Payments and Adjustments to Payments, 65212-65234 [E8-25547]

Agencies

• DEPARTMENT OF VETERANS AFFAIRS

[Federal Register Volume 73, Number 212 (Friday, October 31, 2008)]
[Proposed Rules]
[Pages 65212-65234]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-25547]



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Part V





Department of Veterans Affairs





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38 CFR Part 5



Payments and Adjustments to Payments; Proposed Rule

Federal Register / Vol. 73 , No. 212 / Friday, October 31, 2008 / 
Proposed Rules

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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 5

RIN 2900-AM06


Payments and Adjustments to Payments

AGENCY: Department of Veterans Affairs.

ACTION: Proposed rule.

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SUMMARY: The Department of Veterans Affairs (VA) proposes to reorganize 
and rewrite in plain language provisions applicable to payment of VA 
benefits and adjustments to payments. These revisions are proposed as 
part of VA's rewrite and reorganization of all of its compensation and 
pension rules in a logical, claimant-focused, and user-friendly format. 
The intended effect of the proposed revisions is to assist claimants, 
beneficiaries and VA personnel in locating and understanding these 
rules.

DATES: Comments must be received by VA on or before December 30, 2008.

ADDRESSES: Written comments may be submitted through https://
www.regulations.gov; by mail or hand-delivery to: Director, Regulations 
Management (02REG), Department of Veterans Affairs, 810 Vermont Ave., 
NW., Room 1068, Washington, DC 20420; or by fax to (202) 273-9026 (not 
a toll-free number). Comments should indicate that they are submitted 
in response to ``RIN 2900-AM06--Payments and Adjustments to Payments.'' 
Copies of 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) 461-4902 for an appointment (not a toll-free number). 
In addition, during the comment period, comments may be viewed online 
through the Federal Docket Management System (FDMS) at https://
www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: William F. Russo, Director of 
Regulations Management (02REG), Department of Veterans Affairs, 810 
Vermont Avenue, NW., Washington, DC 20420, (202) 461-4902 (not a toll-
free number).

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 general rate-setting and 
adjustment and resumption of benefits. 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 This Notice of Proposed Rulemaking.
Table Comparing Current Part 3 Rules with Proposed Part 5 Rules.
Content of Proposed Regulations.
    General Rate-Setting and Payments
    5.690 Where to find benefit rates and income limits.
    5.691 Adjustments for fractions of dollars.
    5.692 Fractions of one cent not paid.
    5.693 Beginning date for certain VA benefit payments.
    5.694 Surviving spouse's benefit for the month of the veteran's 
death.
    5.695 Payments to or for a child pursuing a course of 
instruction at an approved educational institution.
    5.696 Awards of dependency and indemnity compensation when not 
all dependents apply.
    5.697 Exchange rates for income received or expenses paid in 
foreign currencies.
    General Reductions, Discontinuances, and Resumptions
    5.705 General effective dates for reduction or discontinuance of 
benefits.
    5.706 Payments excluded in calculating income or net worth.
    5.707 Deductible medical expenses.
    5.708 Eligibility verification reports.
    5.709 Claimant and beneficiary responsibility to report changes.
    5.710 Adjustment in benefits due to reduction or discontinuance 
of a benefit to another payee.
    5.711 Payment to dependents due to the disappearance of a 
veteran for 90 days or more.
    5.712 Suspension of VA benefits due to the disappearance of a 
payee.
    5.713 Restriction on VA benefit payments to an alien located in 
enemy territory.
    5.714 Restriction on delivery of VA benefit payments to payees 
located in countries on Treasury Department list.
    5.715 Claims for undelivered or discontinued benefits.
Endnote Regarding Amendatory Language.
Paperwork Reduction Act of 1995.
Regulatory Flexibility Act.
Executive Order 12866.
Unfunded Mandates.
Catalog of Federal Domestic Assistance Numbers and Titles.
List of Subjects in 38 CFR Part 5.

Overview of New Part 5 Organization

    We plan to organize the part 5 regulations so that most of the 
provisions governing a specific benefit are located in the same 
subpart, with general provisions pertaining to all compensation and 
pension benefits also grouped together. This organization will enable 
claimants, beneficiaries, and their representatives, as well as VA 
adjudicators, 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, general definitions, and general policy 
provisions for this part. This subpart was published as proposed on 
March 31, 2006. See 71 FR 16464.
    ``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 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 Notices of Proposed 
Rulemaking (NPRMs) due to its size. The first, concerning the duties of 
VA and the rights and responsibilities of claimants and beneficiaries, 
was published as proposed on May 10, 2005. See 70 FR 24680. The second, 
covering general evidence requirements, effective dates for awards, 
revision of decisions, and protection of VA ratings, was published as 
proposed on May 22, 2007. See 72 FR 28770. The third, concerning

[[Page 65213]]

rules on filing VA benefits claims, was published as proposed on April 
14, 2008. See 73 FR 20136.
    ``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. This 
subpart was published as proposed on September 20, 2006. See 71 FR 
55052.
    ``Subpart E--Claims for Service Connection and Disability 
Compensation'' would define service-connected disability compensation 
and service connection, including direct and secondary service 
connection. This subpart would inform readers how VA determines service 
connection and entitlement to disability compensation. 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 as proposed on July 27, 
2004. See 69 FR 44614. The second, relating to special ratings and 
ratings for health care eligibility only, was published as proposed on 
October 17, 2008. See 73 FR 62004.
    ``Subpart F--Nonservice-Connected Disability Pensions and Death 
Pensions'' would include information regarding the three types of 
nonservice-connected pension: Old-Law Pension, Section 306 Pension, and 
Improved Pension. This subpart would also include those provisions that 
state how to establish entitlement to Improved Pension and the 
effective dates governing each pension. This subpart will be published 
in 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. The 
portion concerning eligibility and entitlement requirements, as well as 
effective dates for Improved Pension, was published as proposed on 
September 26, 2007. See 72 FR 54776.
    ``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 
dependency and indemnity compensation (DIC); death compensation; 
accrued benefits; benefits awarded; 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 was published as two separate NPRMs due to its size. The 
portion concerning accrued benefits, death compensation, 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 was published as 
proposed on October 21, 2005. See 70 FR 61326.
    ``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. This subpart was published as proposed on March 9, 2007. See 
72 FR 10860.
    ``Subpart I--Benefits for Certain Filipino Veterans and Survivors'' 
would pertain to the various benefits available to Filipino veterans 
and their survivors. This subpart was published as proposed on June 30, 
2006. See 71 FR 37790.
    ``Subpart J--Burial Benefits'' would pertain to burial allowances. 
This subpart was published as proposed on April 8, 2008. See 73 FR 
19021.
    ``Subpart K--Matters Affecting the Receipt of Benefits'' would 
contain provisions regarding bars to benefits, forfeiture of benefits, 
and renouncement of benefits. This subpart was published as proposed on 
May 31, 2006. See 71 FR 31056.
    ``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, 
subpart L will be published in two separate NPRMs, one of which is this 
NPRM. The first, concerning payments to beneficiaries who are eligible 
for more than one benefit, was published as proposed on October 2, 
2007. See 72 FR 56136. The second, concerning provisions applicable to 
payment of VA benefits and adjustments to payments, is the subject of 
this document.
    The final subpart, ``Subpart M--Apportionments to Dependents and 
Payments to Fiduciaries and 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 for the Project, 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 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.
    Because of its large size, proposed part 5 will be published in a 
number of NPRMs, such as this one. VA will not adopt any portion of 
part 5 as final until all of the NPRMs have been published for public 
comment.
    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 rulemakings.

