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M21-1, Part V, Subpart iii, Chapter 1, Section I – Improved Pension – Counting Specific Types of Income

Overview


In This Section

This section contains the following topics:

1.  Income Inclusions

 


Introduction

This topic contains information on income inclusions, including

Change Date

June 30, 2015

V.iii.1.I.1.a.  General Guidelines on Income Inclusions

The general rule set out at 38 CFR 3.271 is that all income is countable for pension purposes unless specifically excluded by 38 CFR 3.272.
The following types of income are all countable income for pension purposes:
  • earnings
  • retirement or survivors’ programs
  • interest
  • dividends
  • unemployment compensation
  • operation of a business, and
  • life insurance proceeds received before December 10, 2004, because of the death of a Veteran.
This topic describes additional sources of income that are countable.
Note:  When a Veteran’s death occurred before December 10, 2004, any insurance proceeds received after December 9, 2004, must be excluded from income for VA purposes (IVAP).
Questions:  If questions arise about how to handle specific types of income, the Veterans Service Center (VSC) or pension management center (PMC) question coordinator should contact the Pension Policy & Procedure Mailbox atVAVBAWAS/CO/PENSION POL & PROC.

V.iii.1.I.1.b.  Benefits Subject to Garnishment

If a claimant’s benefits, such as Social Security, are subject to involuntary withholding due to legal action initiated by a third party, count the entire amount even though the claimant does not receive it all.
Exception:  If benefits are withheld to recoup an overpayment of the benefit, count only the actual amount received.

V.iii.1.l.1.c.  Counting IRA Distributions

When an individual retirement account (IRA) or similar instrument starts paying benefits, count the entire amount even though it represents a partial return of principal.

V.iii.1.l.1.d.  Counting Non-Retirement Annuities

Count, on an annual basis, only the amount of interest received from a non-retirement annuity or similar instrument if the beneficiary purchased the annuity using funds the Department of Veterans Affairs (VA) already considered as a
  • part of net worth, or
  • conversion of assets from a property sale.
In all other situations, count the entire amount received as income.

V.iii.1.l.1.e.  Withdrawal of Contributions From a Retirement Fund

If a claimant receives a distribution of retirement benefits, count the entire amount received.  This is the case, even though all or part of the distribution might represent a return of withheld wages which were previously counted as IVAP as part of the claimant’s gross wages.

V.iii.1.l.1.f.  Value of Room and Board

Count the fair value of room and board furnished to a claimant if the room and board are furnished in lieu of money or services provided by the beneficiary.
Exception:  The value of room and board is not countable if it is furnished gratuitously.

V.iii.1.l.1.g.  Gifts and Inheritances of Property or Cash

Count gifts and inheritances of property or cash as received.  The value of a
  • gift or inheritance of property is the fair market value of the property at the time it is received, and
  • financial instrument, such as a stock certificate or bond, is the amount it would bring if it were cashed on receipt, even though this might be less than its face value.
Exception:  Regular cash contributions for the purpose of paying for the claimant’s maintenance are not considered countable gifts.
Note:  If a third party pays for medical expenses, those same medical expenses cannot be allowed as deductions from the claimant’s or beneficiary’s income.

V.iii.1.l.1.h.  Waived Income

If a beneficiary is entitled to receive income, such as a retirement benefit, but waives the income, the amount that would be received if not for the waiver still counts as income as described in 38 CFR 3.276(b).
The intent of this provision is to prevent a person from creating a need for pension.
Exception:  If a claimant withdraws a Social Security application after a finding of entitlement to Social Security so as to maintain eligibility for an unreduced Social Security benefit on attainment of a certain age, such as age 65, do not regard the withdrawal as a waiver under 38 CFR 3.276(a).

V.iii.1.l.1.i.  Gains From Gambling

Count net winnings from gambling as income.
Note:  Gambling losses may be deducted from gross winnings during the same year to arrive at net gambling income.

V.iii.1.l.1.j.  USGLI, NSLI, and TDIP

Count the following types of income:
  • United States Government Life Insurance (USGLI) proceeds
  • National Service Life Insurance (NSLI) proceeds, and
  • Total Disability Insurance Payments (TDIP).
Insurance dividends are not countable unless they are left on deposit to draw interest.  In that event, only the interest earned is countable income.

V.iii.1.l.1.k.  Income From Joint Accounts

Count income from joint bank accounts or from other jointly owned property in proportion to the claimant’s ownership share, per 38 CFR 3.271(d).
Example:  A surviving spouse has a joint bank account with her nephew.  One half of the interest earned by the joint account is countable income for the surviving spouse.

V.iii.1.l.1.l.  Cooperative Dividends

Count cash dividends from rural cooperatives and similar entities.
Exception:  Do not count cooperative dividends in the form of discounts on the purchase of merchandise or services.

V.iii.1.l.1.m.  Campaign Contributions

Count campaign contributions only if the beneficiary has access to the money and could use it for purposes other than his or her political campaign.
If the laws restrict the use of contributions to campaign purposes, then the contributions would not be considered as income to the beneficiary.

V.iii.1.l.1.n.  Child Support Payments

Count child support payments as income of the custodial parent if they are payable to the custodial parent.
Do not count the child support payments as income of the child as the income is not eligible to be subject to a hardship deduction under 38 CFR 3.23(d)(6) and 38 CFR 3.272(m).
Reference:  For more information on hardship deductions from a child’s income, see M21-1, Part V, Subpart iii, 1.G.10.

