose to omit these two provisions from Sec.  5.533. It is 
extremely unlikely that a parent's contributions to retirement 
benefits, an annuity, or an endowment he or she was receiving on 
December 31, 1966, were not recovered long ago. Should the occasion 
arise, VA will adjudicate any affected claims under existing statutory 
authority.
    Proposed Sec.  5.533(k) continues an exclusion for payments under 
section 6 of the Radiation Exposure Compensation Act of 1990, Pub. L. 
101-426, 104 Stat. 920, 923. Payments under that act are not countable 
as income for parents' DIC purposes because section 6(h)(2) of the act 
provides that amounts paid to individuals under section 6 ``shall not 
be included as income or resources for purposes of determining 
eligibility to receive benefits described in section 3803(c)(2)(C) of 
title 31, United States Code, or the amount of such benefits.'' The 
list of benefits in 31 U.S.C. 3803(c)(2)(C) includes benefits under 38 
U.S.C. chapter 13. See 31 U.S.C. 3803(c)(2)(C)(viii). Parents' DIC is 
such a benefit.
    However, payments under section 6 of the Radiation Exposure 
Compensation Act of 1990 are not the only payments that Congress has 
excluded from consideration as income for benefit programs on the 31 
U.S.C. 3803(c)(2)(C) list. Our research has shown three others that we 
propose to add to Sec.  5.533 as paragraph (l) through (n). These are 
payments under section 103(c)(1) of the Ricky Ray Hemophilia Relief 
Fund Act of 1998, payments under the Energy Employees Occupational 
Illness Compensation Program, and payments to certain eligible Aleuts 
under 50 U.S.C Appx. 1989c-5.
    There are also a number of other Federal statutes that exempt 
specific kinds of income from consideration in determining either 
eligibility for all Federal income-based programs, or eligibility for 
all of VA's income-based benefit programs. Because those exclusions 
affect more than the parents' DIC benefit program, they will be 
addressed in a separate regulation in another NPRM to be published 
later as part of this Project. This separate regulation is the future 
regulation mentioned in paragraphs (c)(4) and (q) of proposed Sec.  
5.533.
    These broad exclusions that will be addressed in a future NPRM 
include some of the income exclusions that currently appear in 
Sec. Sec.  3.261 and 3.262. These are Agent Orange settlement payments, 
certain relocation payments, annuity payments elected under the Retired 
Serviceman's Family Protection Plan, restitution to individuals of 
Japanese ancestry, income received by American Indian beneficiaries 
from trust or restricted lands, payments under the Alaska Native Claims 
Settlement Act, payments from certain volunteer programs, Victims of 
Crime Act of 1984 payments, and monetary allowances under 38 U.S.C. 
chapter 18 for certain children of veterans who served in Vietnam and 
Korea. Because these exclusions will be addressed in another regulation 
included in a future NPRM, they have not been listed in proposed Sec.  
5.533.
    In redrafting various provisions of current Sec.  3.262 for 
proposed Sec.  5.533, we have intentionally omitted references to a 
January 1, 1967, effective date applicable to various income exclusions 
in paragraphs (e)(4), (i)(2), (j)(1), (j)(4), and (k)(5) of Sec.  
3.262. We believe that it is highly unlikely that VA would need to 
process a retroactive adjustment to a prior parents' DIC award 
effective more than 35 years in the past. Therefore, we believe it is 
no longer necessary to refer to these effective dates in the 
regulation. Should the occasion arise, VA will adjudicate any affected 
claims under existing statutory authority.

5.534 When VA counts parents' income.

    Proposed Sec.  5.534 is based on portions of current Sec. Sec.  
3.251 and 3.260 that pertain to when VA counts income for parents' DIC 
purposes. Rules concerning pension in current Sec.  3.260 will be 
addressed in a different NPRM.
    Current Sec.  3.251(b) provides that ``[i]ncome will be counted for 
the calendar year in which it is received and total income for the full 
calendar year will be considered except as provided in Sec.  3.260.'' 
The introduction to current Sec.  3.260 provides that ``[f]or 
entitlement to pension or dependency and indemnity compensation, income 
will be counted for the calendar year in which it is received.'' 
Proposed Sec.  5.534(a) provides a consolidated restatement of these 
rules. It also clarifies that VA uses anticipated income in calculating 
parents' DIC in some circumstances (for example, see proposed Sec.  
5.531(e)).
    The remainder of proposed Sec.  5.534 sets out the exceptions 
referenced in paragraph 5.534(a)(3), ``VA will count parents' total 
income for the full calendar year except as provided in this section.''
    The first exception, addressed in proposed paragraph (b), is based 
on concepts in current Sec.  3.260(c) and (d) concerning 
``proportionate'' income calculations. As proposed paragraph 5.534(b) 
indicates, ``proportionate'' income calculations are used when parents' 
DIC is first awarded, or when an award follows a period of no 
entitlement. Under the proportionate annual income calculation method, 
VA disregards income received, and expenses paid, during the portion of 
the year prior to the award of parents' DIC. It then determines what 
the parent(s)' income would have been if income had been received at 
the same rate for the entire calendar year as it was from the effective 
date of the award of parents' DIC to the end of the calendar year. The 
result is the proportionate annual income.
    Paragraph (b)(3) describes the specific steps VA would use to 
calculate this proportionate annual income. While there are several 
ways in which the mathematical process involved could be described, we 
are proposing a daily average method, because we believe this will be 
the most understandable to regulation users. Basically, VA would 
calculate the daily average income for the applicable portion of the 
year and multiply that figure by 365 to determine what annual income 
would have been if the same level of income had been in effect for the 
entire year.
    As current 3.260(c) does, proposed paragraph 5.534(b) permits using 
actual annual income, rather than proportionate income, if that would 
be to the parents' advantage.
    The second exception to the general rule in proposed Sec.  
5.534(a)(3) is set out in paragraph (c). It states that ``[i]f a parent 
marries during the applicable calendar year, income received by the 
parent's spouse prior to the date of the marriage is not counted.'' 
This simple rule is in accord with long-standing VA practice. It would 
replace complex rules in current Sec.  3.260(f), as they relate to 
parents' DIC, and would achieve essentially the same result.
    Finally, we note that we have intentionally omitted the rule stated 
in current Sec.  3.260(a) that installment income ``will be determined 
by the total amount received or anticipated during the calendar year.'' 
In terms of whether installment income will be counted as parents' 
income, this rule is subsumed in the general rule stated in proposed 
Sec.  5.531(a) that all payments of any kind from any source are 
counted in determining the income of a veteran's parents. With respect 
to proposed

[[Page 61338]]

Sec.  5.534, the rule in Sec.  3.260(a) is not an exception to the 
general rules in Sec.  5.534(a).

5.535 Adjustments to parents' DIC when income is less than anticipated.

    Proposed Sec.  5.535 is a simplification and clarification of the 
rules in current Sec.  3.660(b) that state when VA may make a 
retroactive award of parents' dependency and indemnity compensation 
based on amended income information. Current Sec.  3.660(b)(1) and (2) 
state the following alternative rules for determining when a parent 
must submit amended income information in order to obtain a retroactive 
increase in DIC benefits when income decreases:

    (1) Anticipated income. Where payments were not made or were 
made at a lower rate because of anticipated income, pension or 
dependency and indemnity compensation may be awarded or increased in 
accordance with the facts found but not earlier than the beginning 
of the appropriate 12-month annualization period if satisfactory 
evidence is received within the same or the next calendar year.

(Authority: 38 U.S.C. 5110(h))

    (2) Actual income. Where the claimant's actual income did not 
permit payment, or payment was made at a lower rate, for a given 12-
month annualization period, pension or dependency and indemnity 
compensation may be awarded or increased, effective the beginning of 
the next 12-month annualization period, if satisfactory evidence is 
received within that period.

    Proposed Sec.  5.535(b) follows the rule in Sec.  3.660(b)(1). We 
propose to omit the rule in Sec.  3.660(b)(2), which provides a shorter 
period of time for submitting amended income information in some 
instances, because we believe that it has no practical application to 
parents' DIC cases.
    With respect to parents' DIC, current Sec.  3.660(b)(2) 
contemplates a situation such as the following: A parents' DIC 
beneficiary provides VA with the amount of income expected for year A. 
VA pays DIC for year A based on that anticipated income. The 
beneficiary receives actual income for year A in the amount 
anticipated. Therefore, no adjustments are necessary for year A. 
However, income decreases during year B. If the beneficiary provides VA 
with evidence of the decreased income for year B not later than 
December 31 of year B, VA will increase benefits for year B because of 
the decreased income.
    However, as a practical matter, what will have taken place in this 
situation is that VA will have commenced paying benefits for year B 
either in anticipation that income for year B is going to be the same 
as it was for year A or on the basis of anticipated income information 
for year B from the beneficiary. In either case, the situation will be 
one in which anticipated income for year B turned out to be less than 
anticipated. Therefore, the rule in 3.660(b)(1) would apply and the 
parent would have through December 31 of year C to provide evidence of 
the decreased income for year B.