Overview of This Notice of Proposed Rulemaking

    This NPRM pertains to those regulations governing payment of 
benefits, adjustments to payments, and regulations related to 
resumption of benefits. These regulations would be contained in 
proposed Subpart L of new 38 CFR part 5. 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 differences are proposed, as are 
some regulations that do not have counterparts in 38 CFR part 3.

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 those proposed regulations contained in this 
NPRM:

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                                            Based in whole or in part on
   Proposed part 5  section or paragraph      38 CFR part 3 section or
                                               paragraph (or ``New'')
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5.690.....................................  3.21
5.691(a)..................................  3.260(g)
5.691(b)..................................  3.29(a) and (c)
5.691(c)..................................  3.29(b)
5.692.....................................  3.112
5.693(a)..................................  3.31(a)
5.693(b)..................................  Introduction to 3.31.
5.693(c)..................................  3.31(b) and (c)
5.693(c)(1)...............................  3.31(b)
5.693(c)(2)...............................  New.
5.693(c)(3)...............................  3.31(c)(1)
5.693(c)(4)...............................  3.31(c)(3)
5.693(c)(5)...............................  3.31(c)(4)
5.693(c)(6)...............................  3.31(c)(5)
5.693(c)(7)...............................  3.31(c)(3)
5.693(c)(8)...............................  3.31(c)(2)
5.693(c)(9)...............................  3.656(a) and (d)
5.693(d)..................................  3.401(e), 3.750
5.693(e)(1) and (e)(2)....................  3.31(c)(2)
5.693(e)(3)...............................  Introduction to 3.31.
5.694.....................................  3.20
5.695(a)..................................  3.57(a)(1)(iii)
5.695(b)..................................  3.57(a)(1)(iii), 3.667(a)(1)
                                             and (a)(2)
5.695(c) and (c)(1).......................  3.667(a)(3)
5.695(c)(2)...............................  3.667(a)(4)
5.695(c)(3)...............................  3.667(a)(3)
5.695(d)..................................  3.667(a)(5)
5.695(e)..................................  New
5.695(f)..................................  3.667(b)
5.695(g)..................................  3.667(c)
5.695(h)..................................  3.667(d)
5.695(i)..................................  3.667(f)
5.696.....................................  3.107
5.697(a)..................................  Introduction to 3.32.
5.697(a)(1)...............................  3.32(a)(1)
5.697(a)(2)...............................  3.32(a)(2)
5.697(b) and (c)..........................  3.32(b)
5.705(a)..................................  Introduction to 3.500,
                                             3.500(a), Introduction to
                                             3.501, Introduction to
                                             3.502, 3.503(a).
5.705(b)..................................  New.
5.706(a) and (b)..........................  New.
5.706(b)(1)...............................  3.261(a)(32)
5.706(b)(2)...............................  3.262(z), 3.263(h),
                                             3.272(v), 3.275(j),
                                             3.261(a)(41)
5.706(b)(3)...............................  3.262(u), 3.263(f),
                                             3.272(p), 3.275(g),
                                             3.261(a)(36)
5.706(b)(4)...............................  New.
5.706(b)(5)...............................  3.262(s), 3.263(e),
                                             3.272(o), 3.275(f),
                                             3.261(a)(35)
5.706(b)(6)...............................  3.262(y), 3.263(g),
                                             3.272(u), 3.275(i),
                                             3.261(a)(40)
5.706(b)(7)...............................  New.
5.706(b)(8)...............................  3.262(v), 3.272(r),
                                             3.261(a)(37)
5.706(b)(9) and (10)......................  New.
5.706(b)(11)..............................  3.262(x), 3.272(t),
                                             3.261(a)(39)
5.706(b)(12) through (14).................  New.
5.706(b)(15)..............................  3.262(q), 3.272(k),
                                             3.261(a)(33) and (a)(34)
5.706(b)(16) through (22).................  New.
5.706(b)(23)..............................  3.261(a)(14)
5.706(b)(24)..............................  New.
5.707(a) and (b)..........................  New.
5.707(c)..................................  3.261(b)(1), 3.262(l),
                                             3.272(g)
5.708(a)..................................  3.256(b), 3.277(c)
Introduction to 5.708(b)..................  3.277(c)(3)
5.708(b)(1)...............................  New.
5.708(b)(2)...............................  3.256(b)(3), 3.277(c)(2)
5.708(c)..................................  New.
5.708(d)..................................  3.661(a)(1) and (2)
5.708(e)..................................  3.256(c), 3.277(d)
5.708(f)(1)...............................  3.256(c), 3.277(d)
5.708(f)(2)...............................  New.
5.708(f)(3)...............................  3.661(b)(2)(i)
5.708(g)..................................  3.661(b)(2)(iii)
5.708(h)..................................  3.661(b)(2)(ii)
5.709(a)..................................  3.256(a), 3.277(a) and (b),
                                             3.660(a)(1)
5.709(b)..................................  3.256(a), 3.277(b)
5.710(a)..................................  3.651(a)
5.710(b)..................................  3.651(b)
5.710(c)..................................  3.651(c)
5.711(a)..................................  3.656(a)
5.711(b)..................................  3.656(a)
5.711(c)..................................  3.656(d)
5.711(d)(1)...............................  3.656(b)
5.711(d)(2)...............................  3.656(c)
5.712.....................................  3.158(c)
5.713(a) through (b)(1)...................  3.653(a)
5.713(b)(2) and (b)(3)....................  New.
5.713(c)..................................  New.
5.714(a)..................................  New.
5.714(b)..................................  3.653(c)(1)
5.714(c) and (d)..........................  3.653(c)
5.714(e)..................................  3.653(b)
5.714(f)..................................  New.
5.715(a)..................................  New.
5.715(b)(1)...............................  3.653(b)
5.715(b)(2)...............................  3.653(c)(3)
5.715(b)(3)...............................  3.653(b)
5.715(c)..................................  3.653(b)
5.715(d)..................................  3.653(b) and (c)(3)
5.715(e)..................................  3.653(d)
5.715(f)..................................  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 Rate-Setting and Payments