2.  Income Inclusions from Government Programs

 


Introduction

This topic contains information on income inclusions from government programs, including

Change Date

June 30, 2015

V.iii.1.l.2.a.  Social Security Lump-Sum Death Benefit

Count the Social Security lump-sum death benefit for one year beginning the first day of the month after the month in which it was received.

V.iii.1.l.2.b.  DoL Employment Programs

Count the income received by participants in programs operated by the Department of Labor (DoL), such as the
  • Green Thumb Program, and
  • Older Americans Community Service Employment Program.

V.iii.1.l.2.c.  VA Education or Compensation Benefits

Count VA
  • education or compensation benefits, including Dependency and Indemnity Compensation (DIC), and
  • benefits paid to a claimant as accrued amounts based on the entitlement and death of another beneficiary.
Exception:  Do not count pension benefits paid as an accrued amount.
Example
Situation:
  • A Veteran receives pension of $500 per month.
  • The Veteran becomes entitled to temporary 100 percent compensation under Paragraph 29 of the rating schedule at the rate of $2,299 from March 1, 2005, to April 1, 2005.
  • The Veteran receives a $1,799 retroactive payment on August 2, 2005.
Result:  Count nonrecurring income of $1,799 from September 1, 2005, to September 1, 2006.

V.iii.1.l.2.d.  VA Pension Benefits

Generally, do not count VA pension benefits.  However, under 38 CFR 3.700(a)(4), a Veteran receiving pension is barred from receiving any other pension benefit, such as Section 306 Pension as a surviving spouse.

V.iii.1.l.2.e.  Multiple VA Benefits

If one of two Veterans married to each other receives pension and the other Veteran receives disability compensation, count the compensation as income for pension purposes.
If a beneficiary’s VA benefits are countable income on another account and the payee receives less than the full benefit, count the gross VA benefit before the withholding.
Example:  Two Veterans are married.  Veteran A is entitled to pension and Veteran B is entitled to compensation at the 10-percent rate.  Veteran B’s compensation is being withheld to recoup a VA Medical Center overpayment.  Veteran B’s entire 10 percent compensation still counts as income on Veteran A’s pension award.

V.iii.1.l.2.f.  Accrued VA Benefits

Count accrued VA benefits.
Exceptions:  Do not count
  • pension benefits paid as an accrued amount, or
  • VA burial benefits.  (However, the amount of VA burial benefits paid by VA cannot be allowed as a deduction from a claimant’s income.)

V.iii.1.l.2.g.  Conservation Resource Program Payments

Count payments to a landowner under the
  • U.S. Department of Agriculture’s Conservation Resource Program (CRP), and
  • similar programs for the purpose of keeping land out of production.
If the operator of a business receives CRP payments, treat them as any other business income.
A beneficiary who does not operate a business can still deduct taxes and other expenses of maintaining the land from the CRP income.  This income should be treated like rental income since the beneficiary receives payment for relinquishing partial rights to land.

V.iii.1.l.2.h.  Vietnam Era Bonus Payments

Count Vietnam Era bonus payments.
Exception:  Do not count the payment if eligibility for the bonus is based on the need of the beneficiary.

3.  Income Exclusions

 


Introduction

This topic contains information on income exclusions, including

Change Date

June 30, 2015

V.iii.1.l.3.a.  General Guidelines on Income Exclusions

Certain items are not countable for pension purposes, either because they are
Note:  VA will not count payments if Federal law requires that they be excluded from income and/or net worth for purposes of VA benefit calculations, regardless of whether the payment or program is specified in
Questions:  If questions arise about how to handle specific types of income, the VSC or PMC question coordinator should e-mail the Pension Policy & Procedure Mailbox at VAVBAWAS/CO/PENSION POL & PROC.

V.iii.1.l.3.b.  Welfare, SSI, SSI Windfall, and Drug Discounts Received Under the MMA

In general, do not count any type of benefit for which eligibility is based on the claimant’s financial need, such as Welfare, Supplemental Security Income (SSI), and savings from prescription drug discounts received under the Medicare Prescription Medication, Improvement, and Modernization Act (MMA).
Note:  This also applies to any SSI Windfall income that is received.  SSI Windfalloccurs when an individual receives SSI payments, and the Social Security Administration (SSA) subsequently determines that the individual was actually entitled to regular Social Security benefits.  SSA converts the SSI payments to regular Social Security payments, and lists the income as SSI Windfall.
Exception:  SSI payments and SSI Windfall payments are considered countable income for Old Law Pension.
Reference:  For more information on this exclusion, see 38 CFR 3.272(a).

V.iii.1.l.3.c.  Income from VHA Work Restoration Programs

Do not count income received from Work Restoration programs administered by the Veterans Health Administration (VHA), including
  • Incentive Therapy (IT), and
  • Compensated Work Therapy (CWT).

V.iii.1.l.3.d.  Income Tax Refunds

Do not count income tax refunds, including the Federal Earned Income Credit.

V.iii.1.l.3.e.  Withheld Social Security

Do not count Social Security or similar benefits withheld to recoup a prior overpayment from SSA or other non-VA organization.  Count the check amount received, if any, plus any Medicare deduction.
Exception:  If the withholding is due to legal action by a third party, such as a garnishment order, count the gross benefit.

V.iii.1.l.3.f.  Chore Services Payments

Do not count amounts paid by a governmental entity to an individual to care for a disabled VA claimant in the claimant’s home, provided eligibility for the payments is based on the disabled VA claimant’s financial need.
Payments are not countable if they are paid to a dependent of the disabled VA claimant where
  • counting the payments would reduce the disabled VA beneficiary’s rate of pension, and
  • eligibility for the payments is based on the VA beneficiary’s financial need.

