ACT UP

To view the Multimedia News Release, go to: http://www.prnewswire.com/mnr/deloitte/32651/

According to the Deloitte Forensic Center, in response to major corruption scandals, the Chinese government created its National Bureau of Corruption Prevention in November of 2007. While China is focusing on the state officials who may be tempted to accept bribes, the bribe payer is the focus of growing numbers of investigations by the U.S. government into alleged violations of the U.S. Foreign Corrupt Practices Act (FCPA) which prohibits bribery of foreign officials.

Although the FCPA has been off of most companies' radar screens recently, U.S. businesses should consider ramping up their compliance efforts to avoid serious penalties both in the U.S. and in China.

News Facts

    --  Criminal penalties under the FCPA can be as high as $2 million for
        corporations and $100,000 for individuals. Fines can actually escalate
        further under the Alternative Fines Act - up to double the benefit the
        corrupt payment was intended to realize.
    --  The SEC can also levy civil penalties of up to $10,000 against any firm
        or person - and can seek disgorgement of profits in addition.
    --  Companies found to violate the FCPA can lose their export licenses and
        can be barred from doing business with the federal government.
    --  Competitors can bring RICO claims for the same violation that created
        FCPA liability.

Trend Data

    --  China appears to be cracking down on corruption: In the last half of
        2007, a former government agency head and a former Chinese bank official
        were executed for accepting significant bribes and embezzling funds.
    --  Meanwhile, the U.S. Dept. of Justice and the SEC, the two agencies that
        enforce the FCPA, are investigating dozens of alleged violations,
        including bribes, improper payments, kickbacks, and fraudulent
        accounting related to at least six industries in China.
    --  Foreign direct investment (FDI) in China is growing at double-digit
        rates (14% in 2007) and is expected to total $2.6 billion from U.S.
        firms in 2008. Surprisingly, that makes the U.S. just China's
        sixth-largest source of FDI.

Quotes

Attributed to Clarence Kwan, in Deloitte's Chinese Services Group:

"We're seeing Chinese officials becoming less likely to try to extract bribes from American companies because of the Foreign Corrupt Practices Act."

Attributed to Nick Robinson, in the Forensic and Dispute Services Practice of Deloitte Hong Kong:

"Growing intolerance of fraud and corruption issues is prompting more and stricter enforcement in China. As supply chains get stretched, law enforcement will have to follow, cooperating in enforcement actions that target corruption."

Related Content

Video: The Foreign Corrupt Practices Act and China

Newsletter: Avoiding FCPA Risk While Doing Business in China

White Paper: Investing in China: Mitigating Corruption Risk in a Land of Opportunity

About the Deloitte Forensic Center

The Deloitte Forensic Center (DFC) is a think tank aimed at exploring new approaches for mitigating the costs, risks, and effects of fraud, corruption, and other issues facing the global business community. The DFC aims to advance the state of thinking in areas such as fraud and corruption by exploring issues from the perspective of forensic accountants, corporate leaders, and other professionals involved in forensic matters. The DFC strives to provide multidisciplinary analyses that companies and official organizations will find practical and helpful. A particular focus is placed on the use of technology as a means of providing solutions to fraud and corruption detection, mitigation, and prevention. In addition to encouraging a public dialog on these issues, the DFC also contributes to the development of the forensic accounting profession and raise its profile in discussions of issues of public importance. The DFC accomplishes its goals by bringing together leading professionals from a wide variety of backgrounds, including business, academia, law, government, and regulatory affairs. The Deloitte Forensic Center is sponsored by Deloitte Financial Advisory Services LLP.

About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

SOURCE Deloitte

http://www.deloitte.com/us

"Protect Our Kids," which can be watched online at http://www.pcrm.org/hotdog.html, is based on a comprehensive report released late last year by the American Institute for Cancer Research and the World Cancer Research Fund. After reviewing all existing data on nutrition and cancer risk, scientists concluded that processed meat increases one's risk of colorectal cancer, on average, by 21 percent for every 50 grams of processed meat consumed daily. (A 50-gram serving is approximately the size of a typical hotdog.) The landmark report clearly states that no amount of processed meat is considered safe to eat; it should be completely avoided.

"Cancer risk starts early," says Neal Barnard, M.D., president of the Cancer Project. "If we don't protect our kids by removing hot dogs, sausages, and deli slices, and pepperoni from our schools, we're stacking the cards against them. Lifetime cancer risk is already one in three for women and one in two for men. Given the terrible eating habits of so many American children, we're setting them up for even worse odds down the road."

The AICR report's conclusion that processed meat increases colorectal cancer risk was based on a review of 44 case-control studies (in which the diets of individuals with cancer were compared with those of individuals who did not have cancer, but who were similar in other respects) and 14 cohort studies (in which the diets of individuals were assessed before cancer onset, and the individuals were followed over time to assess relationships between diet patterns and cancer risk).

The Cancer Project is currently campaigning to reform the federal Child Nutrition Act, up for renewal in 2009, which determines what foods are served in the National School Breakfast and Lunch Programs. The U.S. Department of Agriculture currently includes processed meats in the lists of commodity foods available to schools.