5.690 Where To Find Benefit Rates and Income Limits
    Proposed Sec.  5.690 is based on current Sec.  3.21, with a few 
changes.
    First, we propose to not include in part 5 the reference to 
appendix B of the Veterans Benefits Administration Manual M21-1 because 
the reference is outdated and because the rates are available at our 
Web site, which is easily available to the general public. The proposed 
regulation would guide readers to that site. Second, we propose to 
include a reference to the monthly allowances payable under 38 U.S.C. 
chapter 18 for children disabled from spina bifida or with certain 
birth defects. Adding this reference in connection with the general 
reference to the publication of rates on our Web site will direct 
readers to one location to find information about most of the rates for 
benefits payable under part 5.
    Current Sec.  3.21 involves monetary rates for VA benefits. The 
last two sentences of current Sec.  3.21 read:

    The maximum annual rates of improved pension payable under Pub. 
L. 95-588 (92 Stat. 2497) are set forth in Sec. Sec.  3.23 and 3.24. 
The monthly rates and annual income limitations applicable to 
parents [DIC] are set forth in Sec.  3.25.

    Although the rates and income limits for Improved Pension and 
parents' DIC were at one time contained in Sec. Sec.  3.23 through 
3.25, that is no longer the case. Moreover, the rates and income limits 
applicable to Improved Pension and parents' DIC, like the other VA 
benefits described above, are available on our Web site. Therefore, we 
propose not to include a reference to the part 5 equivalents of current 
Sec. Sec.  3.23 through 3.25 in Sec.  5.690.
5.691 Adjustments for Fractions of Dollars
    Proposed Sec.  5.691 provides rules regarding how VA rounds to the 
nearest dollar in various calculations. It restates in plain language 
current Sec. Sec.  3.29 and 3.260(g).

[[Page 65215]]

    Current Sec.  3.260(g) includes rules governing the computation of 
income for both pension and parents' DIC. (DIC for surviving spouses 
and children is not based on income.) To clarify that, in the context 
of DIC, income calculations are relevant only as to parents' DIC, 
proposed Sec.  5.691(a) would specifically refer to ``parents' 
dependency and indemnity compensation'' instead of ``dependency and 
indemnity compensation.''
    Sections 5.531 through 5.534, cited in proposed Sec.  5.691(a), 
were published as proposed on October 21, 2005. See 70 FR 61326, 61344-
47. Section 5.370, also cited in proposed Sec.  5.691(a), was published 
as proposed on September 26, 2007. See 72 FR 54776, 54792.
    We have intentionally omitted from proposed Sec.  5.691(c) the June 
1, 1983, applicability date for rates of pension, found in current 
Sec.  3.29(b). Because these regulations will apply only to claims 
filed on or after the effective date of part 5, which will be no 
earlier than 2011, it is exceedingly unlikely that these regulations 
will apply to pension awards retroactive earlier than 1984. We have 
also simplified the text for clarity.
5.692 Fractions of One Cent Not Paid
    Proposed Sec.  5.692 restates in plain language current Sec.  
3.112. VA intends no substantive change.
    We note that, with respect to certain benefits, 38 U.S.C. 
5312(c)(2) explicitly permits VA to round payments ``in such manner as 
the Secretary considers equitable and appropriate for ease of 
administration.'' This statute, combined with VA's general rulemaking 
authority, gives VA authority to exclude fractions of a cent from 
payment. VA considers this practice equitable and necessary to 
efficiently administer the benefit programs covered by proposed 38 CFR 
part 5.
5.693 Beginning Date for Certain VA Benefit Payments
    The Omnibus Budget Reconciliation Act of 1982 (OBRA), Pub. L. 97-
253, 96 Stat. 763, introduced a number of Federal cost-saving measures. 
Section 401 of the OBRA, 96 Stat. at 801, which is now codified at 38 
U.S.C. 5111, ``Commencement of period of payment,'' prohibits VA from 
paying certain benefits for any period before the first day of the 
calendar month following the month in which the award or increased 
award of the benefit becomes effective. The provisions of 38 U.S.C. 
5111 are currently implemented in Sec.  3.31 and are the subject of 
proposed Sec.  5.693. We propose several changes from the current 
regulation.
    Proposed Sec.  5.693(b) restates current Sec.  3.31(b) and 
incorporates with one change the list in the introduction to Sec.  3.31 
of the benefits affected by the beginning payment date rule. The 
benefits affected are disability compensation, pension, dependency and 
indemnity compensation and monetary allowances under 38 U.S.C. chapter 
18 for children disabled from spina bifida or with certain birth 
defects. The proposed change is that we not include the reference to 
Vietnam, which is found in current Sec.  3.31. This change is required 
because the law no longer limits chapter 18 benefits to children of 
Vietnam-era service veterans. See Pub. L. 108-183, sec. 102, 117 Stat. 
2651, 2653 (adding 38 U.S.C. 1821, ``Benefits for children of certain 
Korea service veterans born with spina bifida''). Therefore, proposed 
Sec.  5.693(b)(4) simply refers to payment of ``monetary allowances 
under 38 U.S.C. chapter 18 for children disabled from spina bifida or 
with certain birth defects.''
    Proposed Sec.  5.693(c) lists payments that are not subject to the 
general rule found in proposed paragraph (b). The list is derived from 
current Sec.  3.31(b) and (c). We propose to add a payment not found in 
the current regulation. The new payment, found in proposed Sec.  
5.693(c)(2), pertains to ``[a]wards restoring a previously reduced 
benefit because the circumstances requiring reduction no longer 
exist.'' VA does not consider such a restoration of a previously 
reduced award to be an ``increased award'' as defined by proposed Sec.  
5.693(a), but rather a restoration of the pre-adjustment rate. This 
award is more correctly viewed as a discontinuance of a temporary 
reduction and not an increase subject to the delayed payments described 
in proposed paragraph (b) of this section.
    Next, we propose to restate with clarifying language an exception 
found in current Sec.  3.31(c)(4). Current Sec.  3.31(c)(4) includes an 
exception to the delayed payment provision of OBRA for increases 
resulting solely from the enactment of certain types of legislation and 
includes several examples. One example, found at Sec.  3.31(c)(4)(iii), 
refers to ``[c]hanges in the criteria for statutory award 
designations.'' The example is taken from examples in the joint House 
and Senate Committee Conference report regarding OBRA. See H.R. Conf. 
Rep. No. 97-759, at 82 (1982), as reprinted in 1982 U.S.C.C.A.N. 1846, 
1877. Apart from this example, the term ``statutory award'' does not 
appear elsewhere in the report. Rather than use the term ``statutory 
award'' in part 5, we would refer in Sec.  5.693(c)(5)(v) to an ``award 
of special monthly compensation.'' This is consistent with long-
standing VA usage of the term ``statutory award.'' For example, Talbert 
v. Brown, 7 Vet. App. 352, 354 (1995), involved entitlement to special 
monthly compensation under ``a statutory award pursuant to Public Law 
No. 82-427.'' Public Law No. 82-427, 66 Stat. 295, introduced 
provisions currently codified in 38 U.S.C. 1114(k), which provides for 
special monthly compensation to veterans.
    Finally, we propose not to include current Sec.  3.31(c)(3)(vi) in 
part 5. The current regulation excludes an adjustment because of 
limitations placed on the size of the estate of a hospitalized 
incompetent veteran. However, the limitation in question was imposed by 
former 38 U.S.C. 5503(b), which was repealed by section 204(a) of the 
Veterans Education and Benefits Expansion Act of 2001, Pub. L. 107-103, 
115 Stat. 976, 990.
    Section 5.461, cited in proposed Sec.  5.693(a)(4), was published 
as proposed on December 27, 2004. See 69 FR 77578, 77588-89. Section 
5.745, cited in proposed Sec.  5.693(d)(1), was published as proposed 
on October 2, 2007. See 72 FR 56136, 56149.
5.694 Surviving Spouse's Benefit for the Month of the Veteran's Death
    Proposed Sec.  5.694 is a plain language restatement of current 
Sec.  3.20. The proposed regulation provides rules regarding payment to 
a surviving spouse for the month of the veteran's death. In proposed 
paragraph (a) we have created a term, ``month-of-death benefit,'' to 
serve as shorthand for a payment to a deceased veteran's surviving 
spouse for the month in which the veteran died and in the amount of 
disability compensation or pension that the veteran would have received 
for that month, if not for his or her death. Using this term would make 
this section easier to read and help ensure clarity.
    We propose not to include current Sec.  3.20(a) in proposed Sec.  
5.694. Section 3.20(a) currently reads:

    Where the veteran died on or after December 1, 1962, and before 
October 1, 1982, the rate of death pension or [DIC] otherwise 
payable for the surviving spouse for the month in which the death 
occurred shall be not less than the amount of pension or 
compensation which would have been payable to or for the veteran for 
that month but for his or her death. (Authority: 38 U.S.C. 5310)

Any award of benefits under current Sec.  3.20(a) would pertain to a 
veteran who died between December 1, 1962, and September 30, 1982, more 
than 25 years ago. The only situation in which

[[Page 65216]]

payment of benefits under this paragraph could arise presently is in a 
retroactive benefit adjustment based on clear and unmistakable error. 
However, in such a case, VA would be required to apply the provisions 
of Sec.  3.20(a) in effect at the time the erroneous decision was made, 
not the current provisions. Therefore, there is no reason to include 
Sec.  3.20(a) in part 5.
    Section 5.550, cited in proposed Sec.  5.694(d), was published as 
proposed on October 1, 2004. See 69 FR 59072, 59085.
5.695 Payments to or for a Child Pursuing a Course of Instruction at an 
Approved Educational Institution
    Proposed Sec.  5.695 is based on current Sec. Sec.  3.57(a)(1)(iii) 
and 3.667. The proposed section includes provisions related to payment 
of additional Improved Pension or disability compensation to a veteran 
or Improved Pension to a surviving spouse based on a child pursuing a 
course of instruction at an approved educational institution, and 
direct payment of Improved Pension or dependency and indemnity 
compensation (DIC) to a child on or after the child's 18th birthday, 
but before the child's 23rd birthday, if the child is pursuing a course 
of instruction at an approved educational institution. Proposed Sec.  
5.695(a) defines the term ``approved educational institution'' 
consistent with the definition of ``educational institution'' in Sec.  
3.57(a)(1)(iii).
    Whereas current Sec.  3.667(a)(1) and (2) merely indicate that 
benefits ``may be paid,'' proposed Sec.  5.695(b) specifies which 
benefits will be paid and to whom. This additional information, only 
implied by the current regulation, will be helpful to the reader. No 
substantive change is intended. Section 5.417, cited in proposed Sec.  
5.695(b), was published as proposed on September 26, 2007. See 72 FR 
54776, 54799-800.
    We have intentionally not included in proposed Sec.  5.695(c) the 
reference to September 30, 1981, which appears in current Sec.  
3.667(a)(3). This date is not relevant to proposed part 5 because no 
claim adjudicated under part 5 could pertain to a child then between 
the ages of 18 and 23 who was age 18 before September 30, 1981. Section 
5.573, cited in proposed Sec.  5.695(c), was published as proposed on 
October 21, 2005. See 70 FR 61326, 61348.
    Section 5.524, cited in proposed Sec.  5.695(d), was published as 
proposed on October 21, 2005. See 70 FR 61326, 61344.
    Proposed Sec.  5.695(e) explains that if a child is pursuing a 
course of instruction at an approved educational institution on or 
after the child's 18th birthday and a claim is not received within 1 
year, benefits may still be paid to the child effective the date VA 
receives the child's claim. We propose to include this provision in 
order to fill a deficiency in the current regulation. The provision is 
consistent with 38 U.S.C. 5110 (the general effective date statute) and 
other effective-date provisions found in proposed part 5. It will 
provide valuable information for regulation users and VA personnel.
    Section 5.764, cited in proposed Sec.  5.695(i)(1), was published 
as proposed on October 2, 2007. See 72 FR 56136, 56154.
5.696 Awards of Dependency and Indemnity Compensation When Not All 
Dependents Apply
    Proposed Sec.  5.696 is based on current Sec.  3.107. We have 
updated the citation to Sec.  3.251(a)(4), contained in current Sec.  
3.107, to the proposed part 5 counterpart Sec.  5.536(d), which was 
published as proposed on October 21, 2005. See 70 FR 61326, 61347. 
Although the language is much clearer in this part 5 regulation, we 
have not made any substantive changes from current Sec.  3.107.
5.697 Exchange Rates for Income Received or Expenses Paid in Foreign 
Currencies
    Proposed Sec.  5.697 is derived from current Sec.  3.32. The 
current regulation provides rules pertaining to income received or 
expenses paid in foreign currencies. We propose the following changes 
from the current regulation.
    Proposed Sec.  5.697(a)(1) states that if VA is informed of a 
change in a beneficiary's income or expenses paid in a foreign currency 
that would affect his or her entitlement, VA will make retroactive 
adjustments to the benefit rate using the quarterly exchange rate in 
effect when VA receives the notice of the change in income received or 
expenses paid in a foreign currency.
    Current Sec.  3.32(b) references ``burial, plot or headstone 
allowances.'' We propose to use the phrase ``burial benefits'' instead 
of using the current phrase, ``burial, plot or headstone allowances,'' 
to be consistent with the term that we expect to use to describe 
monetary burial benefits in subpart J of part 5, which is currently 
being developed by VA.
    Sections 5.550 and 5.555, cited in proposed Sec.  5.697(c)(1), were 
published as proposed on October 1, 2004. See 69 FR 59072, 59085-86.