V.iii.1.l.3.g.  Examples: Chore Services Payments

Example 1:  A spouse of a Veteran beneficiary is paid by the State to take care of the Veteran in their home under a chore services program.  The income is not countable.  It makes no difference whether the State pays the spouse directly or pays the Veteran.
Example 2:  A surviving spouse beneficiary is paid by the State to take care of a neighbor in the neighbor’s home under a chore services program.  The chore services payments are countable earned income since eligibility for the payments derives from the neighbor’s financial need and not the financial need of the VA beneficiary.

V.iii.1.l.3.h.  Payments to Foster Parents

Do not count as income payments made by a State or subdivision of a State to foster parents for care of foster children.

V.iii.1.l.3.i.  Survivor Benefit Annuity

Do not count Survivor Benefit Annuity amounts paid by the Department of Defense (DoD) under Public Law (PL) 100-456 to the surviving spouse of a Veteran who died prior to November 1, 1953, per 38 CFR 3.272(n).
Exception:  The following DoD annuity payments are countable as income:
  • Survivor Benefit Plan (SBP) annuity payments
  • SBP Minimum Income Widow/Widowers Annuity Plan (MIW-SBP), and
  • Annuities for Certain Military Surviving Spouses (ACMSS).
References:  For more information on

V.iii.1.l.3.j.  Timber Sales

Do not count income received from the occasional sales of timber, as they are considered a conversion of assets.
Exception:  If the claimant is in the business of selling timber, the proceeds from the sale of timber constitute business income.

V.iii.1.l.3.k.  Mineral Royalties

Do not count royalties received for extracting minerals.  Royalties are considered to be a conversion of assets.  The claimant is deemed to be exchanging mineral assets for cash
assets.
Exception:  Bonus payments and delay rentals that do not involve depletion of mineral assets are countable.

V.iii.1.l.3.l.  IRA Interest

In general, do not count interest on IRAs if it cannot be withdrawn without incurring a substantial penalty.
Exception:  When the claimant starts drawing down his/her IRA, all payments, including interest and principal, are countable income.

V.iii.1.l.3.m.  Loans, Including Reverse Mortgages

Do not count loans to a claimant as long as the claimant incurs a legally binding obligation to repay the loan.
Do not count funds received from a reverse mortgage.  A reverse mortgage is considered a home equity loan that must be repaid when the homeowner no longer lives in the home.
Note:  Loans must be distinguished from gifts.  A gift disguised as a loan is countable.

V.iii.1.l.3.n.  VA Pension as an Accrued Benefit

Do not count VA pension that is paid as an accrued benefit.
In Martin v. Brown, 17 Vet. App. 196 (1994), the Court held that when pension benefits are paid as an accrued benefit, that payment meets the pension-income-exclusion provision of 38 U.S.C. 1503(a)(2), and, therefore, is not IVAP.

V.iii.1.l.3.o.  MOD Payment to Surviving Spouse

Do not count the Veteran’s month-of-death (MOD) payment as income on a surviving spouse’s Survivors Pension award.

V.iii.1.l.3.p. Insurance Dividends

Do not count insurance dividends, as they are considered to be a return of excess premium payments.
Exceptions:
  • If insurance dividends are left on deposit, count any interest earned.
  • Count TDIP (cash payments to totally disabled policyholders) as income.

V.iii.1.l.3.q.  Joint Accounts

If a joint owner of property, such as a bank account, acquires the other joint owner’s share because of the death of that person, do not count the amount acquired, per 38 CFR 3.272(f).
Exception:  If one joint owner transfers his/her share of property to another joint owner (pension claimant) during the transferor’s lifetime, the amount acquired is countable as a gift of property.

V.iii.1.l.3.r.  Withdrawals From Bank Accounts and Certificates of Deposit

Do not count withdrawals from regular bank accounts and certificates of deposit, as they do not constitute income events because the
  • interest is counted as it accrues, and
  • withdrawal is merely a conversion of assets.
Exception:  If the assets are in an IRA or other retirement account, apply the provisions in M21-1, Part V, Subpart iii, 1.I.1.c.

V.iii.1.l.3.s.  AmeriCorps Program Payments

Do not count as income any of the following types of payments received by participants in an AmeriCorps program under the National and Community Service State grant program:
  • educational awards
  • living allowances, and
  • child-care allowances.
An AmeriCorps program is any program that receives approved AmeriCorps positions or Corporation funds under 42 U.S.C. 12571.
Reference:  For more information on payments excluded by Federal statutes, seeM21-1, Part V, Subpart iii, 1.I.11.

V.iii.1.l.3.t.  Scholarships and Grants for School Attendance

Do not count scholarships and grants earmarked for specific educational purposes, provided that the payments are actually used for school purposes, such as tuition or fees.
Exception:  Any amounts in excess of amounts actually paid for school expenses are countable income.
Reference:  For information on educational expenses that may be deducted from income, see M21-1, Part V, Subpart iii, 1.G.8.

V.iii.1.l.3.u.  Proceeds of Cashed-In Life Insurance Policies

Do not count the proceeds of cashed-in life insurance policies as income.
Rationale:  Such proceeds are considered profit realized from the disposition of real or personal property, which is excluded under 38 CFR 3.272(e).
Reference:  For more information on this exclusion, see

V.iii.1.l.3.v.  Proceeds of Life Insurance Policies Received After December 9, 2004

Under Public Law 108-454, do not count the lump sum proceeds of a life insurance policy on a Veteran who dies after December 9, 2004.
Reference:  For more information on this exclusion, see 38 CFR 3.272(x).