A new Cancer Project survey of 29 U.S. school districts shows that many school menus are packed with processed meats. All breakfasts offered in Minneapolis elementary, middle, and high schools, for example, contain sausage and other processed meats. The same is true for all regular breakfasts offered in Philadelphia schools.

Sixty percent of all elementary school breakfasts, 80 percent of all middle school breakfasts, and 80 percent of all high school breakfasts in the Los Angeles Unified School District contain processed meats. Half of all elementary and middle school breakfasts in the Chicago Public Schools offer processed meats, as do 100 percent of its high school meals. Eighty-eight percent of breakfasts in D.C. middle and high schools contain processed meats.

School districts with the most processed meat at lunch include Atlanta; Chicago; Clark County, Nevada; Prince George's County, Maryland; Columbus, Ohio; Hancock, West Virginia; New York City; and Detroit.

Every year, 160,000 Americans are diagnosed with colorectal cancer and 50,000 die of it. About half of all cases are already incurable when found. Some of the school districts with the highest rates of processed meat are in states with the highest rates of colorectal cancer. Illinois, for example, has the third highest incidence in the country, and West Virginia the highest.

"Protect Our Kids" is a 30-second spot featuring three young children in an elementary school who describe their lives from the perspective of adults with cancer. The commercial invites the viewer to join the campaign to "get processed meats out of our schools."

To watch the commercial online and learn more about the Cancer Project's campaign, please visit http://www.pcrm.org/hotdog.html.

The Cancer Project is a collaborative effort of physicians, researchers, and nutritionists who have joined together to educate the public about the benefits of a healthy diet for cancer prevention and survival. Based in Washington, D.C., the Cancer Project is an affiliate of the Physicians Committee for Responsible Medicine.

SOURCE The Cancer Project

http://www.pcrm.org/hotdog.html

"COSE commends President-elect Barack Obama on his historic victory on Tuesday, and we look forward to working with him on issues important to small business as we move forward," said Steve Millard, COSE's president and executive director. "Small business has no specific political party. What is important is that the approach of President-elect Obama on important small business issues in the first few months of his administration will have a significant impact on the American people."

As the new president assumes his role, COSE is focused on several principles from the Obama campaign that may be early agenda items for the new administration. COSE looks forward to working with the Obama administration to provide counsel and education that will help the administration advance its agenda with the best possible outcomes and in the best interests of the small business community and its employees.

Health Care Reform - It is likely that President-elect Obama will seek the expansion of government programs for those with lower incomes, an employer mandate and tax credits for small business. COSE supports efforts to make health care more affordable through increased individual responsibility. However, COSE believes that requiring employers to offer health care to employees will place many small businesses at a significant competitive disadvantage. Health care reform needs to focus more significantly on the principle of reducing costs within the health care market by improving the value and quality of care and finding ways to reduce the increase in medical cost trends for everyone. COSE believes that improving the ability of individual consumers to actively participate in their own health care decision making is a critical area for focus. Mandating employer coverage or requiring employers to pay into a central fund will likely result in cost shifting by employers by raising prices, cutting benefits, or reducing the number of employees. COSE is also interested in seeing an improvement in the quality of care by supporting cost and outcome information for consumers.

Tax Reform - President-elect Obama says that he would simplify tax filings so that most Americans can complete their returns quickly. He supports a $3.5 million exemption per spouse in the estate tax. In addition, President-elect Obama has said that he would repeal Bush's tax cuts for the top one percent and eliminate income taxes on seniors earning $50,000 per year or less. He also calls for the reform of the Alternative Minimum Tax but has not set his policy to date. COSE is supportive of repealing the AMT and the estate tax. At this time, it is unclear if our members would benefit under Obama's plan to repeal the Bush tax cuts and not raise taxes for the "middle class."

Employee Free Choice Act - This Act would eliminate the private voting process to certify a union and would allow unions to be certified once a majority of workers sign union authorization cards. President-elect Obama supports the Employee Free Choice Act, or "Card Check," and believes that the choice to organize a union within a workplace should be that of the workers and the workers alone. Given Obama's continued support of this issue, it is likely to become one of the first pieces of legislation passed in the Obama administration. COSE opposes the Employee Free Choice Act and believes that the ability to vote in private is a fundamental American right that should not be removed in the case of unions. COSE believes that eliminating private voting will encourage coercion and pressure to certify a union within an organization. Beyond the elimination of the secret ballot, this act also would allow federal arbitrators to set the terms of the first two year contract if labor and management cannot agree to a first contract within 90 days of the certification of the union. The absolute authority provided by the act to determine costs and work rules for a business will create an untenable environment for the work of the company and its success. COSE looks forward to working with the Obama administration on this issue to ensure that the voice of small business is heard.

Mandatory Paid Sick Leave - The Healthy Families Act would require employers with more than 15 employees to offer 7 paid sick days per year. President-elect Obama is supportive of the Healthy Families Act and will likely work to support legislation to this effect early in his administration.