5.536 Parents' dependency and indemnity compensation rates.

    Current part 3 regulations for determining the rates payable for 
parents' dependency and indemnity compensation are quite complex. 
Current Sec.  3.25 sets out a series of rules for calculating payments 
of DIC to parents. The rules vary depending upon whether there is one 
unmarried parent, one parent who has remarried, two parents living 
together, two parents not living together, two parents not living 
together one or both of whom have remarried, or a parent who is a 
patient in a nursing home or who is so helpless or blind, or so nearly 
helpless or blind, as to require the regular aid and attendance of 
another person. The rules refer regulation users to various provisions 
of 38 U.S.C. 1315 for specific rates. Together with current Sec.  
3.27(b), they note that those rates, and the annual income limitation 
for parents' DIC, are increased in step with cost-of-living increases 
in benefits under title II of the Social Security Act. (These increases 
are required by 38 U.S.C. 5312(b).) Because parents' DIC is income 
based and because 38 U.S.C. 1315 requires it, these rules also provide 
for rate reductions based on parents' income. They provide a formula 
for that reduction, but note that the formula will be recomputed when 
there is a rate increase in order to achieve ``an equitable 
distribution of the rate increase.''
    Current Sec. Sec.  3.25 and 3.27(d) together require that VA 
publish in the Federal Register the increased DIC payment rates, the 
annual income limitation increases, and the updated formulas VA uses 
for reducing DIC payments because of income. Section 3.25 also includes 
various other rules based on requirements of 38 U.S.C. 1315, such as a 
$5.00 minimum for parents' DIC payments applicable under some 
circumstances.
    These various provisions of Sec. Sec.  3.25 and 3.27 are all 
accurate, but they do not provide the information in a way that is very 
practical for regulations users who want specific information about the 
dollar amounts of rates and income limitations and the specific current 
formulas for calculating payment reductions because of income. 
Essentially, they send users to different sections of statutes and to 
announcements by the Social Security Administration to obtain data for 
performing complex calculations under different scenarios. However, as 
they also note, VA performs those calculations when there are changes 
and publishes the result in the Federal Register. For an example, see 
the rates of parents' DIC published in the Federal Register on April 7, 
2004 (69 FR 18425).
    In Sec.  5.536, we propose to take a much simpler and more 
practical approach. Proposed paragraph (a) states that VA pays DIC to 
eligible parents based upon statutory requirements and briefly 
describes the nature of the relevant statutory provisions. It also 
cross-references the regulation concerning the calculation of parents' 
DIC based on service of certain Filipino veterans. Then, in paragraph 
(b), proposed Sec.  5.536 provides that VA will use the data it 
publishes in the Federal Register in calculating parents' DIC payments. 
VA normally publishes such data within three months of the effective 
date of the legislative cost-of-living increases.
    The remainder of Sec.  5.536 provides specific rate payment rules 
based on various provisions of current Sec. Sec.  3.25, 3.251, 3.260, 
and 3.704. See the ``Table comparing current part 3 rules with proposed 
part 5 rules'' earlier in the supplementary information.

5.537 Payment intervals.

    Proposed Sec.  5.537(a) states the general rule that VA pays 
parents' DIC monthly. An exception in proposed paragraph (b) is based 
on the rule in current Sec.  3.30(e) that provides that parents' DIC 
will be paid semiannually if the amount of the annual benefit is less 
than 4 percent of the maximum allowable rate as published in the 
Notices section of the Federal Register. We propose to retain the 
exception, found in the introduction to current Sec.  3.30, that 
permits parents receiving payment semiannually to elect to receive 
payment monthly in cases in which other Federal benefits would 
otherwise be denied.

Effective Dates

5.573 Effective date for dependency and indemnity compensation rate 
adjustments when an additional survivor files an application.

    Proposed Sec.  5.573 is a revision of current Sec.  3.650(a) and 
(b) and provides general DIC rate and effective date determination 
rules. We intend no substantive changes in these provisions. We propose 
to use ``survivor'' rather than the word ``dependent,'' which is used 
in current Sec.  3.650. DIC is payable

[[Page 61339]]

to certain survivors of a veteran who may or may not have been 
financially dependent upon the veteran. See 38 U.S.C. 1310(a) 
(providing for payment of DIC to a veteran's surviving spouse, 
children, or parents). This proposed rule would fall at the end of the 
effective date rules for subpart G previously published for notice and 
comment. See 69 FR 59072 (Oct. 1, 2004).

5.574 Effective dates of awards and discontinuances of special monthly 
dependency and indemnity compensation.

    Proposed Sec.  5.574 provides effective date rules for the award 
and discontinuance of special monthly DIC benefits. Proposed Sec.  
5.574(b)(1), based on current Sec. Sec.  3.502(e)(1) and 3.504, 
provides an effective date rule for the discontinuance of special 
monthly DIC when a surviving spouse or parent is no longer in need of 
aid and attendance. The current rules refer to discontinuing special 
monthly DIC on the ``date of last payment.'' We propose to instead 
state that ``VA will discontinue special monthly DIC based upon the 
need of aid and attendance effective the first day of the month that 
follows the month for which VA last paid that benefit.'' The result is 
exactly the same, but we believe that this description will be clearer 
to VA claimants and to VA personnel who adjudicate claims. As the name 
suggests, VA pays special monthly DIC on a monthly basis. See 38 U.S.C. 
1311(c) and (d) and 1315(g). The ``last payment'' in question is the 
check for the last month in which VA paid the benefit. Benefit payments 
would therefore stop on the first day of the following month.
    We have not included in this special monthly DIC effective date 
section language in current Sec.  3.502(e)(2) which states the 
following: ``If hospitalized at Department of Veterans Affairs expense 
as a veteran, the date [of discontinuance of the aid and attendance 
allowance to a surviving spouse will be the date] specified in Sec.  
3.552(b)(1) or (3).'' We have also omitted similar language from 
current Sec.  3.504 pertaining to the discontinuance of the aid and 
attendance allowance for surviving parents. Current Sec.  3.552(b) is 
based on 38 U.S.C. 5503(c) (identified in the authority citation at the 
end of Sec.  3.552(b) under its old designation of 38 U.S.C. 5503(e)). 
The provisions of 38 U.S.C. 5503(c) only concern adjustments of special 
monthly disability compensation under various portions of 38 U.S.C. 
1114 for veterans who are in need of aid and attendance and special 
monthly pension for veterans who are in need of aid and attendance.
    We propose, in Sec.  5.574(b)(2), to provide an effective date rule 
for discontinuance of a surviving spouse's special monthly DIC award 
based on housebound status that parallels the structure of the rule for 
the discontinuance of a surviving spouse's special monthly DIC award 
based on the need for aid and attendance. ``When a surviving spouse is 
no longer housebound, VA will discontinue special monthly DIC based 
upon housebound status effective the first day of the month that 
follows the month for which VA last paid that benefit.''

Omission of Rule in 38 CFR 3.22(h)

    Current Sec.  3.22(h), based on 38 U.S.C. 1318(e), sets out a rule 
concerning the offset of certain DIC payments to a surviving spouse 
against annuity payments to that spouse under a survivor benefit plan 
applicable to survivors of members of the Armed Forces. We propose not 
to repeat that rule in part 5. The rule is accurate, but it provides no 
substantive information that is not included in the underlying statute. 
Further, the survivor benefit plan in question is not administered by 
VA. It is administered by the Department of Defense.

Endnote Regarding Amendatory Language

    We intend to ultimately remove part 3 entirely, but we are not 
including amendatory language to accomplish that at this time. VA will 
provide public notice before removing part 3.

Paperwork Reduction Act

    Proposed 38 CFR 5.500 through 5.502, which are set forth in full in 
the proposed regulatory text portion of this document, contain 
collections of information under the Paperwork Reduction Act of 1995 
(44 U.S.C. 3501-3521). These provisions prescribe the information VA 
claimants submit to prove the death of a person upon whose death their 
entitlement to various VA benefits for survivors depends. As required 
under section 3507(d) of the Act, VA has submitted a copy of this 
proposed rulemaking action to the Office of Management and Budget (OMB) 
for its review of the collection of information.
    OMB assigns control numbers to collections of information it 
approves. VA may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a 
currently valid OMB control number. Subject to OMB approval, VA 
proposes to amend the collection currently approved by OMB under 
control number 2900-0004 to include the information described in 
proposed 38 CFR 5.500 through 5.502.
    Comments on the collections of information should be submitted to 
the Office of Management and Budget, Attention: Desk Officer for the 
Department of Veterans Affairs, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Director, Regulations 
Management (00REG1), Department of Veterans Affairs, 810 Vermont 
Avenue, NW., Washington, DC 20420. Comments should indicate that they 
are submitted in response to ``RIN 2900-AL89.''
    Title: Proof of death.
    Summary of collection of information: Survivors of VA beneficiaries 
may be entitled to certain VA survivors' benefits when that beneficiary 
dies. Examples of such survivors' benefits that would be governed by 
provisions of proposed 38 CFR part 5 include benefits awarded, but 
unpaid at death, and accrued benefits under 38 U.S.C. 5121; death 
compensation under 38 U.S.C. 1121 and 1141; dependency and indemnity 
compensation under 38 U.S.C. chapter 13; and death pension under 38 
U.S.C. chapter 15. Proposed 38 CFR 5.500 through 5.502 set forth the 
various kinds of evidence that a survivor may submit to prove the 
death. VA will provide assistance in obtaining this evidence as 
provided in 38 CFR 3.159(c).
    Description of the need for information and proposed use of 
information: A basic element of entitlement to VA benefits for 
survivors is establishing the death of the person whom the claimant 
survives. VA will examine the evidence of death submitted in 
determining eligibility for claimed survivors' benefits.
    Description of likely respondents: VA survivors' benefits 
claimants.
    Estimated number of respondents: Approximately 56,865 per year.
    Estimated frequency of responses: This information is collected on 
a ``one-time'' basis.
    Estimated average burden per collection: In most cases survivors 
will have evidence of death at hand because they have gathered that 
evidence for probating estates, filing commercial life insurance 
claims, and similar purposes. Most survivors know that proof of death 
should accompany applications for VA survivors' benefits and mail 
copies of the proof of death to VA with their applications. (The 
information collections in survivor benefit applications have been 
separately approved by OMB.) VA estimates that the burden for those 
individuals will be approximately one-quarter hour for locating and 
mailing the documentation proving death they already have at