V.iii.1.l.3.w.  Proceeds of Cashed-In Savings Bonds

Do not count the proceeds of cashed-in savings bonds as income.
Rationale:  Such proceeds are considered profit realized from the disposition of real or personal property, which is excluded under 38 CFR 3.272(e).
Important:  Some savings bonds, such as Series HH U.S. Savings Bonds and some State or municipal bonds, pay interest to the holder without requiring the holder to redeem the bond.  If interest is paid without redemption of the bond, the interest is countable income.
Reference:  For more information on this exclusion, see

V.iii.1.l.3.x.  Payments to Veterans From a State or Municipality due to Injury or Disease

Exclude up to $5,000.00 per year of income from a State or municipality that is paid to the Veteran as a Veterans’ benefit due to injury or disease when determining annual income for Veterans Pension benefits.
Note:  This applies to determinations of annual income for calendar years beginning January 1, 2012.
Reference:  For more information on this exclusion, see 38 U.S.C. 1503(a)(11).

4.  Living/Home Income Exclusions

 


Introduction

This topic contains information on living/home income exclusions, including

Change Date

May 20, 2011

V.iii.1.l.4.a.  Profit From Sale of Property

If a claimant enters into an occasional sale of property, do not count the income unless it is an installment sale, even if the amount received exceeds the value of the property.
Exception:  Profit from sale of property is countable if the claimant sells the property as part of a regular business.
Note:  An installment sale, for pension purposes, is any sale in which the seller receives more than the sales price over the course of the transaction.  The actual number of installments is irrelevant.

V.iii.1.l.4.b.  Maintenance

Do not count the value of maintenance.  For example, if someone furnishes a claimant free room and board, or pays the claimant’s bills, the value of room and board or the amount of the extinguished debt is not countable.
Regular cash contributions can be considered maintenance, and not be counted as income, if the evidence establishes that
  • the donor has assumed all or part of the burden of regular maintenance of the claimant, and
  • cash contributions are used by the claimant to pay for basic necessities, such as food or housing.
Exception:  Cash contributions which are sporadic or in amounts in excess of what is required for regular maintenance should be considered gifts which are countable for pension purposes.

V.iii.1.l.4.c.  California State Renter’s Credit

Do not count California State Renter’s Credit, as it is considered to be a welfare payment, per 38 CFR 3.272(a).

V.iii.1.l.4.d.  Farmers Home Administration Construction Grants

Do not count grants made by the Farmers Home Administration to needy families in rural areas for repairs or improvements to structures.

5.  Disaster Income Exclusions

 


Introduction

This topic contains information on disaster income exclusions, including

Change Date

June 30, 2015

V.iii.1.l.5.a.  Proceeds of Casualty Insurance Received Prior to February 2, 2013

Do not count the amount received from an insurance policy when a claimant loses property due to fire, flood, theft, or other casualty loss as long as it does not exceed the value of the lost property, per 38 CFR 3.272(d).

V.iii.1.l.5.b.  Proceeds of Casualty Insurance Received on or After February 2, 2013

In general, do not count any reimbursement income received from an insurance company, other than for personal injury.  This exclusion applies only to loss or damage to property and does not apply to personal injury.
Important:  Exclude proceeds of casualty insurance from net worth unless evidence of record shows that the beneficiary has no intention of using the money received as reimbursement for property loss to repair or replace that property.  Request documentation showing the beneficiary’s commitment to replace or repair the property if needed.
Notes:
  • Any interest or dividends accrued from the investment of disaster relief payments or casualty insurance proceeds is considered countable income.
  • For information on counting income received from a source other than an insurance company, or if the insurance reimbursement is questionable, contact the Pension Policy & Procedures mailbox atVAVBAWAS/CO/PENSION POL & PROC.

V.iii.1.l.5.c.  Disaster Relief Payments

Do not count voluntary payments in the nature of relief after widespread national disaster, such as floods and hurricanes, as they are considered to be welfare under38 CFR 3.272(a).
Exception:  This exclusion does not apply to disaster relief payments made in a commercial context, such as drought relief to farmers.  If the operator of a business receives disaster relief, it must be treated as any other business income.

6.  Death and Disability Income Exclusions

 


Introduction

This topic contains information on death and disability income exclusions, including

Change Date

May 20, 2011

V.iii.1.l.6.a.  RECA Payments

Do not count payments received under the Radiation Exposure Compensation Act (RECA).
Reference:  For more information on this exclusion, see PL 101-426.

V.iii.1.l.6.b.  Payments for Participation in a Program of Rehabilitative Services

Do not count payments made as a result of a claimant’s participation in a therapeutic or rehabilitation activity under 38 U.S.C. 1718, per 38 CFR 3.272(l).
Prior to November 4, 1992, this exclusion applied only to therapeutic and rehabilitation activities under the auspices of a VA medical center.
PL 102-585, which was effective November 4, 1992, extends the exclusion to rehabilitative services programs furnished in State homes recognized by VA to provide care to Veterans in order to receive per diem payments.
Reference:  For a list of State homes recognized by VA, see the following websites:

V.iii.1.l.6.c.  Agent Orange Settlement Payments

Do not count payments received in settlement of the case In Re Agent Orange Product Liability Litigation in the U.S. District Court for the Eastern District of New York.

