BVA9501882 DOCKET NO. 93-05 109 ) DATE ) ) On appeal from the decision of the Department of Veterans Affairs Regional Office in Wichita, Kansas THE ISSUE Whether the veteran's Department of Veterans Affairs disability compensation is subject to recoupment of the gross amount of readjustment pay paid at separation from service. REPRESENTATION Appellant represented by: Veterans of Foreign Wars of the United States ATTORNEY FOR THE BOARD Hilary L. Goodman, Counsel INTRODUCTION The veteran had active service from August 1968 to August 1971 and from July 1976 to September 1987. This appeal arises from a March 1991 determination that the veteran's Department of Veterans Affairs (VA) disability compensation benefits would be withheld until the full amount of his readjustment pay, $30,000, was recovered. Matter contained in correspondence from the veteran reflects that he is also seeking increased ratings of his service-connected disabilities. This is referred to the originating agency for appropriate action. CONTENTIONS OF APPELLANT ON APPEAL The veteran contends that there should be no recoupment by the VA of the gross amount of readjustment pay paid at separation from service as he was not discharged for reasons of disability. He maintains that he did not receive the gross amount, but paid approximately $8,000 in Federal income tax on the $30,000 of readjustment pay. He asserts that, if the readjustment pay is recouped, only the $22,000 he actually received should be recouped as VA benefits are not taxable and he has already paid the tax on the readjustment pay. DECISION OF THE BOARD The Board of Veterans' Appeals (Board), in accordance with the provisions of 38 U.S.C.A. § 7104 (West 1991), has reviewed and considered all of the evidence and material of record in the veteran's claims file. Based on its review of the relevant evidence in this matter, and for the following reasons and bases, it is the decision of the Board that the veteran's VA disability compensation is subject to recoupment of the gross amount of readjustment pay FINDINGS OF FACT 1. All relevant evidence necessary for an equitable disposition of the veteran's claim has been obtained by the originating agency. 2. The veteran was not selected for permanent promotion and, on separation from active duty in September 1987, a readjustment pay award of $30,000 was made. 3. Service connection for a fracture of the left fibular head with hyperextendability of the left knee and for a fracture of the left little toe was established, effective following his separation from service. A combined 20 percent disability evaluation has been assigned. 4. Payment of the monetary disability compensation benefit has been withheld, pending recoupment of the readjustment award. CONCLUSION OF LAW The recoupment of the lump-sum readjustment payment by the withholding of payments of disability compensation benefits is proper. 10 U.S.C.A. § 1174(h)(2) (West 1991); 38 U.S.C.A. §§ 5107(a), 7104(c) (West 1991); 38 C.F.R. § 3.700(a)(2)(iii) (1993). REASONS AND BASES FOR FINDINGS AND CONCLUSION The issue for consideration is whether the veteran's VA disability compensation is subject to recoupment of the gross amount of readjustment pay paid at separation from service. The Board finds that the veteran's claim is "well grounded" within the meaning of 38 U.S.C.A. § 5107(a). That is, he has presented a claim which is plausible. The Board is also satisfied that all relevant facts have been properly developed and no further assistance to the veteran is required to comply with the duty to assist mandated by 38 U.S.C.A. § 5107(a). The relevant facts in this case are not in dispute. The veteran was not selected for permanent promotion and, on separation from active duty in September 1987, a readjustment pay award of $30,000 was made. He thereafter initiated a claim for service connection for several disabilities. By rating decision in August 1988, service connection was granted for a fracture of the left fibular head with hyperextendability of the left knee and for a fracture of the left little toe, effective September 2, 1987, the day following his final separation from active service. A 10 percent disability evaluation was assigned for the fracture of the left fibular head with hyperextendability of the left knee. In a November 1990 rating decision, a 10 percent disability evaluation was assigned for the fracture of the left little toe. In March 1991 the veteran was advised that his VA disability compensation benefits would be withheld until the full amount of his readjustment pay, $30,000, was recovered. The provisions of 10 U.S.C.A. § 1174, which are for application, specifically provide that the VA shall deduct from "disability compensation an amount equal to the total amount of separation pay, severance pay and readjustment pay received." An exception does preclude recoupment for "readjustment pay received because of an early discharge or release from a period of active duty if the disability which is the basis for that disability compensation was incurred or aggravated during a later period of active duty[.]" However, that exception is not for application in this veteran's case. The recoupment of the veteran's readjustment pay from his VA disability compensation is prescribed by Congress, and implemented by the VA in 38 C.F.R. § 3.700(a)(2)(iii). This regulation states that "[w]here entitlement to disability compensation is established on or after September 15, 1981, a veteran who has received a lump-sum readjustment payment may receive disability compensation for disability incurred in or aggravated by service prior to the date of the lump-sum readjustment payment, subject to the recoupment of the total amount of the readjustment payment."