President-elect Obama believes in providing a $1.5 billion fund to assist states with start-up costs and to help states offset the costs for employees and employers. COSE opposes legislation that would mandate an employer to offer paid sick days. While COSE does not oppose paid time off, COSE does not believe that approaching this issue with a one-size-fits-all solution will encourage the growth of small businesses nationwide. COSE looks forward to working with the Obama administration to ensure that the needs of small businesses are recognized and addressed on this issue.

Energy - President-elect Obama will likely seek legislation to address renewable energy tax incentives through an extension of the production tax credit and the institution of a windfall profits tax on oil selling above threshold. President-elect Obama supports a Renewable Portfolio Standard that will require 25 percent of U.S. electricity to be derived from renewable resources by 2025. It is also likely that energy efficiency will be a topic of the Obama administration in the form of a reduction in electricity demand of 15 percent by 2020. COSE supports a focus on energy efficiency and on providing small businesses with the education and resources necessary to implement energy efficiency practices and technology within their workplaces.

"These issues will have a large impact on the way small businesses do business," said Tim Reynolds, chairman of COSE's Board of Directors. "We stand ready to provide the small business perspective on these and other issues and we are committed to making the voice of small business heard."

For more information on COSE's advocacy efforts on behalf of small business, call (216) 592-2396.

About COSE

COSE is one of Ohio's largest small business support organizations, striving to help small businesses grow and maintain their independence. Comprised of more than 17,000 member companies, COSE has a long history of fighting for the rights of all small business owners, whether it's through group purchasing programs for health care, workers' compensation, or energy, advocating for specific changes in legislation or regulation to benefit small business, or providing a forum and resource for small businesses to connect with and learn from each other. ( www.cose.org )

SOURCE Council of Smaller Enterprises

http://www.cose.org

ADDRESSES: Written comments may be submitted through http://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 http://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 Number 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:

[Page Number 65214]

TABLE GOES

Proposed part 5                        Based in whole or in part on 38 CFR
section or paragraph                   part 3 section or paragraph (or "New")
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 [Section] 5.690 is based on current [Section] 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 [Section] 3.21 involves monetary rates for VA benefits. The last two sentences of current [Section] 3.21 read:

The maximum annual rates of improved pension payable under Pub. L. 95-588 (92 Stat. 2497) are set forth in [Subsection] 3.23 and 3.24. The monthly rates and annual income limitations applicable to parents [DIC] are set forth in [Section] 3.25. Although the rates and income limits for Improved Pension and parents' DIC were at one time contained in [Subsection] 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 [Subsection] 3.23 through 3.25 in [Section] 5.690.

5.691 Adjustments for Fractions of Dollars

Proposed [Section] 5.691 provides rules regarding how VA rounds to the nearest dollar in various calculations. It restates in plain language current [Subsection] 3.29 and 3.260(g).

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Current [Section] 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 [Section] 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 [Section] 5.691(a), were published as proposed on October 21, 2005. See 70 FR 61326, 61344-47. Section 5.370, also cited in proposed [Section] 5.691(a), was published as proposed on September 26, 2007. See 72 FR 54776, 54792.

We have intentionally omitted from proposed [Section] 5.691(c) the June 1, 1983, applicability date for rates of pension, found in current [Section] 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 [Section] 5.692 restates in plain language current [Section] 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 [Section] 3.31 and are the subject of proposed [Section] 5.693. We propose several changes from the current regulation.

Proposed [Section] 5.693(b) restates current [Section] 3.31(b) and incorporates with one change the list in the introduction to [Section] 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 [Section] 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 [Section] 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 [Section] 5.693(c) lists payments that are not subject to the general rule found in proposed paragraph (b). The list is derived from current [Section] 3.31(b) and (c). We propose to add a payment not found in the current regulation. The new payment, found in proposed [Section] 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 [Section] 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 [Section] 3.31(c)(4). Current [Section] 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 [Section] 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 [Section] 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 [Section] 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 [Section] 5.693(a)(4), was published as proposed on December 27, 2004. See 69 FR 77578, 77588-89. Section 5.745, cited in proposed [Section] 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 [Section] 5.694 is a plain language restatement of current [Section] 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 [Section] 3.20(a) in proposed [Section] 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 [Section] 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

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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 [Section] 3.20(a) in effect at the time the erroneous decision was made, not the current provisions. Therefore, there is no reason to include [Section] 3.20(a) in part 5.

Section 5.550, cited in proposed [Section] 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 [Section] 5.695 is based on current [Subsection] 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 [Section] 5.695(a) defines the term "approved educational institution" consistent with the definition of "educational institution" in [Section] 3.57(a)(1)(iii).

Whereas current [Section] 3.667(a)(1) and (2) merely indicate that benefits "may be paid," proposed [Section] 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 [Section] 5.695(b), was published as proposed on September 26, 2007. See 72 FR 54776, 54799-800.

We have intentionally not included in proposed [Section] 5.695(c) the reference to September 30, 1981, which appears in current [Section] 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 [Section] 5.695(c), was published as proposed on October 21, 2005. See 70 FR 61326, 61348.

Section 5.524, cited in proposed [Section] 5.695(d), was published as proposed on October 21, 2005. See 70 FR 61326, 61344.

