BVA9501177 DOCKET NO. 93-10 620 ) DATE ) ) On appeal from the decision of the Department of Veterans Affairs Regional Office in Des Moines, Iowa THE ISSUE Whether trust income must be included in the veteran's countable annual income for improved pension purposes. REPRESENTATION Appellant represented by: Disabled American Veterans WITNESS AT HEARING ON APPEAL Appellant ATTORNEY FOR THE BOARD Susan S. Toth, Associate Counsel INTRODUCTION The veteran had active service from January 1953 to November 1956. This matter arises from a May 1992 administrative determination, whereby the Regional Office (RO) reduced the veteran's improved pension benefits due to the receipt of income from a trust. A hearing was held on May 6, 1993, in Des Moines, Iowa before C. W. Symanski, who is the member of the Board designated to render the final determination in this claim and who was designated by the Chairman to conduct that hearing, pursuant to 38 U.S.C.A. § 7102(b) (West 1991). The issue certified for appeal is the question of whether the veteran's pension was properly reduced due to receipt of income; however, after reviewing the arguments advanced and in particular the veteran's testimony during the hearing on appeal, it is clear that there is no dispute as to the amount of income, rather, the only area of dispute is the question of whether trust income received by the veteran should be counted as his personal income for improved pension purposes. Accordingly, the issue will be limited to that question. In January 1993, the RO's Committee on Waivers and Compromises denied the veteran's claim for waiver of recovery of an overpayment of improved pension benefits, based on the statutory bar of misrepresentation. The veteran submitted a notice of disagreement the following month; however, it does not appear that a statement of the case has been prepared on that issue. Accordingly, the Board refers the waiver of recovery issue to the RO for the issuance of a statement of the case. In the substantive appeal of December 1992, the veteran questioned the manner in which the RO calculated the amount of income from the veteran's business in 1989 and 1990 arguing that they used the gross amount of business income rather than the net income. Since this issue is not properly before the Board at this time and it is not inextricably intertwined with the issue presently on appeal, it is referred to the RO for the appropriate consideration. CONTENTIONS OF APPELLANT ON APPEAL The veteran contends that trust income should be excluded from his countable annual income for VA pension purposes. He argues that the income received from the trust is directly deposited into his business account. Since the business suffers a net loss each year, he avers that the business loss should be deducted from the trust income in computing his countable annual income. DECISION OF THE BOARD The 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 claim that trust income should not be included in his countable annual income for VA pension purposes lacks legal merit. FINDING OF FACT In 1990 and 1991, money was paid directly to the veteran as the beneficiary of a trust; during the same time period, he suffered a net loss in the operation of his business. CONCLUSION OF LAW The veteran's income from a trust must be included in his countable annual income for VA pension purposes. 38 C.F.R. §§ 3.271, 3.272 (1993). REASONS AND BASES FOR FINDINGS AND CONCLUSION The applicable criteria provide that payments of any kind from any source shall be counted as income during the 12-month annualization period in which received unless specifically excluded under § 3.272. 38 C.F.R. § 3.271(a). Business, farm or professional income includes gross income from a business, farm or profession as reduced by the necessary operating expenses such as cost of goods sold, or expenditures . Depreciation is not a deductible expense. A loss sustained in operating a business, profession, farm, or from investments, may not be deducted from income derived from any other source. 38 C.F.R. § 3.271(c). The exceptions listed in 38 C.F.R. § 3.272 do not include distributions of income or principal from a trust. In connection with his claim for pension benefits, the veteran submitted a statement in May 1989, wherein he indicated that he was to inherit shares of a trust left by his mother, who had recently passed away. It was unknown at the time how much property or income he would receive from the trust, which was to be split between himself and his sister. He also submitted a Report of Income from Property or Business form which indicated that his business operated at a loss in 1988 and that he expected it to operate at a loss in 1989. In November 1989, the veteran submitted a copy of his mother's will, which was dated in April 1988. This instrument provided for the establishment of a trust to benefit the veteran and his sister (who was designated as the trustee) in equal shares. During the veteran's life, the trustee was to pay the net income from the trust to her children in equal shares no less than semi- annually. The trustee was authorized to disburse payments from the principal of the trust to the veteran and herself equally, not to exceed the total sum of $1,200 annually to each child. In November 1991, the veteran submitted a copy of his United States Individual Tax Return for 1990. In the Supplemental Income and Loss section, the veteran reported that his partnership lost $8,992 and that he received income from a trust which totaled $5,155. Accordingly his total loss amounted to $3,837. In a statement of January 1992, the veteran reported that he first received payment of income from the trust in November 1990. Also in January 1992, the veteran submitted a form entitled Report of Income from Property or Business. In the section entitled gross income from rental property and/or gross receipts from business, the veteran reported that from October 1990 to October 1991, he received gross income of $1,602 from his business and $5,500 from the trust. He listed business expenses which exceeded the amount of gross income received from the business. By letter of May 1992, the RO informed the veteran that they were retroactively reducing his pension benefits due to the receipt of trust income. The veteran disagreed with that determination. In a statement of December 1992, he stated that he did not dispute the amount of trust income which the RO included in his countable annual income. He argued, however, that the trust income should be excluded in its entirety from countable annual income since it should be offset against his business losses. He asserted that if it were not for the trust agreement, which specified that the trust income should be paid directly to him, he would have it paid directly to the business, since he uses the trust income for business expenses anyway. In May 1993, the veteran appeared before this member of the Board at a hearing on appeal, conducted in Des Moines, Iowa. The veteran indicated that he did receive the amount of trust income during 1990 and 1991 which the RO included in his countable annual income. He contended that the trust income should be excluded under 38 C.F.R. § 3.271(c)(1), which was previously set forth. The veteran stated that the checks representing income from the trust were made out to him as an individual. He then deposited those checks in his business account. Since the business operated at a loss, the trust income should not be included in his countable annual income. Following the hearing, the veteran submitted a copy of the application to confirm appointment of trustee of the [redacted] Family Trust, created under the will of [redacted]. This document reiterated the terms of the trust, which were previously set forth. In essence, the veteran avers that the trust income should be deducted from business losses for VA pension purposes in the same manner as it is for the U.S. Internal Revenue Service. Under that scenario, the veteran would not have any countable annual income from the trust or his business for VA pension purposes, since the business losses exceed the trust income. At this point, it may be noted that the veteran's testimony that he deposits the income from his trust fund into a business account is not disputed; however, it does not follow that this income thereby becomes part of his business finances. To the contrary, it is clear from the trust instrument that the income is payable to the veteran as an individual. While he may choose to invest this income in his business, this is of his own volition and does not change the fact that the income from the trust is payable to him personally and he is free to use it in any way he sees fit. The trust instrument places no restrictions on how he is to use the income.. Moreover, the veteran's business already is considered to operate at a loss for VA pension purposes, for the very reason that business expenses exceed income. The regulation provides that business losses may not be deducted from income derived from any other source. 38 C.F.R. § 3.271(c)(3). Income from the trust is derived from another source and, therefore, business losses may not be deducted from that trust income. Since the evidence does not show that the trust income is derived from the veteran's own business, his claim lacks legal merit. The United States Court of Veterans Appeals has held that in a case where the law is dispositive of the claim, the claim should be denied because of lack of entitlement under the law. Sabonis v. Brown, 6 Vet.App. 426, 430 (1994). ORDER Income from a trust must be included in countable annual income for VA pension purposes, therefore, the veteran's claim lacks legal merit and is denied. C. W. SYMANSKI 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.