[[Page 61340]]

hand. In other cases, VA will obtain the proof of death for the 
claimant. VA is obligated under 38 CFR 3.159(c) to obtain for claimants 
records in the custody of a Federal department or agency and will make 
reasonable efforts to obtain records in the custody of other sources. 
In a relatively small number of cases claimants will need to obtain 
proof of death and provide it to VA. VA estimates that this will take 
an average of 1 hour per respondent.
    Estimated total annual reporting and recordkeeping burden: This 
information collection imposes no recordkeeping requirement. VA 
estimates that it will receive approximately 66,900 applications for VA 
survivors' benefits annually. VA estimates that it will obtain proof of 
death for approximately 15 percent of those claimants. Of the remaining 
56,865 claimants, VA estimates that approximately 90 percent, or 51,179 
claimants, will already have the information at hand and that the 
remaining 10 percent, or 5,686 claimants, will need to obtain and 
provide proof of death. The information collection burden per case is 
approximately one-quarter hour for those who have the information at 
hand, or a total of 12,795 hours. VA estimates the time necessary to 
obtain and provide proof of death in other cases will average 
approximately 1 hour, or 5,686 hours. Therefore VA estimates the total 
annual reporting burden to be 18,481 hours.
    The Department considers comments by the public on proposed 
collections of information in:
    <bullet> Evaluating whether the proposed collections of information 
are necessary for the proper performance of the functions of the 
Department, including whether the information will have practical 
utility;
    <bullet> Evaluating the accuracy of the Department's estimate of 
the burden of the proposed collections of information, including the 
validity of the methodology and assumptions used;
    <bullet> Enhancing the quality, usefulness, and clarity of the 
information to be collected; and
    <bullet> Minimizing the burden of the collections of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.
    OMB is required to make a decision concerning the proposed 
collection of information contained in this proposed rule between 30 
and 60 days after publication of this document in the Federal Register. 
Therefore, a comment to OMB is best assured of having its full effect 
if OMB receives it within 30 days of publication. This does not affect 
the deadline for the public to comment on the proposed regulations.

Regulatory Flexibility Act

    The Secretary hereby certifies that this proposed regulatory 
amendment will not have a significant economic impact on a substantial 
number of small entities as they are defined in the Regulatory 
Flexibility Act, 5 U.S.C. 601-612. This proposed amendment would not 
affect any small entities. Therefore, pursuant to 5 U.S.C. 605(b), this 
proposed amendment is exempt from the initial and final regulatory 
flexibility analysis requirements of sections 603 and 604.

Executive Order 12866

    This document has been reviewed by the Office of Management and 
Budget under Executive Order 12866.

Unfunded Mandates

    The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 
1532, that agencies prepare an assessment of anticipated costs and 
benefits before developing any rule that may result in an expenditure 
by State, local, or tribal governments, in the aggregate, or by the 
private sector of $100 million or more (adjusted annually for 
inflation) in any given year. This proposed amendment would have no 
such effect on State, local, or tribal governments, or the private 
sector.

Catalog of Federal Domestic Assistance Numbers

    The Catalog of Federal Domestic Assistance program number and title 
for this proposal is 64.110, Veterans Dependency and Indemnity 
Compensation for Service-Connected Death.

List of Subjects in 38 CFR Part 5

    Administrative practice and procedure, Claims, Disability benefits, 
Health care, Pensions, Radioactive materials, Veterans, Vietnam.

    Approved: July 13, 2005.
Gordon H. Mansfield,
Deputy Secretary of Veterans Affairs.
    For the reasons set out in the preamble, VA proposes to amend 38 
CFR chapter I by further amending subpart G of part 5, as proposed to 
be added at 69 FR 59084, October 1, 2004, as follows:

PART 5--COMPENSATION, PENSION, BURIAL, AND RELATED BENEFITS

Subpart G--Dependency and Indemnity Compensation, Accrued Benefits, 
Death Compensation Benefits, and Special Rules Applicable Upon 
Death of a Beneficiary

    1. The authority citation for subpart G of part 5 continues to read 
as follows:


    Authority: 38 U.S.C. 501(a) and as noted in specific sections.

    2. Sections 5.500 through 5.549 are added to subpart G to read as 
follows:

General Provisions

Sec.
5.500 Proof of death.
5.501 Proving death by other means.
5.502 Proving death after 7 years of continuous, unexplained 
absence.
5.503 Establishing the date of death.
5.504 Service-connected cause of death.
5.505-5.509 [Reserved]

Dependency and Indemnity Compensation--General

5.510 Dependency and indemnity compensation--basic entitlement.
5.511 Special monthly dependency and indemnity compensation.
5.512 Eligibility for death compensation or death pension instead of 
dependency and indemnity compensation.
5.513-5.519 [Reserved]

Dependency and Indemnity Compensation--Eligibility Requirements and 
Payment Rules for Surviving Spouses And Children

5.520 Dependency and indemnity compensation--time of marriage 
requirements for surviving spouses.
5.521 [Reserved]
5.522 Dependency and indemnity compensation benefits for survivors 
of certain veterans rated totally disabled at time of death--offset 
of wrongful death damages.
5.523 [Reserved]
5.524 Awards of dependency and indemnity compensation benefits to 
children when there is a retroactive award to a school child.
5.525-5.529 [Reserved]

Dependency and Indemnity Compensation--Eligibility Requirements and 
Payment Rules for Parents

5.530 Eligibility for, and payment of, parents' dependency and 
indemnity compensation.
5.531 General income rules.
5.532 Deductions from income.
5.533 Exclusions from income.
5.534 When VA counts parents' income.
5.535 Adjustments to parents' DIC when income is less than 
anticipated.
5.536 Parents' dependency and indemnity compensation rates.
5.537 Payment intervals.
5.538-5.549 [Reserved]

[[Page 61341]]

General Provisions


Sec.  5.500  Proof of death.

    (a) Purpose and application.--(1) This section describes evidence 
VA will accept to prove that a person has died in cases where the death 
of the person is relevant to eligibility for a VA benefit. It covers 
the most common situations. Sections 5.501, ``Proving death by other 
means,'' and 5.502, ``Proving death after 7 years of continuous, 
unexplained absence,'' apply where the evidence described in this 
section is not available.
    (2) Where more than one paragraph of this section applies, VA will 
accept the evidence described in any relevant paragraph as proof of 
death. For example, if the person died in a U.S. Government hospital 
located within a State, VA would accept the evidence establishing death 
specified in either paragraph (b) or (d) of this section.
    (b) Deaths occurring within a State. Death occurring within a State 
may be established by: (1) A copy of the public record of the State or 
community where death occurred, or
    (2) A copy of a coroner's report of death, or of a verdict of a 
coroner's jury, from the State or community where death occurred, 
provided the report or verdict properly identifies the deceased.
    (c) Deaths occurring abroad. Death occurring abroad may be 
established by:
    (1) A U.S. consular report of death bearing the signature and seal 
of the U.S. consul,
    (2) A copy of the public record of death authenticated by the U.S. 
consul or other agency of the State Department or which is exempt from 
such authentication as provided in Sec.  3.202(b)(4) of this chapter 
(concerning certain copies of public or church records), or
    (3) An official report of death of a civilian employee of the U.S. 
Government from the employing U.S. Government entity.
    (d) Deaths at institutions under the control of the U.S. 
Government. Death occurring in a hospital or other institution under 
the control of the U.S. Government may be established by:
    (1) A death certificate signed by a medical officer, or
    (2) A clinical summary, or other report, signed by a medical 
officer showing the fact and date of death.
    (e) Deaths of members of the uniformed services. The death of a 
member of the uniformed services may be established by an official 
report of the death from the uniformed service concerned.

(Authority: 38 U.S.C. 501(a)(1))


Sec.  5.501  Proving death by other means.