Proposed [Section] 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 [Section] 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 [Section] 5.696 is based on current [Section] 3.107. We have updated the citation to [Section] 3.251(a)(4), contained in current [Section] 3.107, to the proposed part 5 counterpart [Section] 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 [Section] 3.107.

5.697 Exchange Rates for Income Received or Expenses Paid in Foreign Currencies

Proposed [Section] 5.697 is derived from current [Section] 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 [Section] 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 [Section] 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 [Section] 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, [Subsection] 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 [Subsection] 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 [Section] 5.705 includes generally applicable rules, based on [Subsection] 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 [Section] 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 [Section] 3.500 and [Section] 3.500(a), and modified them to

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enhance the clarity of the current provisions. The first sentence of proposed [Section] 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 [Section] 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 [Subsection] 3.501 through 3.503 do not reference [Section] 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 [Section] 3.500 provides the default rule when none of the specific provisions in [Subsection] 3.501 through 3.503 apply. The part 5 rule would be explicit in this regard.

Additionally, if a specific paragraph in [Section] 3.500 applies and there is no applicable provision in [Subsection] 3.501 through 3.503, then the specific paragraph in [Section] 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 [Section] 3.502, the effective date is assigned in accordance with [Section] 3.500(q). For these reasons, VA applies [Section] 3.500 in cases involving veterans, surviving spouses, parents and children, notwithstanding that [Subsection] 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 [Section] 5.705 but does not represent a substantive change in VA practice or policy.

The second sentence of proposed [Section] 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 [Subsection] 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 [Subsection] 3.500 through 3.502 and [Section] 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 [Section] 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 [Section] 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 [Section] 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 [Section] 5.705(b) contain any substantive rules. In [Section] 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 [Subsection] 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 [Section] 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 [Section] 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 [Section] 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 [Section] 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 [Section] 3.263 contains exclusions from net worth for Section 306 Pension and dependency of parents. Current [Section] 3.272 contains exclusions from countable income for Improved Pension, and current [Section] 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 [Section] 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 [Section] 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 [Section] 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

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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 [Section] 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 [Section] 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 [Section] 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 [Subsection] 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 [Section] 5.706(b)(8) would exclude from net worth the interests received by individual Indians from trust or restricted lands.

Proposed [Section] 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 [Section] 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 [Section] 5.706(b)(9) and [Section] 5.706(b)(10) will implement statutory provisions which were not implemented in part 3.

Proposed [Section] 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 [Subsection] 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 [Section] 5.706(b)(11) would exclude from net worth the cited income and assets listed in this paragraph.

Proposed [Section] 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 [Section] 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 [Section] 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 [Section] 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 [Section] 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 [Section] 3.262(q) and [Section] 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 [Section] 3.262(q) and [Section] 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 [Section] 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 [Section] 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 [Section] 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 [Section] 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 [Section] 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 [Section] 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 [Section] 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

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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 [Section] 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 [Section] 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 [Section] 5.707, based on current [Subsection] 3.261(b)(1), 3.262(l), and 3.272(g), pertains to medical expenses that are deducted from countable annual income. In [Section] 5.707, we propose to define the categories of expenses that will be considered "medical expenses."

Paragraph (a) of proposed [Section] 5.707 cites several other proposed rules that were published in prior Notices of Proposed Rulemaking: [Section] 5.413 Income deductions for calculating adjusted annual income (regarding Improved Pension), 72 FR 54776, 54797-98 (Sept. 26, 2007), [Section] 5.474 Deductible Expenses for Section 306 Pension Only, 69 FR 77578, 77591-92 (Dec. 27, 2004), and [Section] 5.532 Deductions from income (regarding parents' DIC), 70 FR 61326, 61345 (Oct. 21, 2005).

Proposed [Section] 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 [Section] 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 [Section] 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 [Section] 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 [Section] 5.708 combines provisions from current [Subsection] 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 [Section] 5.708(a)(1) would define an EVR. The current regulations, [Subsection] 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 [Section] 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 [Section] 5.708 and [Section] 5.697.

In order to provide flexibility to VA personnel, we propose to use in [Section] 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 [Section] 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 [Section] 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, [Section] 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 [Section] 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 [Section] 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 [Section] 5.708(d) also describes generally the action VA takes when the expected annual income is uncertain. This provision is based on current [Section] 3.661(a)(2). We have updated the citations to [Subsection] 3.260(b) and 3.271(f), contained in current [Section] 3.661(a)(2), to the proposed part 5 counterparts. See 69 FR 77578, 77593 (Dec. 27, 2004) (proposed [Section] 5.478(a)); 70 FR 61326, 61345 (Oct. 21, 2005) (proposed [Section] 5.531(e); 72 FR 54776, 54801 (Sept. 26, 2007) (proposed [Section] 5.423).

Proposed [Section] 5.708(f) provides for the action VA will take when a beneficiary does not return a completed EVR in a timely manner. We are proposing to incorporate a long-standing VA practice which is helpful to beneficiaries in proposed [Section] 5.708(f)(2). VA's practice is that when a beneficiary submits an incomplete EVR within 60 days after the date VA requested the EVR, VA will notify the beneficiary that the EVR is incomplete and inform him or her of the additional information needed to complete it. If VA does not receive a completed EVR within 120 days after the date VA first requested the EVR from the beneficiary, VA will immediately suspend further benefit payments.