(emphasis added). The Board is bound not only by the laws prescribed by Congress, but also by the precedent opinions of the VA General Counsel. 38 U.S.C.A. § 7104(c). An opinion of the VA General Counsel, O.G.C. Precedent 14-92, 57 Fed. Reg. 49746 (1992) concluded that, "(i)n accordance with the provisions of 10 U.S.C. 1174a and 38 C.F.R. 3.700, VA disability compensation should be offset to recoup the amount of special separation benefits received by a former member of the armed forces." See Sabonis v. Brown, 6 Vet.App. 426, 429 (1994). The veteran has argued that, if the readjustment pay is recouped, only the $22,000 he actually received should be recouped as VA benefits are not taxable and he has already paid the tax on the readjustment pay. Another opinion of the VA General Counsel, O.G.C. Precedent 67-91, 56 Fed. Reg. 50130 (1991), addresses questions similar to those presented on appeal as it concerns recoupment of disability severance pay from VA disability compensation. That opinion, which held that "[a] veteran who receives military disability severance pay under 10 U.S.C. § 1212(c) cannot receive VA disability compensation until VA has recouped an amount equal to the 'gross amount' of the disability severance pay[,]" contains a pertinent history regarding readjustment pay recoupment in its discussion and offers a succinct explanation as to why the gross amount of readjustment pay must be recouped by the VA: [F]ractional recovery by VA from monthly disability compensation payments of an amount equal to 75 percent of the lump-sum readjustment payments received under former 10 U.S.C. § 687 was [previously] authorized, "in order to take into account the tax paid on the original payment and to avoid recoupment of an amount in excess of the net received as readjustment pay." [citations omitted]... The express statutory authority in former 10 U.S.C. § 687 to recoup an amount of VA disability compensation equal to 75 percent of the lump-sum readjustment pay is implemented in 38 C.F.R. § 3.700(a)(2). [However,] 10 U.S.C. § 687 was repealed in 1980 by Pub. L. No. 96-513 § 109(a), 94 Stat. 2870 and was replaced by 10 U.S.C. § 1174 which does not provide statutory authority for VA to recoup an amount of VA disability compensation equal to a fractional amount of lump-sum readjustment payment. The Board finds that the law as written by Congress and implemented by VA regulation has been correctly applied in the veteran's case. Under current law, the recoupment of the lump- sum readjustment payment by the withholding of payments of disability compensation benefits is required. 10 U.S.C.A. § 1174(h)(2); 38 U.S.C.A. §§ 5107(a), 7104(c); 38 C.F.R. § 3.700(a)(2)(iii). With respect to the tax consequences, the latter General Counsel opinion previously referred to stated that: "We realize this outcome may be perceived as harsh....However, such tax issues are beyond the purview of the Department of Veterans Affairs, and involve questions for resolution, at least initially, by the Internal Revenue Service (IRS) and, perhaps ultimately by the courts." ORDER The veteran's VA disability compensation is subject to recoupment of the gross amount of readjustment pay paid at separation from service. The appeal is denied. JAMES R. ANTHONY Member, Board of Veterans' Appeals The Board of Veterans' Appeals Administrative Procedures Improvement Act, Pub. L. No. 103-271, § 6, 108 Stat. 740, ___ (1994), permits a proceeding instituted before the Board to be assigned to an individual member of the Board for a determination. This proceeding has been assigned to an individual member of the Board. NOTICE OF APPELLATE RIGHTS: Under 38 U.S.C.A. § 7266 (West 1991), a decision of the Board of Veterans' Appeals granting less than the complete benefit, or benefits, sought on appeal is appealable to the United States Court of Veterans Appeals within 120 days from the date of mailing of notice of the decision, provided that a Notice of Disagreement concerning an issue which was before the Board was filed with the agency of original jurisdiction on or after November 18, 1988. Veterans' Judicial Review Act, Pub. L. No. 100-687, § 402 (1988). The date which appears on the face of this decision constitutes the date of mailing and the copy of this decision which you have received is your notice of the action taken on your appeal by the Board of Veterans' Appeals.