General Reductions, Discontinuances, and Resumptions

5.705 General Effective Dates for Reduction or Discontinuance of 
Benefits
    Currently, Sec. Sec.  3.500 through 3.503 set forth rules that 
govern how VA assigns an effective date to a reduction or 
discontinuance of disability compensation, pension, or dependency and 
indemnity compensation (DIC). Each of the reduction and discontinuance 
effective-date regulations contains general rules on the subject. Each 
regulation also contains multiple paragraphs that apply to a specific, 
narrow basis for reduction or discontinuance of benefits payable to a 
specific type of beneficiary. In view of our proposal to organize by 
benefit and topic the part 5 rewrites of the current part 3 
regulations, the specific rules in Sec. Sec.  3.500 through 3.503 will 
be organized in the part 5 subpart associated with the specific 
benefits or subjects to which they apply. Proposed Sec.  5.705 includes 
generally applicable rules, based on Sec. Sec.  3.500 through 3.503.
    In 38 U.S.C. 5112(a), Congress requires VA to generally fix a 
reduction or discontinuance of compensation, pension, or DIC ``in 
accordance with the facts found,'' ``[e]xcept as otherwise specified in 
[38 U.S.C. 5112].'' Proposed Sec.  5.705(a) states this general rule. 
We propose to include the monetary allowances under chapter 18 of title 
38, United States Code, in the list of benefits to which the general 
rule applies. Although 38 U.S.C. 5112 does not refer to chapter 18 
benefits, 38 U.S.C. 1832(b)(4) makes provisions of 38 U.S.C. 5112(a) 
and (b) applicable to monetary allowances under chapter 18.
    In 38 U.S.C. 5112(b), Congress provides ten specific exceptions to 
the general rule. In such situations, the effective date of the 
reduction or discontinuance ``shall be'' assigned as directed in the 
particular paragraph of section 5112(b), and not as directed by the 
general ``facts found'' provision in section 5112(a). Thus, section 
5112 permits the assignment of an effective date for a reduction or 
discontinuance in accordance with the facts found only when there is no 
specific provision requiring VA to assign the effective date on some 
other basis. This interpretation is consistent with general rules of 
statutory interpretation (i.e., that a specific rule modifies a more 
general one) and decisions from the Court of Appeals for Veterans 
Claims on this subject.
    Accordingly, we have retained the basic concepts from the 
introductory language to current Sec.  3.500 and Sec.  3.500(a), and 
modified them to

[[Page 65217]]