V.iii.1.l.6.d.  Provisional Income

Do not count any awarded benefits, such as Black Lung benefits, if
  • it is later determined that the claimant is not eligible for the amount awarded, and
  • the claimant makes a complete repayment.
VA must receive satisfactory evidence of repayment within the time limit specified in 38 CFR 3.660(b) for amending an income report.
Exception:  If the claimant repays less than the total amount awarded, count the difference between the amount awarded and the amount repaid.

V.iii.1.l.6.e.  VA Burial Benefits

Do not count VA burial benefits.
Note:  If a beneficiary claims a final expense deduction and subsequently receives VA burial benefits as reimbursement for paying those same expenses, adjust the award.
Reference:  For more information about VA burial expenses, see M21-1, Part V, Subpart iii, 1.G .6.c.

V.iii.1.l.6.f.  Interest on Irrevocable Burial Trusts

Certain prepaid burial plans, often characterized as irrevocable burial trusts, earn interest that is added to the value of the policy to offset the effects of inflation.  Typically, the interest earned is not available to the holder of the policy.
Do not count the interest on such a burial plan if it is not available to the VA claimant.

7.  Income From a Mortgage or Contract for Deed

 


Introduction

This topic contains information on income from a mortgage or contract for deed, including

Change Date

May 20, 2011

V.iii.1.l.7.a.  General Principles of Income From a Mortgage or Contract for Deed

Instruments such as mortgages or contracts for deed typically entitle a seller of property to receive payments for the property and retain a security interest in the property.
The payments the seller receives under the instrument represent a combination of interest and return of principal.
A mortgage or contract for deed is similar to other property, such as stocks or bonds, in that it is assignable and produces income.  However, the value of a contract for deed or mortgage, unlike that of a stock or bond, usually decreases as the buyer or mortgagor makes payments under the instrument.

V.iii.1.l.7.b.  Applying the General Principles of Income From a Mortgage or Contract for Deed

The general principles of income from a mortgage or contract for deed apply when the VA claimant
  • is the owner of a mortgage or contract for deed, but
  • was not the seller of the property which is secured by the mortgage or contract for deed.
If the VA claimant is both the seller of property and the holder of the mortgage or contract for deed, sale-of-property rules apply.
Reference:  For information about the sale-of-property rules, see M21-1, Part V, Subpart iii, 1.I.9.

V.iii.1.l.7.c.  Countable Income in a Contract for Deed or Mortgage

If a claimant receives a contract for deed or mortgage as a gift or by inheritance after the date of entitlement to pension, the value of the contract for deed or mortgage is countable income for pension purposes for 12 months from the first of the month after the month of receipt.

V.iii.1.l.7.d.  Countable Interest Versus Non-Countable Principal

If the claimant received the contract for deed or mortgage as a gift or by inheritance before the date of entitlement to pension, any interest received under the instrument is countable income, but principal payments are considered a conversion of assets.
The same applies where the instrument is received after the date of entitlement to pension and the value of the instrument has been counted for 12 months.
The VSC or PMC must secure a copy of the amortization schedule or similar document showing a monthly breakdown of interest and principal payments.

8.  Indian Income


Introduction

This topic contains information on Indian income, including

Change Date

June 30, 2015

V.iii.1.l.8.a.  General Information on Indian Income

American Indians may receive a variety of unique types of income.  Often the Federal government is the direct or indirect source of this income and complex treaties and Federal statutes govern payments.
This topic attempts to summarize VA’s approach to counting various types of income received by Indian beneficiaries.  However, it is recognized that other types of Indian income not covered here will be encountered.  When this happens, contact the Pension Policy & Procedures mailbox at VAVBAWAS/CO/PENSION POL & PROC for guidance.
Reference:  For more information on payments excluded by Federal statutes, seeM21-1, Part V, Subpart iii, 1.I.11.

V.iii.1.l.8.b.  Determining if Indian Income Is Countable

Use the table below as a suggested analytical approach to determining if Indian income is countable for pension purposes.
If …
Then …
the income is paid to an individual Indian from trust or restricted lands as defined in 25 CFR 151.2.
exclude up to $2,000 per year per individual under 38 CFR 3.272(r).
the distribution to the beneficiary represents compensation for lost assets of the Indian tribe as opposed to income from investments or business operations
it is excludable on a conversion of assets theory.
the distribution is made to individual Indians out of tribal trust fund revenues held in trust by the Bureau of Indian Affairs (BIA)
exclude $2,000 per person each year under the Per Capita Distribution Act.
the legislation authorizing the payment provides that it is not countable income for purposes of other federal benefit programs
contact the VA Central Office for further guidance.
Reference:  For more information on payments excluded by Federal statutes, seeM21-1, Part V, Subpart iii, 1.I.11.

V.iii.1.l.8.c.  Income From Gaming on Indian Trust Lands

In VAOPGCPREC 21-1997, the General Counsel held that amounts received by an individual pursuant to a per capita distribution of proceeds from gaming on Indian trust lands are considered IVAP.
The General Counsel noted that gaming proceeds are not
  • held in trust by the Federal government, so the Per Capita Distribution Act does not apply, and
  • generated by individually-owned trust lands, so 38 CFR 3.272(r) does notapply.

V.iii.1.l.8.d.  Conversion of Assets Theory – Compensation for Lost Indian Land

Under 38 U.S.C. 1503(a)(6), profit from the sale of property is not countable income.  The General Counsel has held that the underlying rationale is to exclude income from transactions that represent a mere conversion of assets from one form to another.
Applying the same reasoning, the General Counsel determined that any income received by Indians as compensation for lost land or other lost property is excludable on a conversion of assets theory.  This exclusion encompasses and goes beyond the exclusion described in M21-1, Part V, Subpart iii, 1.I.9.c.