    (a) Applicability. This section and Sec.  5.502, ``Proving death 
after 7 years of continuous, unexplained absence,'' describe methods of 
proving that a person has died if the death of that person is relevant 
to eligibility for a VA benefit and the evidence described in Sec.  
5.500, ``Proof of death,'' is not available.
    (b) Required statement. A claimant seeking to establish the fact of 
death under this section must submit a statement explaining why none of 
the evidence described in Sec.  5.500 is available.
    (c) Affidavits or certified statements of witnesses who viewed the 
body. The fact of death may be established by the affidavit or 
certified statement of one or more persons who have personal knowledge 
of the fact of death, have viewed the body of the deceased, and know it 
to be the body of the person whose death is being alleged. These 
affidavits or statements should describe all the facts and 
circumstances known concerning the death, including the place, date, 
time, and cause of death.
    (d) Other methods of establishing death. If the claimant cannot 
furnish the affidavits or certified statements described in paragraph 
(c) of this section, the fact of death may be established by one of the 
following:
    (1) U.S. Government agency finding. In the absence of evidence to 
the contrary, VA will accept a finding of the fact of death by another 
U.S. Government agency.
    (2) Body not recovered or not identifiable. If circumstances 
preclude recovery or identification of the body of the deceased, the 
fact of death may be established by the claimant's affidavit or 
certified statement setting forth the circumstances under which the 
missing person was last seen and the known facts which led the claimant 
to believe that death has occurred and one of the following, as 
applicable:
    (i) The affidavits or certified statements of persons who witnessed 
the event in which the missing person is alleged to have perished, 
describing the event and, if applicable, why they believe the missing 
person perished in the event, or
    (ii) If the testimony of eyewitnesses is not obtainable, the 
affidavits or certified statements of persons who have the most 
reliable information available concerning why the missing person is 
believed to have been at the event in which the missing person is 
alleged to have perished, why the missing person was in imminent peril 
at the time the event occurred, and the basis on which they concluded 
that death was caused by the event.
    (3) Finding of fact of death by authorized VA official. An 
authorized VA official may make a finding of the fact of death where 
death is shown by competent evidence. See Sec.  3.100(a) of this 
chapter (concerning delegation of authority to make findings and 
decisions concerning entitlement to VA benefits).

(Authority: 38 U.S.C. 501(a)(1))

Sec.  5.502  Proving death after 7 years of continuous, unexplained 
absence.

    (a) Evidence required. A claimant seeking to establish the death of 
a person who has been absent for 7 years, where death is not 
established with documentary evidence described in Sec.  5.500, ``Proof 
of death,'' or Sec.  5.501, ``Proving death by other means,'' must 
produce competent, credible evidence to show that:
    (1) The person has been continuously absent from home and family 
for at least 7 years without explanation; and
    (2) A diligent search disclosed no evidence of the person's 
continued existence after the disappearance.
    (b) Finding of death conclusive. A finding of death under this 
section will be conclusive and final for the purposes of laws 
administered by VA except where suit is filed for insurance under 38 
U.S.C. 1984, ``Suits on insurance.''
    (c) Impact of findings of death made by other entities.--(1) State 
laws that provide for presumption of death are not applicable to claims 
for VA benefits and may not be used to establish death under this 
section.
    (2) A finding of death by another Federal agency meeting the 
criteria described in paragraphs (a)(1) and (2) of this section is 
acceptable for VA purposes if there is no credible evidence to the 
contrary.

(Authority: 38 U.S.C. 108, 501(a)(1))

Sec.  5.503  Establishing the date of death.

    (a) Applicability. This section applies when the fact of death is 
established under Sec. Sec.  5.500 through 5.502, but the exact date of 
death is uncertain.
    (b) Date of death in cases involving a continuous, unexplained 
absence of seven years or more. When the fact of death is established 
under Sec.  5.502, ``Proving death after 7 years of continuous, 
unexplained absence,'' the date of death for purposes of the laws 
administered by VA is seven years after the date the person was last 
known to be alive.
    (c) Date of death in other cases. If the fact of death is 
established by the evidence described in Sec.  5.500, ``Proof of 
death,'' or Sec.  5.501, ``Proving death by

[[Page 61342]]

other means,'' VA will determine the date of death for purposes of the 
laws administered by VA by considering all of the known facts and 
circumstances surrounding the death, including the condition of the 
body when found and any estimate of the date of death provided by a 
coroner or other official within the scope of that official's duties. 
If no identifiable body is found, the date of death will be presumed to 
be the date the deceased was last known to be alive in the absence of 
evidence to the contrary.

(Authority: 38 U.S.C. 108, 501(a))

Sec.  5.504  Service-connected cause of death.

    (a) Purpose. Eligibility for several VA benefits for a veteran's 
survivors requires that the veteran's death be service connected. This 
section provides the rules VA uses to determine whether a veteran's 
death is service connected.
    (b) Definition of service-connected disability--(1) General. For 
purposes of this section, ``service-connected disability'' means:
    (i) Except as provided in paragraph (b)(2) of this section, a 
disability that was service connected at the time of the veteran's 
death, or
    (ii) A disability that is service connectable under the provisions 
of subpart E of this part, ``Claims for service connection and 
disability compensation.'' For purposes of this section, VA will deem a 
sudden death in service from trauma to have been preceded by disability 
from the trauma.
    (2) Exception. For purposes of this section, ``service-connected 
disability'' does not include a disability that was service connected 
at the time of the veteran's death if the law in effect at the time of 
a survivor's claim precludes VA from establishing service connection 
for the cause of the veteran's death. See Sec.  3.300 of this chapter, 
``Claims based on the effects of tobacco products,'' and Sec.  3.301(d) 
of this chapter ``Line of duty; abuse of alcohol or drugs.''
    (c) Determining whether a veteran's death is service connected. A 
veteran's death is service connected if death resulted from a service-
connected disability. Death resulted from a service-connected 
disability if the service-connected disability produced death or 
hastened death, as provided in the following paragraphs:
    (1) Service-connected disability produces death. A service-
connected disability is the cause of death if a single service-
connected disability, or the combined effect of multiple service-
connected disabilities, is such that death would not have occurred in 
the absence of the disability, or disabilities. If two or more 
disabilities were present at the time of death, only one of which was 
service connected or service connectable, and each disability by itself 
was sufficient to bring about death, VA will grant service connection 
for the cause of the veteran's death.
    (2) Service-connected disability hastens death. VA will grant 
service connection for the cause of death if competent medical evidence 
shows that a service-connected disability, or the combined effect of 
multiple service-connected disabilities, was so debilitating as to 
materially hasten death from nonservice-connected causes. VA will 
presume such debilitation where a service-connected disability affected 
a vital organ and was evaluated as 100 percent disabling under the 
Schedule for Rating Disabilities in part 4 of this chapter at the time 
of the veteran's death. For purposes of this paragraph, vital organs 
are those organs necessary to sustain life, including the heart, lungs, 
central nervous system, liver, and kidneys.

(Authority: 38 U.S.C. 101(16), 501(a), 1121, 1141, 1310)

Sec. Sec.  5.505-5.509  [Reserved]

Dependency and Indemnity Compensation--General


Sec.  5.510  Dependency and indemnity compensation--basic entitlement.

    (a) Definition. Dependency and indemnity compensation (DIC) is a 
monthly VA payment to a veteran's surviving spouse, child, and/or 
parent based on the veteran's death. The surviving relative must be 
otherwise qualified and meet the entitlement criteria provided in this 
section.
    (b) Bases for entitlement. There are three ways in which an 
otherwise qualified survivor may become entitled to DIC:
    (1) Service-connected death--38 U.S.C. 1310. (i) VA will grant DIC 
to the qualified survivors of a veteran when it determines that the 
cause of the veteran's death, whether occurring during or after 
service, is service connected. See 38 U.S.C. 1310, ``Deaths entitling 
survivors to dependency and indemnity compensation,'' and Sec.  5.504, 
``Service-connected cause of death.''
    (ii) DIC is not payable unless the service-connected death occurred 
after December 31, 1956, except in the case of certain individuals 
receiving or eligible to receive death compensation who elect to 
receive DIC in lieu of death compensation. See Sec.  3.702 of this 
chapter, ``Dependency and indemnity compensation.''
    (2) Veterans with a service-connected disability rated as totally 
disabling at the time of death--38 U.S.C. 1318. VA will grant DIC to 
the qualified survivors of a veteran rated totally disabled due to 
service-connected disability for a specified period of time at the time 
of death, in the same manner as if the veteran's death were service 
connected. See Sec.  3.22 of this chapter, ``DIC benefits for survivors 
of certain veterans rated totally disabled at time of death,'' and 38 
U.S.C. 1318, ``Benefits for survivors of certain veterans rated totally 
disabled at time of death.''
    (3) Veterans whose death was due to certain VA-furnished medical, 
training, compensated work therapy, or rehabilitation services--38 
U.S.C. 1151. VA will grant DIC to the qualified survivors of a veteran 
whose death was caused by VA-furnished hospital care, medical or 
surgical treatment, medical examination, training and rehabilitation 
services, or participation in a compensated work therapy program, in 
the same manner as if the veteran's death were service connected. See 
Sec. Sec.  3.358, 3.361 and 3.800 of this chapter and 38 U.S.C. 1151, 
``Benefits for persons disabled by treatment or vocational 
rehabilitation.''
    (c) Certain Federal Employees' Group Life Insurance beneficiaries 
ineligible. VA cannot pay DIC to any surviving spouse, child or parent 
based on the death of a commissioned officer of the Public Health 
Service, the Coast and Geodetic Survey, the Environmental Science 
Services Administration, or the National Oceanic and Atmospheric 
Administration occurring after April 30, 1957, if any amounts are 
payable based on the same death under the Federal Employees' Group Life 
Insurance Act of 1954 (Pub. L. 598, 83d Cong., as amended).
    (d) Special rules for parents' DIC. The basis of entitlement 
described in paragraph (b)(2) of this section does not apply to 
parents' DIC and payment of parents' DIC is subject to income 
limitations. See Sec. Sec.  5.530 through 5.537 for special eligibility 
and payment rules for parents' DIC.