enhance the clarity of the current provisions. The first sentence of 
proposed Sec.  5.705(a) restates the current language as follows: 
``Except as otherwise provided, VA will assign an effective date for 
the reduction or discontinuance of disability compensation, pension, 
dependency and indemnity compensation (DIC), or the monetary allowances 
under chapter 18 of title 38, United States Code, in accordance with 
the facts found.''
    The introductory text to current Sec.  3.500 also states that 
``[t]he effective date * * * will be the earliest of the dates stated 
in these paragraphs unless otherwise provided.'' Sections 3.501, 3.502, 
and 3.503(a) all provide that ``[t]he effective date * * * will be the 
earliest of the dates stated in this section.'' Current Sec. Sec.  
3.501 through 3.503 do not reference Sec.  3.500. The wording in the 
current sections implies that each section exclusively provides the 
effective date of a reduction or discontinuance of benefits to the 
class of beneficiaries covered in the particular section. The language 
does not explicitly acknowledge that Sec.  3.500 provides the default 
rule when none of the specific provisions in Sec. Sec.  3.501 through 
3.503 apply. The part 5 rule would be explicit in this regard.
    Additionally, if a specific paragraph in Sec.  3.500 applies and 
there is no applicable provision in Sec. Sec.  3.501 through 3.503, 
then the specific paragraph in Sec.  3.500 applies. For example, when a 
surviving spouse's right to receive benefits is discontinued based on 
his or her renouncement of the benefit, an event that is not covered 
under Sec.  3.502, the effective date is assigned in accordance with 
Sec.  3.500(q). For these reasons, VA applies Sec.  3.500 in cases 
involving veterans, surviving spouses, parents and children, 
notwithstanding that Sec. Sec.  3.501 through 3.504 appear to 
exclusively provide the effective dates of reductions and 
discontinuances applicable to those beneficiaries. Thus, the proposed 
part 5 rule clearly states the general applicability of Sec.  5.705 but 
does not represent a substantive change in VA practice or policy.
    The second sentence of proposed Sec.  5.705(a) reads: ``If more 
than one effective-date provision applies to a particular issue or 
event, VA will reduce or discontinue the benefit(s) in accordance with 
the earliest applicable date.'' This language restates similar 
references to the ``earliest date,'' which appear in current Sec. Sec.  
3.500 through 3.503. The proposed language is easier to understand and 
apply, but it will not substantively alter VA's current interpretation 
of the governing statute or VA's regulations.
    The introductory paragraphs to Sec. Sec.  3.500 through 3.502 and 
Sec.  3.503(a) identically state a general effective-date provision, 
``Where an award is reduced, the reduced rate will be effective the day 
following the date of discontinuance of the greater benefit.'' In the 
last sentence of proposed Sec.  5.705(a) we propose to restate this 
provision as follows: ``VA will pay a reduced rate or discontinue 
benefits effective the date of reduction or discontinuance.'' Stating 
the effective date in this manner--focusing only on the date that the 
new rate begins rather than on the date that the old rate ends--
clarifies the effective-date provisions for reductions and 
discontinuances. We propose similar wording throughout part 5. VA 
intends no substantive change by this rewording.
    Under proposed Sec.  5.705(a), as with the current rules, benefits 
are subject to reduction on the earliest applicable date. In view of 
that requirement, it would be useful to provide a reference tool in 
order to help VA and claimants locate the effective-date provisions 
throughout part 5. Proposed Sec.  5.705(b) is reserved for a table with 
the locations of specific reduction and discontinuance rules once part 
5 is published in the Federal Register. For the benefit of persons 
reviewing this NPRM, we have included a table to notify readers of the 
effective-date provisions that we intend to reference in the final 
version of this paragraph. We do not intend that proposed Sec.  
5.705(b) contain any substantive rules. In Sec.  5.705(b), we make a 
statement to this effect, to prevent the reliance on this chart by 
claimants or adjudicators. When considering the issue of effective 
date, users of part 5 should apply the specific regulation referenced 
in the chart, rather than rely on the chart itself.
    As proposed, the table shows both already published and as yet 
unpublished Part 5 sections. The unpublished sections are included as 
placeholders; many may change before publication. Section 5.101 of 
Subpart C was published as proposed on May 10, 2005. See 70 FR 24680. 
Proposed Sec. Sec.  5.152, 5.165, and 5.177 of Subpart C were published 
as proposed on May 22, 2007. See 72 FR 28770. The Subpart D provisions 
were published as proposed on September 20, 2006. See 71 FR 55052. 
Section 5.477 of Subpart F was published as proposed on December 27, 
2004. See 69 FR 77578. Sections 5.568 to 5.572 of Subpart G were 
published as proposed on October 1, 2004. See 69 FR 59072. A correction 
to proposed Sec.  5.570 was published on October 21, 2004. See 69 FR 
61914. Sections 5.524, 5.573, and 5.574 of Subpart G were published as 
proposed on October 21, 2005. See 70 FR 61326. The Subpart H provisions 
were published as proposed on March 9, 2007. See 72 FR 10860. The 
Subpart I provisions were published as proposed on June 30, 2006. See 
71 FR 37790. The Subpart K provisions were published as proposed on May 
31, 2006. See 71 FR 31056.
5.706 Payments Excluded in Calculating Income or Net Worth
    Proposed Sec.  5.706 contains a list of payments that are excluded 
by VA in calculating income or net worth for those benefits that are 
based on financial need, which are: Improved Pension, Section 306 
Pension, Old-Law Pension, and parents' dependency and indemnity 
compensation (DIC). Financial need is also the basis for establishing 
dependency of parents in veterans' disability compensation cases. The 
specific rules related to income and net worth limits for these five 
benefits are located in the subpart dealing with each specific benefit. 
However, there are certain payments that are excluded from income and 
net worth by Federal statute for all Federal need-based programs. 
Proposed Sec.  5.706 contains a list of these payments. It will be 
helpful to consolidate all of these exclusions into one location and in 
table form.
    Current Sec.  3.261 contains a table listing the exclusions from 
countable income for Old-Law Pension, Section 306 Pension, parents' 
DIC, and dependency of parents. Current Sec.  3.263 contains exclusions 
from net worth for Section 306 Pension and dependency of parents. 
Current Sec.  3.272 contains exclusions from countable income for 
Improved Pension, and current Sec.  3.275 contains exclusions from net 
worth for Improved Pension. Exclusions common to each VA need-based 
benefit are included in table form in proposed Sec.  5.706(b). The 
exclusions that are not common to each VA need-based benefit are 
contained in the regulations pertaining to the individual benefit. In 
addition, we propose to include in this table certain statutory 
exclusions from countable income or net worth that are not included in 
part 3.
    Proposed Sec.  5.706(b)(1) would exclude, from countable income, 
relocation payments made under the Uniform Relocation Assistance and 
Real Property Acquisition Policies Act of 1970 (42 U.S.C. 4601 et 
seq.), Pub. L. 91-646, 84 Stat. 1894. Current Sec.  3.261(a)(32) 
excludes relocation payments under Public Law No. 90-448 and Public Law 
No. 90-495. However, the Uniform Relocation Assistance and Real 
Property Acquisition Policies Act of 1970 repealed these relocation 
payment

[[Page 65218]]