Current [Section] 3.661(b)(2)(i) was once applicable when VA used the "annualization period" as the period for which income is reported by the beneficiary. VA is now using the 12-month calendar year as its annual reporting period. Section 5.708(f)(3) is a plain language rewrite of the applicable provision of current [Section] 3.661(b)(2)(i) to reflect the change in the annual reporting period. VA intends no substantive change by this rewording.

Current [Section] 3.661(b)(2)(iii) allows VA to resume the payment of benefits from the date they were stopped (because a beneficiary failed to return an EVR) if VA receives information requested in the EVR within 1 year after the end of the 12-month period for which the beneficiary had been asked to provide the EVR. Current [Section] 3.661(b)(2)(ii), titled "Adjustment of overpayment," however, reads:

If evidence of entitlement to improved pension or DIC for any period for which payment of improved pension or DIC was discontinued for failure to file an [EVR] is received at any time, payment of improved pension or DIC shall be awarded for the period of entitlement for which benefits were discontinued for failure to file an [EVR].

This paragraph means that if information requested in an EVR is provided by a beneficiary more than 1 year after the end of the 12-month period for which VA requested the EVR, retroactive payments may be paid only for the purpose of reducing or eliminating any overpayment created as a result of loss of entitlement during that same EVR reporting period. In other words, current [Section] 3.661(b)(2)(ii) limits the payment of retroactive benefits to the amount of the overpayment created as a result of the failure to return an EVR if VA does not receive the EVR timely. We propose to clarify the current language in proposed [Section] 5.708(h).

Finally, we propose not to include current [Subsection] 3.256(b)(2) and 3.661(b)(1) in part 5. The current sections permit VA to require that beneficiaries receiving Old-Law Pension and Section 306 Pension complete an EVR and provide the effective date for discontinuance of those benefits for failure to return a completed EVR. However, eligibility for these two programs is limited to individuals who have been continuously entitled to receive benefits under one of these programs from the dates they were superseded until the present. The last date eligibility could be established for Old-Law Pension was June 30, 1960, and the last date eligibility could be established for Section 306 Pension was December 31, 1978. The majority of individuals entitled to receive benefits under these two programs are advanced in age, and their population is rapidly declining; currently, fewer than 100,000 such beneficiaries exist. For these reasons, VA no longer requests EVRs from individuals receiving benefits under these two pension programs.

5.709 Claimant and Beneficiary Responsibility To Report Changes

Proposed [Section] 5.709 is a combination of some of the provisions in [Subsection] 3.256, 3.277, and 3.660. Proposed paragraph (a) restates concepts from current [Subsection] 3.256(a), 3.277(a) and (b), and 3.660(a)(1), which require that pension or parents' DIC claimants or beneficiaries promptly notify VA of changes in the factors that affect entitlement to those benefits. Both [Section] 3.256(a) and [Section] 3.277(a) and (b) require a claimant or beneficiary to "promptly notify" VA of changes, while [Section] 3.660(a)(1) requires a beneficiary to provide notification "when the recipient acquires knowledge that he or she will begin to receive additional income or when his or her marital or dependency status changes." Although worded differently, all three provisions contain comparable notification requirements, which are intended to mean that a claimant or beneficiary must promptly notify VA when that person becomes aware of changes in the factors that affect entitlement. Therefore, proposed [Section] 5.709(a) requires that claimants and beneficiaries "promptly notify VA of any material change" that would affect entitlement to pension or parents' DIC.

Current [Section] 3.277(a) gives VA authority to require "information, proofs, and evidence" from an individual as needed to "determine the annual income and the value of the corpus of the estate of" a pension claimant or beneficiary. We include this authority in proposed [Section] 5.709(a) too. However, proposed [Section] 5.709(a) does not include the word "proofs." We note that the word "proofs" is antiquated and may confuse some regulation users. We therefore propose to omit the word "proofs" from the phrase and use "information and evidence" in proposed [Section] 5.709(a).

Proposed [Section] 5.709(b) sets forth the factors affecting entitlement to pension and parents' DIC which change most frequently. In keeping with our goal of rewriting and reorganizing part 3 regulations in a user-friendly format, it would be helpful to consolidate all of these factors into a reference table. Proposed [Section] 5.709(b) includes this table along with a few clarifications of some of the provisions in current [Subsection] 3.256 and 3.277. We do not intend that proposed [Section] 5.709(b) confer any substantive rights.

The first clarification concerns current [Subsection] 3.256(a)(4) and 3.277(b)(4). The current paragraphs provide that claimants and beneficiaries must notify VA of changes in "[n]ursing home

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patient status." However, the notification requirement only applies to veterans and surviving spouses claiming or receiving pension and parents claiming or receiving parents' DIC. The table in proposed [Section] 5.709(b) would indicate that nursing home status is a factor affecting entitlement to pension for veterans and surviving spouses and DIC for parents.