(Authority: 38 U.S.C. 101(14), 1151, 1304, 1310, 1315, 1318; Sec. 
501(c)(2), Pub. L. 84-881, 70 Stat. 857, as amended by Sec. 13(u), 
Pub. L. 85-857, 72 Stat. 1266; Sec. 5, Pub. L. 91-621, 84 Stat. 
1863)

Sec.  5.511  Special monthly dependency and indemnity compensation.

    (a) Entitlement based on need for regular aid and attendance. A 
surviving spouse or parent in receipt of dependency and indemnity 
compensation (DIC) is entitled to special monthly DIC benefits if he or 
she is helpless, or so nearly helpless as to need the regular aid and 
attendance of another person. Among other factors,

[[Page 61343]]

VA considers the presence of conditions listed in Sec.  3.352(a) of 
this chapter when determining whether a person demonstrates this degree 
of helplessness.
    (b) Automatic entitlement. VA will automatically consider a person 
to be in need of regular aid and attendance, without having to 
demonstrate the degree of helplessness described in paragraph (a) of 
this section, if the person:
    (1) Is blind or so nearly blind as to have corrected visual acuity 
of 5/200 or less in both eyes;
    (2) Has concentric contraction of the visual field in both eyes to 
5 degrees or less; or
    (3) Is a patient in a nursing home because of mental or physical 
incapacity.
    (c) Entitlement based on permanent housebound status--surviving 
spouse. A surviving spouse who does not qualify for special monthly DIC 
based on need for regular aid and attendance, as provided in paragraphs 
(a) and (b) of this section, is entitled to special monthly DIC if he 
or she is permanently housebound. A surviving spouse will be considered 
permanently housebound if substantially confined to his or her home 
(ward or clinical areas, if institutionalized) or immediate premises 
because of a disability or disabilities and it is reasonably certain 
that such disability or disabilities will remain throughout the 
surviving spouse's lifetime.

(Authority: 38 U.S.C. 1311(c), (d), 1315(g))

Sec.  5.512  Eligibility for death compensation or death pension 
instead of dependency and indemnity compensation.

    (a) General rule. Subject to paragraph (b) of this section, VA will 
not pay death compensation or death pension to any person eligible for 
dependency and indemnity compensation (DIC) based upon a death 
occurring after December 31, 1956.
    (b) Right of spouse to elect death pension. A surviving spouse 
eligible for DIC may elect to receive death pension instead of DIC. For 
effective date information, see Sec.  3.400(j)(1) of this chapter.

(Authority: 38 U.S.C. 1317)

Sec. Sec.  5.513-5.519  [Reserved]

Dependency and Indemnity Compensation--Eligibility Requirements and 
Payment Rules for Surviving Spouses and Children


Sec.  5.520  Dependency and indemnity compensation--time of marriage 
requirements for surviving spouses.

    (a) Purpose. In addition to meeting the marriage requirements 
necessary to qualify as a surviving spouse, as defined at Sec.  3.50 of 
this chapter, a surviving spouse must meet certain requirements 
concerning the time of his or her marriage to the veteran in order to 
qualify for dependency and indemnity compensation (DIC). This section 
sets out those requirements.
    (b) Time of marriage requirements--(1) Surviving spouse eligible 
under Sec.  5.510(b)(1) or (b)(3). A surviving spouse meets the time of 
marriage requirements for DIC under the bases for eligibility set out 
in Sec.  5.510(b)(1), ``Service-connected death--38 U.S.C. 1310'' or 
(b)(3), ``Veterans whose death was due to certain VA-furnished medical, 
training, compensated work therapy, or rehabilitation services--38 
U.S.C. 1151,'' if his or her marriage to the veteran meets any of the 
following criteria:
    (i) The surviving spouse married the veteran before or during the 
veteran's military service.
    (ii) The surviving spouse was married to the veteran for one year 
or more. Multiple periods of marriage may be added together to meet the 
1-year marriage requirement.
    (iii) The surviving spouse was married to the veteran for any 
length of time and a child was born of the marriage or before the 
marriage. See Sec.  3.54(d) of this chapter, ``Child born.''
    (iv) The surviving spouse married the veteran within 15 years of 
the date of termination of the period of service in which the injury or 
disease causing the veteran's death was incurred or aggravated. For 
purposes of this paragraph, ``period of service'' means a period of 
active military service from which the veteran was discharged under 
conditions other than dishonorable. If the surviving spouse has been 
married to the veteran more than once, see Sec.  3.54(e) of this 
chapter, ``More than one marriage to veteran.''
    (2) Surviving spouse eligible under Sec.  5.510(b)(2). A surviving 
spouse meets the time of marriage requirements for DIC under the basis 
for eligibility set out in Sec.  5.510(b)(2), ``Veterans with a 
service-connected disability rated as totally disabling at the time of 
death--38 U.S.C. 1318,'' if his or her marriage to the veteran meets 
any of the following criteria:
    (i) The surviving spouse was married to the veteran continuously 
for one year or more immediately preceding the veteran's death.
    (ii) The surviving spouse was married to the veteran for any length 
of time and a child was born of the marriage or before the marriage. 
See Sec.  3.54(d) of this chapter, ``Child born.''

(Authority: 38 U.S.C. 1151, 1304, 1310, 1318)

Sec.  5.521  [Reserved]


Sec.  5.522  Dependency and indemnity compensation benefits for 
survivors of certain veterans rated totally disabled at time of death--
offset of wrongful death damages.

    (a) Applicability. This section applies when a surviving spouse or 
child:
    (1) Is eligible for dependency and indemnity compensation (DIC) on 
the basis described in Sec.  5.510(b)(2), ``Veterans with a service-
connected disability rated as totally disabling at the time of death--
38 U.S.C. 1318,'' and
    (2) Receives any money or property of value pursuant to an award in 
a judicial proceeding based upon, or a settlement or compromise of, any 
cause of action for damages for the wrongful death of the veteran whose 
death is the basis for such VA benefits.
    (b) Offset. VA will not pay DIC on the basis described in Sec.  
5.510(b)(2) for any month following a month in which the beneficiary 
receives money or property described in paragraph (a)(2) of this 
section until the total amount of such DIC benefits that would 
otherwise have been payable equals the total of the amount of such 
money and/or value of such property. This paragraph does not apply to 
DIC benefits payable under this section for any period preceding the 
end of the month in which such money or property was received.
    (c) Amount of offset. The following rules apply when calculating 
the amount to be offset in DIC cases:
    (1) The amount to be offset includes damages typically recoverable 
under wrongful death statutes, such as reimbursement for the loss of 
support, services, and other contributions, which the surviving spouse 
or child would have received if the veteran had lived and, where 
allowed, reimbursement for pain, suffering or mental anguish of the 
survivors due to death. Damages recoverable as compensation for 
injuries suffered by, or economic loss sustained by, the veteran prior 
to death such as wages lost prior to death, medical expenses, and 
compensation for the veteran's pain and suffering prior to death are 
excluded.

[[Page 61344]]

    (2) The amount to be offset includes amounts paid to a third party 
to satisfy a legal obligation of the surviving spouse or child. This 
includes the payment of the claimant's proportional share of attorney's 
fees, court costs, and other expenses incident to the civil claim.
    (3) The amount to be offset excludes money or property payable to a 
person or entity other than the spouse or child under the terms of the 
judgment, settlement, or compromise agreement unless the spouse or 
child receives the benefit of such a payment. For example, wrongful 
death damages paid to a veteran's estate or into a trust or similar 
arrangement will be included in the amount to be offset to the extent 
that they are distributed to, or available for the use and benefit of, 
the surviving spouse or child.
    (4) The amount to be offset excludes benefits received under Social 
Security or worker's compensation even though such benefits may have 
been awarded in a judicial proceeding.
    (5) The value of property received is that property's fair market 
value at the time it is received by the claimant.
    (d) Beneficiary's duty to report receipt of money or property. Any 
person entitled to DIC on the basis described in Sec.  5.510(b)(2), 
``Veterans with a service-connected disability rated as totally 
disabling at the time of death--38 U.S.C. 1318,'' must promptly report 
to VA the receipt of any money or property described in paragraph 
(a)(2) of this section. This obligation may be satisfied by providing 
VA a copy of the judgment, settlement agreement, or compromise 
agreement awarding the money or property. Overpayments created by 
failure to report will be subject to recovery if not waived.

(Authority: 38 U.S.C. 1318(d))

Sec.  5.523  [Reserved]


Sec.  5.524  Awards of dependency and indemnity compensation benefits 
to children when there is a retroactive award to a school child.