V.iii.1.l.8.e.  Business or Investment Income of Indian Tribes

In some instances, distributions to Indian tribes that are intended to compensate the tribe for lost land are invested to produce income or are used to establish tribal businesses or native corporations.  Individual Indians will in turn receive dividends or distributions from the business operations of these entities.
These types of distributions are IVAP, even though the funds for establishment of the business were intended to compensate the tribe for lost land or other property.  The conversion of assets exclusion applies only to compensatory transfers.  It does not apply to secondary income generated from the amount transferred as compensation.
Note:  The Alaska Native Claims Settlement Act, PL 103-446, Section 506provides that profits of native businesses (cash dividends on stock received from a Native Corporation) are excluded up to $2,000 per year, per individual.
Reference:  For more information on payments excluded by Federal statutes, seeM21-1, Part V, Subpart iii, 1.I.11.

V.iii.1.l.8.f.  Exclusionary Language in Specific Legislation – Payments to Indian Tribes

Legislation providing for payments to Indian tribes may include provisions such as the following:  Distributions under this Act shall not be considered income for purposes of any Federal benefit program.
If a beneficiary claims exclusion of income on this basis, first determine if the income is otherwise excludable.  If it is not, e-mail the Pension Policy & Procedures Mailbox at VAVBAWAS/CO/PENSION POL & PROC for guidance.

 

9.  Income From the Sale of Property

 


Introduction

This topic contains information on the impact of the sale of property for pension purposes, including

Change Date

May 20, 2011

V.iii.1.l.9.a. Impact of the Sale of Property on Pension Benefits

Income received from the sale of property is viewed as a conversion of assets and is not countable income for pension purposes, unless the
  • property is sold in the course of operating a business, or
  • income from the sale of property is received by the claimant in installments.
Note:  Only the interest received from a conversion of assets is considered income for pension purposes; however, VA includes the entire amount from the sale of property when determining the net worth of a pension beneficiary.
Reference:  For more information on

V.iii.1.l.9.b.  Definition:  Installment Sale

An installment sale, for pension purposes, is any sale in which the seller receives more than the sales price over the course of the transaction.  The actual number of installments is irrelevant.

V.iii.1.l.9.c.  Sale of Property in the Course of Business

If a beneficiary who operates a business sells property or merchandise in connection with the business, add any profit received from the sale of the property to the other income of the business.
Reference:  For information on deductions from gross business income, see M21-1, Part V, Subpart iii, 1.G.11.a.

V.iii.1.l.9.d.  Counting Income From Installment Sales

If a claimant or dependent sells property and receives payment in installments, count as income any amounts received over and above the sales price, but not until an amount equal to the sales price has been received by the seller.
Note:  This principle applies regardless of whether the sale occurred before or after the date of entitlement to pension.
Reference:  For information on the impact of installment sales on Section 306 or Old Law Pension, see M21-1, Part V, Subpart iii, 1.C.7.

V.iii.1.l.9.e.  Example:  Installment Sale

Situation:  A Veteran sells his/her house for $80,000.  The Veteran receives a cash payment of $40,000 and a cash payment of $45,000.
Result:  This is an installment sale for VA pension purposes and $5,000 is countable as interest income when the Veteran receives the $45,000.

V.iii.1.l.9.f.  Ensuring Proper Documentation Prior to Computation of Income

Ensure that the following information is of record before attempting to compute countable income from the sale of property:
  • sales price
  • amount of the down payment
  • date the first installment payment is received
  • frequency of installment payments
  • amount of each installment payment, and
  • date the last installment payment will be received.

V.iii.1.l.9.g.  Not Distinguishing Between Principal and Interest in Installment Sales

It is not necessary to distinguish between payment of principal and interest in the installment sale context.  As soon as the down payment and installment payments received by the beneficiary equal the sales price, all subsequent installment payments count as income.
Example:
Situation:  A Veteran reports the sale of a house for $60,000 on December 1, 1997.  The Veteran received $20,000 down and will receive installment payments of $400 per month for the next 10 years.  The first payment was received January 1, 1998.
Result:  The Veteran’s return from the sale of property will exceed $60,000 during May 2006.  Charge recurring income of $400 per month effective June 1, 2006.

V.iii.1.l.9.h.  Establishing Controls for Installment Sales

Once the date from which to count installment payments has been determined,establish a diary in the Veterans Service Network (VETSNET) awards for the month prior to that during which installment income will be countable.
When the control matures, process an amended award to charge the installment payments as “other” income.

V.iii.1.l.9.i.  Counting Income on Sales Occurring Before Entitlement to Pension

Previously, if a beneficiary received income from a sale of property that occurred before the date that the beneficiary became entitled to pension, only interest from the sale of property was countable income.
If a case is encountered in which income from the sale of property is being counted under the old rule, continue to count interest only.  Do not attempt to apply the current rule on the sale of property, unless to do so would clearly be to the payee’s advantage.

10.  Asset Transfers and Life Estates:  Effect on Net Worth and Income

 


Introduction

This topic contains information on the effect of asset transfers, and the income associated with asset transfers, on pension benefits, including

Change Date

May 20, 2011

V.iii.1.l.10.a.  Effect of Asset Transfers on Countable Income

A claimant may attempt to reduce net worth or countable income by transferring property to another person without actually giving up all rights in the property.  However, no sale or gift of property to
  • a member of the same household will reduce the claimant’s net worth or IVAP, or
  • a person outside the claimant’s household will reduce net worth or IVAP, unless the claimant can demonstrate that there has been an actual relinquishment of rights to the property and income from the property.