Second, current [Section] 3.660(a)(1) requires that a veteran, surviving spouse, or child receiving pension, or a parent receiving death compensation or parents' DIC, must notify VA "of any * * * dependency status changes." This may lead some readers to erroneously conclude that a veteran's parent or a surviving child must report changes in the number of children he or she has. However, the number of children a claimant or beneficiary has is a factor that affects entitlement only when the claimant or beneficiary is a veteran or surviving spouse. Proposed [Section] 5.709(b) makes this clear.

Section 5.220, cited in proposed [Section] 5.709(b), was published as proposed on September 20, 2006. See 71 FR 55052, 55069. Section 5.411(b), also cited in proposed [Section] 5.709(b), was published as proposed on September 26, 2007. See 72 FR 54776, 54796. Section 5.473, also cited in proposed [Section] 5.709(b), was published as proposed on December 27, 2004. See 69 FR 77578, 77591.

5.710 Adjustment in Benefits Due to Reduction or Discontinuance of a Benefit to Another Payee

Proposed [Section] 5.710 is a plain language rewrite of current [Section] 3.651 and provides rules for adjustments to a beneficiary's payments when a benefit to another payee is reduced or discontinued. VA intends no substantive change by this rewording.

5.711 Payment to Dependents Due to the Disappearance of a Veteran for 90 Days or More

Proposed [Section] 5.711 is based on current [Section] 3.656 and provides that when a veteran disappears for 90 days or more, benefits may be paid to the veteran's dependents.

Current [Section] 3.656 refers to payment "to or for" a veteran's dependents. We propose to omit the "or for" qualifier in [Section] 5.711. A number of regulations in current part 3 refer to payment of various VA benefits "to or for" a veteran, a child, or a surviving spouse. This language as used in current [Section] 3.656 is used to indicate that a payment may be made directly to a beneficiary or to a fiduciary for that beneficiary. A typical example of the latter would be payment to a child's parent or guardian as the fiduciary of a VA beneficiary who is a minor. Another example would be payment to a VA-appointed fiduciary on behalf of an incompetent beneficiary. However, we note that although VA disability compensation and pension benefits are always potentially payable to a fiduciary for a VA beneficiary when the conditions warrant, the "to or for" phrase may be confusing to some regulation users. Further, inasmuch as benefits are always potentially payable to a fiduciary for a beneficiary, it is not necessary to state that explicitly in every regulation. Therefore, we have omitted the "or for" qualifier in proposed [Section] 5.711. Interested persons may find rules relating to payment through fiduciaries in 38 CFR part 13, and that topic will also be addressed in subpart M of proposed part 5. We intend no substantive change by omission of the "or for" language.

In addition, current [Section] 3.656(a) uses the word "parents." This word has the potential to confuse readers because a parent must first be established as a dependent of a veteran who was in receipt of disability compensation at the time of the veteran's disappearance in order to be considered for benefits as a dependent parent. Under 38 U.S.C. 1158, where a veteran receiving disability compensation disappears, VA may pay the compensation otherwise payable to the veteran, to the veteran's "parents." The amount of such payments may not exceed the amount payable to the parents if the veteran had died from a service-connected disability. Because only dependent parents are eligible for parents' DIC benefits, no benefits would be payable to a non-dependent parent under [Section] 1158. Therefore, we are proposing to use the term "dependent parents" instead of "parents" in proposed [Section] 5.711(b).

We also propose to replace the language "date of last payment" (used in current [Section] 3.656(a) and other part 3 sections) throughout this rulemaking with "the first day of the month after the month for which VA last paid benefits," which is clearer and more specific. No substantive change is intended by this change.

Current [Section] 3.656(a) states that if a veteran is missing for 90 days or more, VA will pay the veteran's dependents the lesser of the DIC which would be payable if the veteran had died from a service-connected cause or the amount of disability compensation when the veteran disappeared. In proposed [Section] 5.711(b)(1) we clarify how VA distributes such payments: if VA pays DIC pursuant to this paragraph, then it will pay benefits to the dependents as if the veteran were deceased, and if VA pays disability compensation pursuant to this paragraph, then it will pay benefits in equal amounts to the dependents. These payment methods are fair to dependents and are simple for VA to administer.

Current [Section] 3.656(b) states that if a missing veteran's whereabouts become known VA will discontinue the award to the dependents and "appropriate action will be taken to adjust the veteran's award in accordance with the facts found." We have not included this quoted material in proposed [Section] 5.711 because this section pertains to payments made to dependents of missing veterans. Proposed [Section] 5.712, which pertains to payments made to veterans who are missing and later found, includes this material.

Current [Section] 3.656(d) references Improved Pension, Section 306 Pension, and Service Pension. Service Pension is the name for Spanish American War Pension. See 38 CFR 3.1(x). There are no Spanish American War veterans still living, so it would be inappropriate to include the term "Service Pension" in proposed [Section] 5.711(c)(1).

Section 5.502, cited in proposed [Section] 5.711(d), was published as proposed on October 21, 2005. See 70 FR 61326, 61341.