provisions and exclusions. Section 216 of the 1970 Act provides that 
payments made under the Act are to be excluded from countable income. 
See 42 U.S.C. 4636.
    Proposed Sec.  5.706(b)(4) excludes from countable income and net 
worth consideration, payments made to individuals because of their 
status under Pub. L. 103-286, as victims of Nazi persecution. The 
exclusion of this source of income will implement this statute, which 
is not implemented by a part 3 regulation.
    Proposed Sec.  5.706(b)(7) excludes certain appropriations to 
comply with judgments of the Indian Claims Commission and the Court of 
Federal Claims that are held under the Indian Judgment Funds Use and 
Distributions Act (25 U.S.C. 1401 et seq.) or another act of Congress.
    Proposed Sec.  5.706(b)(8) excludes from income and net worth 
consideration the interests of individual Indians in trust or 
restricted lands. The current regulations under Sec. Sec.  3.262(v) and 
3.272(r) only exclude income of up to $2,000 per calendar year received 
by American Indian beneficiaries from trust or restricted lands. 
Pursuant to 25 U.S.C. 1408, interests of individual Indians in trust or 
restricted lands shall not be considered a resource, and up to $2,000 
per year of income received by individual Indians that is derived from 
such interests shall not be considered income. Therefore, in order to 
extend the exclusion to net worth consideration, proposed Sec.  
5.706(b)(8) would exclude from net worth the interests received by 
individual Indians from trust or restricted lands.
    Proposed Sec.  5.706(b)(9) excludes from income and net worth 
consideration income derived from certain submarginal land of the 
United States that is held in trust for certain Indian tribes in 
accordance with 25 U.S.C. 459. Proposed Sec.  5.706(b)(10) excludes 
from income and net worth consideration up to $2,000 of per capita 
distributions under the Old Age Assistance Claims Settlement Act (25 
U.S.C. 2301 et seq.). The exclusions described in Sec.  5.706(b)(9) and 
Sec.  5.706(b)(10) will implement statutory provisions which were not 
implemented in part 3.
    Proposed Sec.  5.706(b)(11) excludes from income and net worth 
consideration, any income or asset received under the Alaska Native 
Claims Settlement Act (43 U.S.C. 1626). Current Sec. Sec.  3.262(x) and 
3.272(t) exclude the following payments from income consideration: cash 
(including cash dividends on stock received from a Native Corporation) 
to the extent that it does not, in the aggregate, exceed $2,000 per 
individual per year; stock (including stock issued or distributed by a 
Native Corporation as a dividend or distribution on stock); a 
partnership interest; land or an interest in land (including land or an 
interest in land received from a Native Corporation as a dividend or 
distribution on stock); and an interest in a settlement trust. The 
Alaska Native Claims Settlement Act (43 U.S.C. 1626) provides that the 
income or asset received from a Native Corporation shall not be 
considered or taken into account as an asset or resource. Therefore, in 
order to extend the exclusion to net worth consideration, proposed 
Sec.  5.706(b)(11) would exclude from net worth the cited income and 
assets listed in this paragraph.
    Proposed Sec.  5.706(b)(12) excludes from income and net worth 
consideration payments received under the Maine Indian Claims 
Settlement Act of 1980 (25 U.S.C. 1721 et seq.). The exclusion of this 
source of income will implement this statute not implemented in part 3.
    Proposed Sec.  5.706(b)(13) excludes from income consideration 
allowances, earnings, and payments to individuals participating in 
programs under the Workforce Investment Act of 1998 (29 U.S.C. 2931), 
which provides that allowances, earnings, and payments to individuals 
participating in programs under the Act shall not be considered as 
income for the purposes of determining eligibility for, and the amount 
of income transfer and in-kind aid furnished under, any Federal or 
federally assisted program based on need. There is no resource 
exemption. Therefore, proposed Sec.  5.706(b)(13) would only exclude 
from income consideration income derived from the Workforce Investment 
Act of 1998. The exclusion of this source of income will implement this 
statute not implemented in part 3.
    Proposed Sec.  5.706(b)(14) excludes from income consideration 
allowances, earnings, and payments to AmeriCorps participants. Pursuant 
to 42 U.S.C. 12637, allowances, earnings, and payments to individuals 
participating in programs under subchapter I of title 42 shall not be 
considered as income for the purposes of determining eligibility for, 
and the amount of income transfer and in-kind aid furnished under, any 
Federal or federally assisted program based on need. There is no 
resource exemption. Therefore, proposed Sec.  5.706(b)(14) would only 
exclude from income consideration income derived from the National and 
Community Service Act of 1990. The exclusion of this source of income 
will implement this statute, which is not implemented in part 3.
    Current Sec.  3.262(q) and Sec.  3.272(k) list excludable income 
from various Federal volunteer programs without reference to net worth 
consideration. Through a series of legislative changes, these programs 
are now administered by the Corporation for National and Community 
Service rather than by the agencies listed in Sec.  3.262(q) and Sec.  
3.272(k). See Pub. L. 103-82, 107 Stat. 785. Section 5044(f) of title 
42, United States Code, provides that payments made under the act which 
created the Corporation for National and Community Service, with 
certain exceptions, do not reduce or eliminate assistance that 
volunteers may be receiving under other programs. We propose to account 
for this change in the law by providing, in Sec.  5.706(b)(15), that 
payments received from any of the volunteer programs administered by 
the Corporation for National and Community Service would be excluded 
from income and net worth.
    Proposed Sec.  5.706(b)(16) excludes from income and net worth 
consideration the value of the allotment provided to an eligible 
household under the Food Stamp Program. Proposed Sec.  5.706(b)(17) 
excludes from income and net worth consideration the value of free or 
reduced price for food under the Child Nutrition Act of 1966 (42 U.S.C. 
chapter 13A). Proposed Sec.  5.706(b)(18) excludes from income and net 
worth consideration the value of any child care provided or arranged 
(or any amount received as payment for such care or reimbursement for 
costs incurred for such care) under the Child Care and Development 
Block Grant Act of 1990 (42 U.S.C. chapter 105). Proposed Sec.  
5.706(b)(19) excludes from income and net worth consideration the value 
of services, but not wages, provided to a resident of an eligible 
housing project under a congregate services program under the Cranston-
Gonzalez National Affordable Housing Act (42 U.S.C. chapter 130). 
Finally, proposed Sec.  5.706(b)(20) excludes from income and net worth 
consideration the amount of any home energy assistance payments or 
allowances provided directly to, or indirectly for the benefit of, an 
eligible household under the Low-Income Home Energy Assistance Act of 
1981 (42 U.S.C. chapter 94). The exclusion of the five sources of 
income will implement these statutes not implemented in part 3.
    Proposed Sec.  5.706(b)(21) excludes from income consideration 
payments, other than wages or salaries, received from programs funded 
under the Older Americans Act of 1965 (42 U.S.C. chapter 35). In 
accordance with 42 U.S.C. 3020a(b), such payments may not

[[Page 65219]]