    (a) Applicability. Dependency and indemnity compensation (DIC) is 
payable to eligible children when there is no surviving spouse entitled 
to DIC. The total amount payable to the children, which varies 
according to the number of children, is divided and paid to the 
children in equal shares. This section states an exception that applies 
when all of the following conditions are met:
    (1) DIC is being paid to one or more children;
    (2) DIC was previously paid to an additional child, but that 
child's DIC was discontinued because he or she reached 18 years of age;
    (3) That additional child has reestablished entitlement to DIC 
because he or she is attending an approved educational institution; and
    (4) The effective date of the additional child's reestablished 
entitlement is prior to the date VA received the application to 
reestablish entitlement.
    (b) Award to the additional child--(1) Retroactive payment. The 
payment to the additional child for the period extending from the 
payment commencement date of the award to the additional child through 
the month that award was approved is equal to the difference between 
the total amount payable for all children, including the additional 
child, during that period and the total amount paid to the other 
children during that period. If more than one child reestablishes 
entitlement as described in paragraph (a) of this section, the 
retroactive award will be paid to each such child in equal shares.
    (2) Payment commencement date for full equal share. The payment 
commencement date for the full equal share of DIC to the additional 
child, or additional children, is the first of the month following the 
month VA approved his or her reestablished DIC award.
    (c) Effective date of payment of reduced shares to the other 
children. The running awards to the other children will be reduced to 
the amount of their new equal shares effective the first of the month 
following the month VA approved the award of reestablished DIC to the 
additional child.

(Authority: 38 U.S.C. 1313(b), 5110(e), 5111)


    Cross-references: See also Sec.  3.31 of this chapter, 
``Commencement of the period of payment,'' and Sec.  3.667 of this 
chapter, ``School attendance.''


Sec. Sec.  5.525-5.529  [Reserved]

Dependency and Indemnity Compensation--Eligibility Requirements and 
Payment Rules for Parents


Sec.  5.530  Eligibility for, and payment of, parents' dependency and 
indemnity compensation.

    (a) Basic eligibility. A veteran's surviving parents may receive 
dependency and indemnity compensation (DIC) on the basis described in 
Sec.  5.510(b)(1), ``Service-connected death--38 U.S.C. 1310,'' and 
Sec.  5.510(b)(3), ``Veterans whose death was due to certain VA-
furnished medical, training, compensated work therapy, or 
rehabilitation services--38 U.S.C. 1151.'' DIC is not payable to 
parents on the basis described in Sec.  5.510(b)(2), ``Veterans with a 
service-connected disability rated as totally disabling at the time of 
death-- 38 U.S.C. 1318.''
    (b) Parents' DIC is income based. Unlike DIC benefits for a 
surviving spouse and children, the amount of parents' DIC payable is 
adjusted based on parents' income and DIC is not payable to parents 
whose income exceeds statutory limits. Sections 5.531 through 5.537 
provide income and payment rules.
    (c) Net worth not considered. Net worth is not a factor in 
determining entitlement to parents' DIC or the amount of parents' DIC 
payable.

(Authority: 38 U.S.C. 501(a), 1151, 1310, 1318, 1315)

Sec.  5.531  General income rules.

    (a) All payments included in income. All payments of any kind from 
any source are counted in determining the income of a veteran's 
parents, except as provided in Sec.  5.533, ``Exclusions from income.''
    (b) Payments--(1) What is included. For purposes of this section, 
``payments'' are cash and cash equivalents (such as checks and other 
negotiable instruments) and the fair market value of personal services, 
goods, or room and board a parent receives from someone else in lieu of 
other forms of payment.
    (2) What is not included. ``Payments'' do not include any of the 
following:
    (i) The value of a parent's use of his or her own property, such as 
the rental value of a home a parent owns and lives in.
    (ii) Dividends on commercial insurance policies.
    (iii) Retirement benefits from the following sources (or to the 
following persons), if the benefits have been waived pursuant to 
Federal statute:
    (A) Civil Service Retirement and Disability Fund;
    (B) Railroad Retirement Board;
    (C) District of Columbia, firemen, policemen, or public school 
teachers;
    (D) Former United States Lighthouse Service.
    (c) Spousal income combined. Income for parents' dependency and 
indemnity compensation purposes is the combined income of a parent and 
the parent's spouse, unless the marriage has been terminated or the 
parent is separated from his or her spouse. Income is combined whether 
the parent's spouse is the veteran's other surviving parent or the 
veteran's stepparent. See also Sec.  5.534(c) (concerning how much of 
the spouse's income to count for the year of remarriage).

[[Page 61345]]

    (d) Income-producing property--(1) Scope. This paragraph (d) 
provides rules for determining whether income from property should be 
counted as a parent's income. The provisions of this paragraph (d) 
apply to all property, real or personal, in which a parent has an 
interest, whether acquired through purchase, bequest or inheritance.
    (2) Proof of ownership. In determining whether to count income from 
real or personal property, VA will consider the terms of the recorded 
deed or other evidence of title. However, VA will accept the claimant's 
statement concerning the terms of ownership in the absence of evidence 
to the contrary.
    (3) Transfer of ownership with retention of income. If a parent 
transfers ownership of property to another person or legal entity, but 
retains the right to income, the income will be counted.
    (4) Income from jointly owned property. In the absence of evidence 
showing otherwise, VA will consider a parent who owns property jointly 
with others, including partnership property, to be entitled to a share 
of the income from that property proportionate to the parent's share of 
ownership. VA will accept the claimant's statement concerning the terms 
of ownership in the absence of evidence to the contrary.
    (e) Procedure when income amounts are uncertain--deferred 
determinations. When a parent is uncertain about the amount of income 
the parent will receive during a calendar year, VA will calculate 
dependency and indemnity payments for that calendar year using the 
highest amount of income the parent estimates, or VA's best estimate of 
income if the parent's estimate appears to be unrealistically low in 
light of the parent's past income and current circumstances. VA will 
adjust benefits, or pay benefits, when actual total income for the year 
is determined. See also Sec.  5.535, ``Adjustments to parents' DIC when 
income is less than anticipated.''

(Authority: 38 U.S.C. 1315(f))

Sec.  5.532  Deductions from income.

    (a) Expenses of a business or profession. Necessary business 
operating expenses are deductible from gross income from a business or 
profession. Examples include the cost of goods sold and payments for 
rent, taxes, upkeep, repairs, and replacements. Depreciation is not a 
deductible expense. Losses sustained in operating a business or 
profession may not be deducted from income from any other source. For 
purposes of this section, ``business'' includes the operation of a farm 
and transactions involving investment property.
    (b) Expenses associated with disability, accident, or health 
insurance recoveries. Medical, legal, or other expenses incident to the 
insured disability are deductible from sums recovered under disability, 
accident, or health insurance. However, if medical expenses are 
deducted under this paragraph, they cannot be deducted as unusual 
medical expenses under paragraph (d) of this section.
    (c) Expenses of a deceased spouse or of the deceased veteran--(1) 
Deceased spouse. Amounts a parent pays for the following expenses of a 
deceased spouse are deductible:
    (i) A deceased spouse's just debts, excluding debts secured by real 
or personal property.
    (ii) The expenses of the spouse's last illness and burial to the 
extent such expenses are not reimbursed by VA under 38 U.S.C. chapter 
23 (see subpart J of this part concerning VA burial benefits) or 38 
U.S.C. chapter 51 (see Sec.  5.551(e) concerning the use of accrued 
benefits to reimburse the person who bore the expense of a deceased 
beneficiary's last sickness or burial).
    (2) Deceased veteran. Amounts a parent pays for the expenses of the 
veteran's last illness and burial are deductible to the extent that 
such expenses are not reimbursed by VA under 38 U.S.C. chapter 23 (see 
subpart J of this part concerning VA burial benefits).
    (3) When expenses are deducted. Expenses deductible under this 
paragraph (c) are deductible for the year in which they were paid. 
However, if such expenses were paid during the year following the year 
the veteran or spouse died, the expenses may be deducted for the year 
the expenses were paid or the year of death, whichever is to the 
parent's advantage.
    (4) Proof of expenses. VA will accept as proof of expenses 
deductible under this paragraph (c) a claimant's statement as to the 
amount and nature of each expense, the date of payment, and the 
identity of the creditor unless the circumstances create doubt as to 
the credibility of the statement.
    (d) Unusual medical expenses--(1) Applicability--(i) Family 
members. For purposes of determining whose medical expenses are 
deductible, a family member is a relative of the parent or parent's 
spouse who is a member of the household of the parent or parent's 
spouse whom the parent or parent's spouse has a moral or legal 
obligation to support. This includes a relative who would normally be a 
resident of the household, but who is physically absent due to unusual 
or unavoidable circumstances, such as a child away at school or a 
family member confined to a nursing home.
    (ii) Medical expenses. See [regulation that will be published in a 
future Notice of Proposed Rulemaking] (defining medical expenses).
    (iii) Unusual medical expenses. For purposes of this section, 
``unusual medical expenses'' means unreimbursed medical expenses above 
five percent of annual income. If annual income includes retirement 
plan income, the five percent will be calculated prior to deduction of 
the ten percent exclusion under Sec.  5.533(g), ``Ten percent of income 
from retirement plans and similar plans and programs.''
    (2) Expenses of parent and parent's family members. Amounts paid by 
a parent for his or her own unusual medical expenses and those of 
family members are deductible.
    (3) Expenses of spouse and spouse's family members. The deduction 
includes the unusual medical expenses of the spouse and the spouse's 
family members if the combined annual income of the parent and the 
parent's spouse is the basis for calculating income.
    (4) When expenses are deducted. VA will deduct unusual medical 
expenses from income for the calendar year in which they were paid 
regardless of when the expenses were incurred.
    (5) Proof of expenses. VA will accept the claimant's statement as 
to the amount and nature of each medical expense, the date of payment, 
and the identity of the creditor unless the circumstances create doubt 
as to the credibility of the statement.
    (6) Estimates of expenses for future benefit periods. For the 
purpose of authorizing prospective payment of benefits, VA may accept a 
claimant's estimate of future medical expenses based on a clear and 
reasonable expectation that unusual medical expenditure will be 
incurred. VA will adjust an award based on such an estimate upon 
receipt of an amended estimate or upon receipt of an eligibility 
verification report. See also Sec.  3.256 of this chapter (concerning 
requirements for eligibility verification reports).
    (e) Certain salary deductions not deductible for determining 
income. For purposes of determining a parent's income, a salary may not 
be reduced by the amount of deductions made under a retirement act or 
plan or for income tax withholding.