5.712 Suspension of VA Benefits Due to the Disappearance of a Payee

Proposed [Section] 5.712 concerns the suspension and resumption of benefits for a payee whose whereabouts are or were unknown. Proposed [Section] 5.712(a) states VA's long-standing practice to suspend benefit payments when a payee's whereabouts are unknown. If the payee is ultimately located, VA pays the suspended benefits to him or her, so the payee is not deprived of any payments. Title 38, United States Code, requires VA to pay benefits to those who are entitled. Ensuring that benefit payments are received by the payee is an inherent part of that duty.

Current [Section] 3.158(c) provides for resumption of payments if the payee's whereabouts become known. This concept has been restated in plain language in proposed [Section] 5.712(b). VA intends no substantive change by this rewording.

The last sentence of proposed [Section] 5.712(b) states, "Retroactive payments under this paragraph (b) will be reduced by the amount of any payments made to a veteran's dependents under [Section] 5.711." During the period of suspension, 38 U.S.C. 1158 and 1507 (the statutory authorities for [Section] 5.711) authorize VA to reallocate disability compensation or pension to the veteran's dependents.

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The benefits paid under [Section] 5.711 are those benefits that would be otherwise payable to the veteran if not for his or her disappearance. Therefore, when a veteran's whereabouts become known and his or her benefits are restored, VA will not pay the veteran benefits that have already been paid to dependents. This rule is not explicitly stated in part 3 but we have included it in [Section] 5.712(b).

5.713 Restriction on VA Benefit Payments to an Alien Located in Enemy Territory

Current [Section] 3.653 describes two different types of restrictions on the payment of VA benefits to persons located in foreign countries. Provisions relating to these restrictions are included in proposed [Subsection] 5.713 (the withholding of benefits to an alien located in enemy territory) and 5.714 (the withholding of checks sent to foreign countries specifically listed by the Department of the Treasury). Provisions regarding claims for undelivered or discontinued benefits affected by these restrictions are stated in proposed [Section] 5.715.

Proposed [Section] 5.713 addresses the first restriction and would implement 38 U.S.C. 5308, "Withholding benefits of persons in territory of the enemy." Proposed [Section] 5.713(b), which is based on current [Section] 3.653(a), permits payment to an alien's dependents of the benefits discontinued under this section. A change from the current section would include language that more closely follows 38 U.S.C. 5308(c). Specifically, proposed paragraph (b)(1) provides that VA may apportion and pay all or any part of the alien's benefits to his or her dependents, up to the amount the dependents would receive if the alien were dead.

Proposed [Section] 5.713(b) also regulates the reduction or discontinuation of payments to the alien's dependents. Because VA will often have no way of knowing when an alien leaves enemy territory, and to avoid creation of unnecessary overpayments, payments to dependents will be discontinued effective as of the date VA receives notice that the alien is no longer located in enemy territory or under enemy control. In addition, proposed [Section] 5.713(b) provides that benefit payments to the alien's dependents will be reduced or discontinued, as required by law, upon the death of the alien or dependent, upon reduction or discontinuance of the alien's benefits, or cessation of dependent status.

Current [Section] 3.653(a) is limited to compensation, pension and DIC. However, we note that under 38 U.S.C. 5308(a), the rule applies to any award of "gratuitous benefits under the laws administered by the Secretary."

Paragraph 7 of VAOPGCPREC 06-91, 56 FR 25156 (June 3, 1991), states that:

7. Interim Issue (CONTR-169), dated January 13, 1960, providing necessary instructions for the fiscal implementation of Pub. L. 86-146, provides in paragraph D.3 in pertinent part:

"a. Immediately upon death of a veteran who has been adjudged or rated incompetent, the balance in the Personal Funds of Patients account will be analyzed to determine the source thereof, i.e., funds derived from gratuitous benefits deposited by the VA under laws administered by the VA or from other sources. For this purpose gratuitous benefits are defined as all benefit payments under laws administered by the VA except insurance payments (Servicemen's Indemnity benefits are not insurance payments)."

Therefore, we propose in [Section] 5.713(a) to make this section applicable to "all VA benefits except insurance payments."

Finally, we propose to not include current [Subsection] 3.400(l) and 3.500(j) in part 5. These paragraphs are merely cross-references to award, reduction, or discontinuance effective-date provisions that are included in proposed [Section] 5.713. Cross-references are not necessary.

5.714 Restriction on Delivery of VA Benefit Payments to Payees Located in Countries on Treasury Department List

Proposed [Section] 5.714 addresses restrictions on payments to individuals located in countries listed by the Department of the Treasury. This regulation implements 31 U.S.C. 3329, "Withholding checks to be sent to foreign countries," and 31 U.S.C. 3330, "Payment of Department of Veterans Affairs checks for the benefit of individuals in foreign countries." The first statute, 31 U.S.C. 3329, requires that the Secretary of the Treasury prohibit sending a Federal payment to a foreign country when the Secretary decides that there is no reasonable assurance the intended recipient of the payment will receive it and be able to negotiate it for its full value. The second statute, 31 U.S.C. 3330, provides special rules for applying 31 U.S.C. 3329 to VA benefits. The specific countries subject to the prohibition are listed in 31 CFR 211.1, "Withholding delivery of checks." We propose to refer readers to 31 CFR 211.1, rather than list the affected countries, because the list is subject to change by the Department of the Treasury.