V.iii.1.l.10.b.  When a Claimant Transfers Property but Takes Income From the Property

If a transferee takes legal title to the property and receives income from the property, a true transfer is deemed to have occurred.  However, if the transferee turns income from the property back to the claimant, the income is countable under38 CFR 3.271 as a gift of money.
Reference:  For more information, see 38 CFR 3.276(b).

V.iii.1.l.10.c.  Transferring a Partial Interest in Property

If a claimant transfers a partial interest in property to a person who is outside the claimant’s household, the claimant’s net worth and income are reduced in proportion to the percentage of the asset transferred.

V.iii.1.l.10.d.  Example 1:  Transferring a Partial Interest in Property to Person Outside Household

Situation:
  • A Veteran has a $10,000 certificate of deposit (CD).
  • The Veteran adds a nephew who does not live in the Veteran’s household as joint owner.
Result:  The legal effect of this transaction is to give each joint owner an undivided one-half interest in the CD.  The value of the CD is reduced to $5,000 for net worth purposes.

V.iii.1.l.10.e.  Example 2:  Transferring a Partial Interest in Property to Person in Household

Situation:
  • A Veteran has a $10,000 CD.
  • The Veteran adds an adult (non-helpless) child who lives in the same household as joint owner of the CD.
Result:  The legal effect of this transaction is to give each joint owner an undivided one-half interest in the CD.  The value of the CD is still $10,000 for net worth purposes and all of the interest earned by the CD is counted as income in determining the Veteran’s IVAP.
Note:  This is the case regardless of who reports the income from the CD for IRS purposes.

V.iii.1.l.10.f.  Example 3:  Partial Interest in Property – No Transfer Involved

Situation:
A Veteran and an adult (non-helpless) child who lives in the same household are joint owners of a $10,000 CD and were joint owners before the date that the Veteran became entitled to pension.
Result:  Each owner has an undivided one-half interest in the CD.  The value of the CD is $5,000 for net worth purposes and only one-half of the interest earned is counted as income in determining the Veteran’s IVAP.

V.iii.1.l.10.g.  Definition:  Life Estate

life estate is an estate which is limited in duration to the life or lives of a particular individual or individuals, and is non-inheritable.
The life tenant is the owner of the property during his/her life and is entitled to exclusive possession and control of the property.

V.iii.1.l.10.h.  Life Estate and a Claimant’s Net Worth

When a claimant transfers an interest in property to someone other than a relative residing in the claimant’s household, retaining a life estate in the property, 38 CFR 3.276(b) requires that the transfer be disregarded in determining the claimant’s net worth for pension purposes, unless the right to ownership (control) is relinquished.
This requirement is due to the fact that the life tenant retains ownership interest in the property during his/her lifetime.
Note:  If necessary, request a copy of the life estate to determine whether the right to ownership of the property has been relinquished.
Reference:  For more information on the effect of property held as a life estate on pension eligibility, see VAOPGCPREC 15-1992.

V.iii.1.l.10.i.  Computing the Property Value When a Life Estate Is Involved

Calculate the value of the property for pension purposes based on the market value of the property, less mortgages and encumbrances, without regard to the purported transfer.

 

11.  Exhibits:  Payments Excluded by Federal Statutes in Calculating Income and/or Net Worth

 


Introduction

This topic contains information on payments excluded by Federal Statutes in calculating income and/or net worth, including payments excluded for