(Authority: 38 U.S.C. 1315(f))

Sec.  5.533  Exclusions from income.

    VA will not count payments from the following sources when 
calculating

[[Page 61346]]

parents' income for dependency and indemnity compensation purposes:
    (a) Death gratuity. Death gratuity payments by the Secretary 
concerned under 10 U.S.C. 1475 through 1480. This includes death 
gratuity payments in lieu of payments under 10 U.S.C. 1478 made to 
certain survivors of Persian Gulf conflict veterans authorized by sec. 
307, Pub. L. 102-25, 105 Stat. 82.
    (b) Donations received. Donations from public or private relief or 
welfare organizations, including the following:
    (1) The value of maintenance furnished by a relative, friend, or a 
civic or governmental charitable organization, including money paid to 
an institution for the care of the parent due to impaired health or 
advanced age.
    (2) Benefits received under noncontributory programs, such as 
Supplemental Security Income payments.
    (c) Certain VA benefit payments. The following VA benefit payments:
    (1) Payments under 38 U.S.C. chapter 11, ``Compensation for 
Service-Connected Disability or Death.''
    (2) Payments under 38 U.S.C. chapter 13, ``Dependency and Indemnity 
Compensation for Service-Connected Death.'' However, payments under 38 
U.S.C. 1312(a), described in Sec.  3.804 of this chapter, are counted 
as income.
    (3) Nonservice-connected VA disability and death pension payments.
    (4) VA benefit payments listed in [regulation that will be 
published in a future Notice of Proposed Rulemaking].
    (d) Certain life insurance payments. Payments under policies of 
Servicemembers' Group Life Insurance, United States Government Life 
Insurance, or National Service Life Insurance.
    (e) Social Security death payments. Lump-sum death payments under 
title II of the Social Security Act.
    (f) State service bonuses. Payments of a bonus or similar cash 
gratuity by any State based upon service in the Armed Forces.
    (g) Ten percent of income from retirement plans and similar plans 
and programs. Ten percent of the amount of payments to an individual 
under public or private retirement, annuity, endowment, or similar 
plans or programs is not counted. This includes payments for:
    (1) Annuities or endowments paid under a Federal, State, municipal, 
or private business or industrial plan.
    (2) Old age and survivor's insurance and disability insurance under 
title II of the Social Security Act.
    (3) Retirement benefits received from the Railroad Retirement 
Board.
    (4) Payments for permanent and total disability or death received 
from the Office of Workers' Compensation Programs of the U.S. 
Department of Labor, the Social Security Administration, or the 
Railroad Retirement Board, or pursuant to any worker's compensation or 
employer's liability statute, including damages collected incident to a 
tort suit under employer's liability law of the United States or a 
political subdivision of the United States. This ten-percent exclusion 
applies after the income from the specified payments is reduced by the 
deductions described in Sec.  5.532(b), ``Expenses associated with 
disability, accident, or health insurance recoveries.''
    (5) The proceeds of a commercial annuity, endowment, or life 
insurance.
    (6) The proceeds of disability, accident or health insurance. This 
ten-percent exclusion applies after the income from the specified 
payments is reduced by the deductions described in Sec.  5.532(b), 
``Expenses associated with disability, accident, or health insurance 
recoveries.''
    (h) Casualty loss reimbursement. Reimbursements of any kind for any 
casualty loss are not counted, but only up to the greater of the fair 
market value or the reasonable replacement value of the property 
involved immediately preceding the loss. For purposes of this section, 
a ``casualty loss'' is the complete or partial destruction of property 
resulting from an identifiable event of a sudden, unexpected or unusual 
nature.
    (i) Profit from sale of non-business property.--(1) Profit realized 
from the sale of real or personal property other than in the course of 
a business. However, any amounts received in excess of the sale price, 
such as interest payments, will be counted as income.
    (2) If payments are received in installments, the sums received 
(including principal and interest) will be excluded until the parent 
has received an amount equal to the sale price. Any amounts received 
after the sale price has been recovered will be counted as income.
    (j) Payment for civic obligations. Payments received for discharge 
of jury duty or other obligatory civic duties.
    (k) Radiation Exposure Compensation Act payments. Payments under 
Section 6 of the Radiation Exposure Compensation Act of 1990.

(Authority: 42 U.S.C. 2210 (note))


    (l) Ricky Ray Hemophilia Relief Fund payments. Payments under 
section 103(c)(1) of the Ricky Ray Hemophilia Relief Fund Act of 1998.

(Authority: 42 U.S.C. 300c-22 (note))


    (m) Energy Employees Occupational Illness Compensation Program 
payments. Payments under the Energy Employees Occupational Illness 
Compensation Program.

(Authority: 42 U.S.C. 7385e(2))


    (n) Payments to Aleuts. Payments to certain eligible Aleuts under 
50 U.S.C. Appx. 1989c-5.

(Authority: 50 U.S.C. Appx. 1989c-5(d)(2))


    (o) Increased inventory value of a business. The value of an 
increase of stock inventory of a business.
    (p) Employer contributions. An employer's contributions to health 
and hospitalization plans for either an active or retired employee.
    (q) Other payments. Other payments listed in [regulation that will 
be published in a future Notice of Proposed Rulemaking].

(Authority: 38 U.S.C. 1315(f))

Sec.  5.534  When VA counts parents' income.

    (a) General rules--(1) VA counts income for parents' dependency and 
indemnity compensation (DIC) purposes on a calendar year basis.
    (2) The calendar year for which VA will count income is the 
calendar year in which the parent received the income, or anticipates 
receiving it.
    (3) VA will count parents' total income for the full calendar year 
except as provided in this section.
    (b) Exception for first awards and awards following a period of no 
entitlement--proportionate annual income--(1) When used. VA will use 
proportionate annual income for the first award of parents' DIC, or for 
resuming payments on an award of parents' DIC which was discontinued 
for a reason other than excess income or a change in marital or 
dependency status, if it is to the parents' advantage. Otherwise, VA 
will base the award on the parent's actual total annual income for the 
entire calendar year.
    (2) Proportionate annual income calculation. A proportionate annual 
income calculation disregards income received, and expenses paid, prior 
to the effective date of an initial award of parents' DIC, or prior to 
the effective date of an award that follows a period of no entitlement 
for a reason other than excess income or a change in marital or 
dependency status. In performing a proportionate annual income 
calculation, VA first determines what the parents' income was for the 
portion of the calendar year from the effective date of the award of 
parents' DIC to the end of the calendar year. VA then calculates what 
annual income would

[[Page 61347]]

have been if income had been received at the same rate for the entire 
calendar year.
    (3) How VA computes proportionate annual income. VA will use the 
following steps in making the proportionate annual income calculation, 
rounding the result only at the final step.
    (i) Determine income from the effective date of the award of 
parents' DIC to the end of the calendar year, disregarding income 
received and expenses paid before the effective date of the award.
    (ii) Divide the result by the number of days from the effective 
date of the award of parents' DIC to the end of the calendar year.
    (iii) Multiply that result by 365. This result, rounded down to the 
nearest dollar, is the proportionate annual income.
    (c) Exception for an increase in income because of a parent's 
marriage. If a parent marries during the applicable calendar year, 
income received by the parent's spouse prior to the date of the 
marriage is not counted.

(Authority: 38 U.S.C. 501(a), 1315(b))

Sec.  5.535  Adjustments to parents' DIC when income is less than 
anticipated.