Proposed [Section] 5.714(a) defines the following terms used in this section and elsewhere in part 5: "Payee," "special deposit account" (the special account referenced in 31 U.S.C. 3329), and "Treasury Department list" (the list of countries in 31 CFR 211.1). Although these definitions are new, they reflect current VA practices contemplated by part 3 of title 38, CFR.

Current [Section] 3.653(c) is limited to "aliens residing in" a country on the Treasury Department list; however, we note that 38 U.S.C. 3329 and 3330 are not limited to aliens and are based on delivery to a country, not residency in a country. Therefore, in proposed [Section] 5.714(c), we apply the restriction on check delivery to a "payee located in a country on the Treasury Department list."

Further, section 3330(a) of title 31, United States Code, prohibits VA from sending checks "if the check is * * * to be sent to a person in the United States or a territory or possession of the United States, and the person is legally responsible for the care of an individual in a foreign country." Although broadly written, this provision is not intended to bar VA benefit payments to anyone in the U.S. who is legally responsible for any person located in a foreign country. Rather, its intended effect is only to bar payment to a person in the U.S. or its territories or possessions on behalf of a VA beneficiary located in a country on the Treasury Department list. We propose to make that clear in proposed [Section] 5.714(c).

Section 3329 of title 31, United States Code, prohibits sending VA checks to countries on the Treasury Department list. Neither the statute, nor its implementing regulation, 31 CFR 211.1, precludes a payee located in such countries from taking delivery outside of that country. It is VA's practice to permit delivery of checks to a U.S. Foreign Service post in a country that is not on the Treasury Department list, if requested by a payee. We propose to include this provision in [Section] 5.714(d). VA intends no substantive change, inasmuch as this method of delivery is mentioned in current [Section] 3.653(c)(1) and (2).

5.715 Claims for Undelivered or Discontinued Benefits

Proposed [Section] 5.715 explains how to claim benefits discontinued under proposed [Section] 5.713. It also explains how to claim benefits that could not be delivered because of the restrictions in proposed [Section] 5.714. Proposed [Section] 5.715(a) cross-references the definitions of "payee," "special deposit account," and "Treasury Department list" in [Section] 5.714(a).

Proposed [Section] 5.715(b)(2) states that there is no time limit for filing claims under this section. This provision is based on current [Section] 3.653(c)(3) with one change involving time limits for filing claims for discontinued or withheld benefits. The current regulation states

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that there is no time limit with respect to claims for benefits withheld from a person located in a country on the Treasury Department list. There is also no time limit with respect to claims for benefit payments to an alien whose benefits were discontinued. We have included general language in proposed [Section] 5.715(b)(2) in order to make clear that there is no time limit for claims filed for benefits discontinued under [Section] 5.713 or withheld under [Section] 5.714.

Proposed [Section] 5.715 is based on 38 U.S.C. 5308(b). Section 5308(b) requires that a new claim by an alien whose benefits were discontinued under section 5308 be "accompanied by evidence satisfactory to the Secretary showing that such alien was not guilty of mutiny, treason, sabotage, or rendering assistance to the enemy." Section 3329(c)(1) of title 31 in essence provides that before the Secretary of the Treasury can pay out VA benefit funds in the special deposit account, the person claiming payment must satisfy VA of his or her right to the withheld funds. We propose to address these concerns by providing in [Section] 5.715(d) that VA may request any evidence necessary to support a claim under this section. This includes evidence that the payee has not been guilty of mutiny, treason, sabotage, or rendering assistance to an enemy and evidence of continued entitlement to benefits during the time that awarded benefits were discontinued or benefit payments were undelivered.

Section 5.677, cited in proposed [Section] 5.715(c), was published as proposed on May 31, 2006. See 71 FR 31056, 31065-66. Section 5.90, cited in proposed [Section] 5.715(d), will restate the content of current [Section] 3.159. Space was reserved in part 5 in a prior Notice of Proposed Rulemaking. See 70 FR 24680, 24683 (May 10, 2005); see also 73 FR 23353 (April 30, 2008) (amending 38 CFR 3.159). Section 5.565, cited in proposed [Section] 5.715(f), was published as proposed on October 1, 2004. See 69 FR 59072, 59088-89.

Endnote Regarding Amendatory Language

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

Paperwork Reduction Act

Although this document contains provisions constituting a collection of information, at 38 CFR 5.708 and 5.709, under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501-3521), no new or proposed revised collections of information are associated with this proposed rule. The information collection requirements for [Subsection] 5.708 and 5.709 are currently approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 2900-0101.

Regulatory Flexibility Act

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

Executive Order 12866

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). The Executive Order classifies a "significant regulatory action," requiring review by the Office of Management and Budget (OMB) unless OMB waives such review, as any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

The economic, interagency, budgetary, legal, and policy implications of this proposed rule have been examined and it has been determined to be a