Change Date

May 20, 2011

V.iii.1.l.11.a.  Exhibit 1:  Payments Excluded for All Income-Based Benefits

The table below shows whether certain payments are included or excluded by Federal statutes in calculating income or net worth for
  • Old Law Pension
  • Section 306 Pension
  • current-law pension
  • Parents’ DIC, and
  • the purpose of establishing parents as dependents on Veterans’ compensation awards.
Program or Payment
Income
Net Worth
Authority
Compensation or Restitution Payments
Relocation payments. Payments to persons displaced as a direct result of programs or projects undertaken by a Federal agency or with Federal financial assistance under the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970.
Excluded
Included
Crime victim compensation. Amounts received as compensation under the Victims of Crime Act of 1984 unless the total amount of assistance received from all federally funded programs is sufficient to fully compensate the claimant for losses suffered as a result of the crime.
Excluded
Excluded
Restitution to individuals of Japanese ancestry. Payments made as restitution under Pub. L. 100-383 to an individual of Japanese ancestry who was interned, evacuated, or relocated during the period of December 7, 1941, through June 30, 1946, pursuant to any law, Executive Order, Presidential proclamation, directive, or other official action respecting these individuals.
Excluded
Excluded
Victims of Nazi persecution. Payments made to individuals because of their status as victims of Nazi persecution.
Excluded
Excluded
Sec. 1(a), Pub. L. 103-286, 108 Stat. 1450;
Agent Orange settlement payments.Payments made from the Agent Orange Settlement Fund or any other fund established pursuant to the settlement in the In Re Agent Orange product liability litigation, M.D.L. No. 381 (E.D.N.Y.).
Excluded
Excluded
Chapter 18 benefits. Allowance paid under 38 U.S.C. chapter 18 to or for a Veteran’s child with a birth defect.
Excluded
Excluded
Flood mitigation activities. Assistance provided under the National Flood Insurance Act of 1968, as amended.
Excluded
Excluded
Payments to Native Americans
Indian judgment fund distributions.
  • Funds held in trust, including all interest and investment income accrued on those funds, and up to $2,000 per year of per capita distributions of funds distributed per capita or held in trust under a plan approved under the provisions of the Indian Judgment Funds Use and Distributions Act,Pub. L. 93-134 (25 U.S.C. 1401 et. seq.), or funds that were distributed under a plan approved by Congress before January 1, 1982, and any purchases made with such funds.
  • Certain amounts of distributions of funds appropriated to satisfy judgments of the Indian Claims Commission and the Court of Federal Claims held in trust under an Act of Congress.
Excluded
Excluded
Interests of individual Indians in trust or restricted lands. Interests of individual Indians in trust or restricted lands excluded from net worth. First $2,000 per year of income received by individual Indians that is derived from such interests excluded from income.
Excluded
Excluded
Submarginal land. Income derived from certain submarginal land of the United States that is held in trust for certain Indian tribes.
Excluded
Excluded
Old Age Assistance Claims Settlement Act.Up to $2,000 of per capita distributions under the Old Age Assistance Claims Settlement Act.
Excluded
Excluded
Alaska Native Claims Settlement Act. Any of the following, if received from a Native Corporation, under the Alaska Native Claims Settlement Act:
  • cash, including cash dividends on stocks and bonds, up to a maximum of $2,000 per year
  • stock, including stock issued as a dividend or distribution
  • bonds that are subject to the protection under 43 U.S.C. 1606(h) until voluntarily and expressly sold or pledged by the shareholder after the date of distribution
  • a partnership interest
  • land or an interest in land, including land received as a dividend or distribution on stock, or
  • an interest in a settlement trust.
Excluded
Excluded
Maine Indian Claims Settlement Act.Payments received under the Maine Indian Claims Settlement Act of 1980.
Excluded
Excluded
Cobell settlement payments. Payments received as a result of the Cobellsettlement.
Excluded
Excluded for one year
Sec. 1, Pub. L. 111-291,101
Stat. 3066
Work-Related Payments
Workforce investment. Allowances, earnings, and payments to individuals participating in programs under the Workforce Investment Act of 1998 (29 U.S.C. Chapter 30).
Excluded
Included
AmeriCorps participants. Allowances, earnings, and payments to AmeriCorps participants under the National and Community Service Act of 1990.
Excluded
Included
Volunteer work. Compensation or reimbursement to volunteers involved in programs administered by the Corporation for National and Community Service, unless the payments are equal to or greater than the minimum wage. The minimum wage is either under the Fair Labor Standards Act of 1938 (29 U.S.C. 201 et. seq.) or under the law of the State where the volunteers are serving, whichever is greater.
Excluded
Excluded
Miscellaneous Payments
Food stamps. Value of the allotment provided to an eligible household under the Food Stamp Program.
Excluded
Excluded
Food for children. Value of free or reduced price for food under the Child Nutrition Act of 1966.
Excluded
Excluded
Child care. 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 Development Block Grant Act of 1990.
Excluded
Excluded
Services for housing recipients. Value of services, but not wages, provided to a resident of an eligible housing under a congregate services program under the Cranston-Gonzalez National Affordable Housing Act.
Excluded
Excluded
Home energy assistance. 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.
Excluded
Excluded
Programs for older Americans. Payments, other than wages or salaries, received from programs funded under the Older Americans Act of 1965 (42 U.S.C. Chapter 35).
Excluded
Included
Student financial aid. Amounts of student financial assistance received under Title IV of the Higher Education Act of 1965, including Federal work-study programs or under Bureau of Indian Affairs student assistance programs, or vocational training under the Carl D. Perkins Vocational and Technical Education Act of 1998.
Excluded
Excluded
Retired Serviceman’s Family Protection Plan annuities. Annuities received under subchapter 1 of the Retired Serviceman’s Family Protection Plan.
Excluded
Included
Income tax refunds. Federal income tax refunds, including the Federal Earned Income Credit and advance payments with respect to a refundable credit.
Excluded
Excluded for one year from the date of receipt
Note VA will not count payments if Federal law requires that they be excluded from income and/or net worth for all VA needs-based benefits, regardless of whether the program or payment is listed in Exhibit 1.

V.iii.1.l.11.b.  Exhibit 2:  Payments Excluded for current-law Pension and Parents’ DIC Only

The table below shows the payments that are excluded by Federal statutes in calculating income and/or net worth for current-law pension and Parents’ DIC only.
Program or Payment
Authority
Survivor benefit annuity. Payments made by the Department of Defense to qualified surviving spouses of Veterans who died before November 1, 1953.
Note:  This does not include SBP annuity payments or SBP Minimum Income Widow(er)s Annuity Plan payments, which count as income.
10 U.S.C. 1448 note; 653(d), Pub. L. 100-456, 102 Stat 1991)
Ricky Ray Hemophilia Relief Fund payments. Payments made under section 103(a) of the Ricky Ray Hemophilia Relief Fund Act of 1998.
Energy Employees Occupational Illness Compensation Program payments. Payments made under the Energy Employees Occupational Illness Compensation Program.
Payments to Aleuts. Payments made to certain Japanese-Americans or Aleuts under 50 U.S.C Appx. 1989b-4 or 1989c-5.
Note:  VA will not count payments if Federal law requires that they be excluded from income and/or net worth for current-law pension and Parents’ DIC, regardless of whether the program or payment is listed in Exhibit 2.
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