    (a) Applicability. This section applies when, based on anticipated 
income, VA did not pay parents' DIC for a particular calendar year, or 
paid less than the full applicable statutory rate for that particular 
calendar year, but income for that calendar year was actually less than 
anticipated.
    (b) Retroactive adjustment; income reporting time limitation. VA 
may retroactively pay parents' DIC or pay a higher rate of parents' DIC 
from the first of the applicable calendar year under the following 
circumstances:
    (1) Satisfactory evidence shows that income was actually less than 
anticipated for that calendar year and
    (2) VA receives such evidence not later than the end of the year 
following the year to which the evidence pertains. Otherwise, payment 
or increased payments may not be made for the applicable calendar year 
on the basis of such evidence.

(Authority: 38 U.S.C. 501(a), 1315(e), 5110(a))

    Cross-reference: See also Sec.  3.256 of this chapter, 
``Eligibility reporting requirements.''


Sec.  5.536  Parents' dependency and indemnity compensation rates.

    (a) Statutory rates. VA pays dependency and indemnity compensation 
(DIC) to eligible parents based upon statutory rates that vary 
depending upon whether both parents are living, upon the parents' 
marital status, upon whether a parent is separated from his or her 
spouse, and upon whether a parent is a patient in a nursing home or 
helpless or blind or so nearly helpless or blind as to require the aid 
and attendance of another person. These rates are reduced by varying 
amounts that depend upon the parents' income. See 38 U.S.C. 1315. Rate 
and income limitations are periodically adjusted whenever there is an 
increase in benefit amounts payable under title II of the Social 
Security Act. See 38 U.S.C. 5312(b). In cases based on service in the 
Commonwealth Army of the Philippines, or as a guerrilla or as a 
Philippine Scout, also see Sec.  3.251(a)(3) of this chapter 
(concerning calculation of the parents' DIC income limitation for 
claims based on such service).
    (b) Use of published rates and income limitations. Whenever there 
is a cost-of-living increase in benefit amounts payable under section 
215(i) of title II of the Social Security Act, VA increases the annual 
income limitations and the maximum monthly rates of parents' DIC by the 
same percentage as the Social Security increase. These increases are 
effective on the same date as the Social Security increase. VA will 
publish parents' DIC rates, the annual income limitations, and the 
formulas for adjusting parents' DIC rates for annual income in the 
Notices section of the Federal Register when there is a change in the 
amounts. VA will use this published data in calculating parents' DIC 
payments. The rates referenced in paragraphs (c) through (e) of this 
section are the rates specified in the applicable Federal Register 
notice of an increase in the rates of parents' DIC.
    (c) One parent--remarried. Where there is only one parent and that 
parent has remarried and is living with his or her spouse, VA will pay 
DIC at the rate for one parent who has not remarried, or the rate 
applicable to a remarried parent living with his or her spouse, 
whichever will provide the greater monthly rate of DIC. However, Sec.  
5.531(c) (requiring spousal income to be combined) applies in either 
instance.
    (d) One parent--marriage ends or parent is separated from spouse. 
Where there is only one parent and that parent has remarried and that 
marriage has ended or the parent is separated from his or her spouse, 
the rate of DIC for that parent will be that which would be payable if 
there were one parent alone, in the case of termination of the 
marriage, or two parents not living together, in the case of 
separation.
    (e) Two parents living--one parent files DIC application. Where 
there are two parents of the veteran living and only one parent has 
filed an application for DIC, the rate of DIC payable to that parent 
will be that which would be payable to such parent if both parents had 
filed an application.
    (f) Minimum payment--(1) Five dollar minimum. If any payment of 
parents' DIC is due after the applicable rate payable is adjusted for 
income, the amount of that payment will not be less than $5.00 monthly.
    (2) Minimum DIC payment required for special monthly DIC. The 
special monthly DIC payable to a parent who is a patient in a nursing 
home, is helpless or blind or requires the aid and attendance of 
another person will be paid to a parent only if he or she qualifies for 
at least the minimum DIC payment described in paragraph (f)(1) of this 
section.
    (g) Rate changes due to changes in marital status or living 
arrangements. If a parent's conditions of entitlement change because of 
a change in marital status or living arrangements, VA will determine 
the new rate payable based on the new status. For example, if the 
parent was unmarried for part of the year, and married for part of the 
year, VA will pay the applicable rate for an unmarried parent for the 
part of the year that the parent was unmarried, and then pay the 
applicable rate for a married parent for the part of the year that the 
parent was married.
    (h) Rates payable when one of two parents receiving death 
compensation elects DIC--(1) Parent who elects DIC. The rate of DIC for 
the parent who elects DIC will not exceed the amount that would be paid 
to the parent if both parents had elected DIC.
    (2) Parent still receiving death compensation. The rate of death 
compensation for the parent who did not elect DIC will not exceed the 
amount that would be paid if both parents were receiving death 
compensation.

(Authority: 38 U.S.C. 501(a), 1315, 5312)

Sec.  5.537  Payment intervals.

    (a) Monthly payments. VA pays parents' dependency and indemnity 
compensation (DIC) monthly, except as provided in paragraph (b) of this 
section.
    (b) Exception. VA will pay the parents' DIC benefit semiannually, 
on or about June 1 and December 1, if the amount of the annual benefit 
is less than four percent of the maximum annual rate payable for that 
parent. However, parents receiving payment semiannually may elect to 
receive payment monthly in cases in which receiving payments 
semiannually would cause other Federal benefits to be denied.

[[Page 61348]]


(Authority: 38 U.S.C. 501(a), 1315)

Sec. Sec.  5.538-5.549  [Reserved]

    3. Sections 5.573 through 5.579 are added to subpart G to read as 
follows:


Sec.  5.573  Effective date for dependency and indemnity compensation 
rate adjustments when an additional survivor files an application.

    (a) General. If an additional survivor files an application for 
dependency and indemnity compensation (DIC) benefits while other 
survivors are receiving benefits under a running award (for example, 
one or more children are receiving benefits and another child files for 
benefits), VA will reduce the running award while VA determines the 
additional survivor's entitlement when:
    (1) The additional survivor has apparent entitlement to benefits; 
and
    (2) Payment to the additional survivor would reduce the DIC 
benefits being paid to other survivors under the running award.
    (b) Effective date of reduction to running awards.--(1) Benefits 
payable prior to filing of application. If benefits would be payable to 
the additional survivor from a date prior to the date VA received the 
additional survivor's application, the effective date of any reduction 
in the running award will be the date of the additional survivor's 
potential entitlement.
    (2) Benefits payable from the date of application. If benefits 
would be payable to the additional survivor from the date VA received 
the additional survivor's application, VA will reduce the running award 
on the later of the following dates:
    (i) The date VA received the additional survivor's application, or
    (ii) The first day of the month that follows the month for which VA 
last paid benefits to the original survivor(s).
    (c) Effective date for award to additional survivor. If an award 
for the additional survivor is warranted, the full rate to which the 
additional survivor is entitled is payable to the additional survivor 
from the effective date of that award.
    (d) Resumption of previous level of payments to other survivors. If 
entitlement is not established for the additional survivor, benefits 
previously being paid to other survivors will be resumed, if otherwise 
in order, from the date of the reduction in the running award.
    (e) Exception. This section does not apply to cases governed by 
Sec.  5.524, ``Awards of dependency and indemnity compensation benefits 
to children when there is a retroactive award to a school child.''

(Authority: 38 U.S.C. 1313, 5110(a), (e), 5112)

Sec.  5.574  Effective dates of awards and discontinuances of special 
monthly dependency and indemnity compensation.

    (a) Effective date of award--(1) General rule. The effective date 
for an award of special monthly dependency and indemnity compensation 
(DIC) will be the date VA receives the application for special monthly 
DIC or the date entitlement arose, as defined in [regulation that will 
be published in a future Notice of Proposed Rulemaking], whichever date 
is later.
    (2) Exception--cases involving a retroactive award of basic DIC. 
When an award of basic DIC is effective for a period prior to the date 
of receipt of the application and a spouse or parent is also entitled 
to special monthly DIC at the time of that basic DIC award, the 
effective date for special monthly DIC will be the later of the 
following dates:
    (i) The effective date of the basic DIC award, or
    (ii) The date entitlement to special monthly DIC arose. See 
[regulation that will be published in a future Notice of Proposed 
Rulemaking] (defining ``date entitlement arose'').
    (3) Surviving spouse or parent in receipt of hospital, 
institutional, or domiciliary care at VA expense. If the surviving 
spouse or parent is provided hospital, institutional, or domiciliary 
care at VA expense, the effective date of any special monthly DIC award 
based on the need for aid and attendance under Sec.  5.511(a) or (b) 
will be the date of departure from the medical facility.
    (b) Effective date of discontinuance--(1) Aid and attendance. When 
a parent or surviving spouse is no longer in need of aid and 
attendance, VA will discontinue special monthly DIC based upon the need 
of aid and attendance effective the first day of the month that follows 
the month for which VA last paid that benefit.
    (2) Housebound. When a surviving spouse is no longer housebound, VA 
will discontinue special monthly DIC based upon housebound status 
effective the first day of the month that follows the month for which 
VA last paid that benefit.

(Authority: 38 U.S.C. 501(a), 1311(c) and (d), 1315(g), 5110, 5112)

Sec. Sec.  5.575-5.579  [Reserved]

[FR Doc. 05-21026 Filed 10-20-05; 8:45 am]
BILLING CODE 8320-01-P


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