be treated as income or benefits for the purpose of any other program 
or provision of Federal or State law. The exclusion of this source of 
income will implement this statute not implemented in part 3.
    Proposed Sec.  5.706(b)(22) excludes from income and net worth 
consideration, amounts of student financial assistance received under 
Title IV of the Higher Education Act of 1965, including Federal work-
study programs, under Bureau of Indian Affairs student assistance 
programs, or vocational training under the Carl D. Perkins Vocational 
and Technical Education Act of 1998 (20 U.S.C. chapter 44). The 
exclusion of this source of income will implement this statute, which 
is not implemented in part 3.
    Proposed Sec.  5.706(b)(24) excludes from income and net worth 
consideration, payments received under the Medicare transitional 
assistance program and any savings associated with the Medicare 
prescription drug discount card (42 U.S.C. 1395w-141(g)(6)).
5.707 Deductible Medical Expenses
    Proposed Sec.  5.707, based on current Sec. Sec.  3.261(b)(1), 
3.262(l), and 3.272(g), pertains to medical expenses that are deducted 
from countable annual income. In Sec.  5.707, we propose to define the 
categories of expenses that will be considered ``medical expenses.''
    Paragraph (a) of proposed Sec.  5.707 cites several other proposed 
rules that were published in prior Notices of Proposed Rulemaking: 
Sec.  5.413 Income deductions for calculating adjusted annual income 
(regarding Improved Pension), 72 FR 54776, 54797-98 (Sept. 26, 2007), 
Sec.  5.474 Deductible Expenses for Section 306 Pension Only, 69 FR 
77578, 77591-92 (Dec. 27, 2004), and Sec.  5.532 Deductions from income 
(regarding parents' DIC), 70 FR 61326, 61345 (Oct. 21, 2005).
    Proposed Sec.  5.707(b) defines the term ``licensed healthcare 
provider.'' We propose to inform regulation users that individual 
states are responsible for such licensing. We also propose to list 
examples of licensed healthcare providers.
    For Improved Pension, the authority for VA to deduct from countable 
annual income a portion of amounts paid for unreimbursed medical 
expenses derives from 38 U.S.C. 1503(a)(8). For parents' dependency and 
indemnity compensation (DIC), the authority for VA to deduct unusual 
medical expenses from countable annual income derives from 38 U.S.C. 
1315(f)(3). For Section 306 Pension, such authority derives from 
section 306 of Pub. L. 95-588, 92 Stat. 2508, which provides that 
beneficiaries who do not wish to elect Improved Pension may continue to 
receive the pension amount they were receiving on December 31, 1978, 
subject to certain applicable laws that existed on that date. The 
applicable law pertaining to medical expenses on that date was 38 
U.S.C. 503(c) as in effect on December 31, 1978. (Section 503 was later 
renumbered section 1503). VA has identified specific types of expenses 
that will be considered deductible ``medical expenses,'' because that 
term is not defined by statute. We propose to group these specific 
types of expenses into broad categories, as listed in paragraph (c) of 
the proposed rule.
    Proposed Sec.  5.707(c) explains that the term ``medical expenses'' 
includes payments made for care by a licensed healthcare provider, 
medical supplies and medications, adaptive equipment, transportation, 
health insurance premiums, and institutional forms of care and in-home 
attendants. We propose to include in paragraph (c) detailed provisions 
relating to the broad categories of medical expenses. Proposed Sec.  
5.707(c)(2) will state that vitamins will be deducted as a medical 
expense only if the individual is directed by a ``healthcare provider 
authorized to write prescriptions'' to take the vitamins. These 
clarifications provide further guidance as to allowable medical 
expenses.
    Proposed Sec.  5.707(c)(6) includes details relating to medical 
expenses paid for different forms of institutional care. Institutions 
such as nursing homes, custodial institutions, soldiers' and sailors' 
homes, or veterans' homes often provide a range of ``services,'' which 
may include healthcare. In such settings, VA wishes to ensure that 
deductions from countable annual income reflect Congress' intent that 
amounts be deducted for ``medical expenses'' only, and not for other 
primary or incidental services. For example, if fees are paid to an 
institution that houses and maintains an individual because the 
individual needs to live in a protected environment (see proposed 
paragraph (c)(6)(iv), ``Custodial Care''), the portion of the fees paid 
for medical treatment will be deducted from countable annual income. 
However, the portion of the fees paid for strictly custodial care will 
not be deducted. Similarly, VA may deduct fees paid to a nursing home 
if the individual is there as a ``patient'' and not merely as a 
``resident.'' Individuals in veterans' homes or soldiers' and sailors' 
homes may have expenses deducted if they are actually receiving medical 
care, but expenses will not be deducted merely for domiciliary 
functions performed by the homes.
5.708 Eligibility Verification Reports
    Proposed Sec.  5.708 combines provisions from current Sec. Sec.  
3.256, 3.277, and 3.661 with a few substantive changes. The proposed 
regulation includes rules regarding when VA will require claimants and 
beneficiaries to complete an eligibility verification report (EVR).
    Proposed Sec.  5.708(a)(1) would define an EVR. The current 
regulations, Sec. Sec.  3.256(b) and 3.277(c) require the use of an EVR 
in certain circumstances, such as to obtain a social security number or 
to obtain certain information from a beneficiary receiving parents' 
dependency and indemnity compensation (DIC) or pension. Requiring an 
EVR under these circumstances is unnecessarily restrictive and 
burdensome to both VA personnel and the beneficiary who must file the 
EVR. In some cases, verifying a social security number can be achieved 
by sending a simple form letter or by making a direct telephone call to 
the individual. Hence, an EVR is defined as a ``form that VA may use to 
obtain'' certain information, rather than as a ``form that VA shall use 
to obtain'' that information.
    Current Sec.  3.661(b)(2) uses the term, ``12-month annualization 
period'' to describe the reporting period for which a beneficiary 
reports income, adjustments to income, and net worth to VA. We propose 
to use the term ``reporting period'' instead of ``12-month 
annualization period,'' for ease of use by claimants, beneficiaries, VA 
claims examiners, and other interested parties. We therefore propose in 
paragraph (a) to include a definition of ``reporting period'' and to 
use that term in Sec.  5.708 and Sec.  5.697.
    In order to provide flexibility to VA personnel, we propose to use 
in Sec.  5.708(b) the word ``may'' in place of the word ``shall,'' 
which will give VA the option of not using an EVR to obtain some types 
of information. In addition, we would make this new, permissive rule 
applicable to both claimants and beneficiaries, in order to improve 
VA's ability to process both claims and ongoing awards, by 
incorporating into Sec.  5.708(b)(1), long-standing VA practice 
regarding when to send an EVR. Therefore, proposed paragraph (b) 
provides the circumstances under which EVRs ``may'' be sent to 
beneficiaries and claimants.
    Proposed Sec.  5.708(c) includes an important exception regarding 
sending an annual EVR to certain parents' DIC beneficiaries. 
Specifically, 38 U.S.C. 1315(e) states that when a parent has

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reached the age of 72 and has been receiving parents' DIC during 2 
consecutive calendar years, the parent will not be required to annually 
report their income by filing an EVR. However, Sec.  1315(e) does 
require that a parent receiving parents' DIC notify VA whenever there 
is a material change in his or her annual income and we have 
incorporated this requirement in paragraph (c). The text in paragraph 
(c) of proposed Sec.  5.708(c) is an exception to the general rule 
stated in paragraph (b) and we have pointed that out in the 
introductory paragraph of (b).
    Proposed Sec.  5.708(d) specifies actions VA may take upon receipt 
of information or an EVR. Current part 3 provisions contain an 
explanation of the actions VA takes upon receipt of an EVR from a 
beneficiary. Missing, however, is an explanation of the action VA takes 
when an EVR is received from a claimant. This explanation is necessary 
to completely address actions VA will take regarding EVRs received from 
claimants and beneficiaries. In addition, because paragraph (b) of this 
rule would make the use of an EVR optional, paragraph (d) states the 
action VA may take upon receipt of either an EVR or information from a 
claimant or a beneficiary.
    Proposed Sec.  5.708(d) also describes generally the action VA 
takes when the expected annual income is uncertain. This provision is 
based on current Sec.  3.661(a)(2). We have updated the citations to 
Sec. Sec.  3.260(b) and 3.271(f), contained in current Sec.  
3.661(a)(2), to the proposed part 5 counterparts. See 69 FR 77578, 
77593 (Dec. 27, 2004) (proposed Sec.  5.478(a)); 70 FR 61326, 61345 
(Oct. 21, 2005) (propose