Book B, Supplement No. 61

Custom Federal Regulations Service™

This is supplemental material

for Book B of your set of

Federal Regulations

Title 38, Part 3

Adjudication

Veterans Benefits Administration

Supplement No. 61

Covering period of Federal Register issues

through November 20, 2003

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Questions concerning missing supplements, need for additional books, and other distribution list issuesfor this loose-leaf service should be directed to:

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Veterans Benefits Administration

Directives, Forms and Records Staff

Mail Code: 20S5

810 Vermont Avenue, N.W.

Washington DC 20420

Telephone: 202/273-7080

Fax: 202/275-5947

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GENERAL INSTRUCTIONS

Custom Federal Regulations Service™

Supplemental Materials for Book B

Code of Federal Regulations

Title 38, Part 3

Adjudication

Veterans Benefits Administration

Supplement No. 61

25 November 2003

Covering the period of Federal Register issues

through November 20, 2003

When Book B was originally prepared, it was current through final regulations published in the Federal Register of 9 August 1991. These supplemental materials are designed to keep your regulations up to date. You should file the attached pages immediately, and record the fact that you did so on the Supplement Filing Record which begins on page B-5 of Book B, Adjudication.

To ensure accuracy and timeliness of your materials,

it is important that you follow these simple procedures:

1. Always file your supplemental materials immediately upon receipt.

2. Before filing, always check the Supplement Filing Record (page B-5) to be sure that all prior supplements have been filed. If you are missing any supplements, contact the Veterans Benefits Administration at the address listed on page B-4.

3. After filing, enter the relevant information on the Supplement Filing Record sheet (page B-5)—the date filed, name/initials of filer, and date through which the Federal Register is covered.

4. If as a result of a failure to file, or an undelivered supplement, you have more than one supplement to file at a time, be certain to file them in chronological order, lower number first.

5. Always retain the filing instructions (simply insert them at the back of the book) as a backup record of filing and for reference in case of a filing error.

6. Be certain that you permanently discard any pages indicated for removal in the filing instructions in order to avoid confusion later.

To execute the filing instructions, simply remove and throw away the pages listed under Remove These Old Pages, and replace them in each case with the corresponding pages from this supplement listed under Add These New Pages. Occasionally new pages will be added without removal of any old material (reflecting new regulations), and occasionally old pages will be removed without addition of any new material (reflecting rescinded regulations)—in these cases the word None will appear in the appropriate column.

FILING INSTRUCTIONS

Book B, Supplement No. 61

November 25, 2003

Remove theseAdd theseSection(s)

old pagesnew pagesAffected

Do not file this supplement until you confirm that

all prior supplements have been filed

3.261-1 to 3.270-13.261-1 to 3.270-1§§3.261–3.263

3.272-1 to 3.272-63.272-1 to 3.272-6§3.272

3.275-1 to 3.275-23.275-1 to 3.275-2§3.275

Be sure to complete the

Supplement Filing Record (page B-5)

when you have finished filing this material.

HIGHLIGHTS

Book B, Supplement No. 61

November 25, 2003

Note: Where substantive changes are made in the text of regulations, the paragraphs of Highlights sections are cited at the end of the relevant section of text. Thus, if you are reading §3.263, you will see a note at the end of that section which reads: “Supplement Highlights references—6(2).” This means that paragraph 2 of the Highlights section in Supplement No. 6 contains information about the changes made in §3.263. By keeping and filing the Highlights sections, you will have a reference source explaining all substantive changes in the text of the regulations.

Supplement frequency: This Book B (Adjudication) was originally supplemented four times a year, in February, May, August, and November. Beginning 1 August 1995, supplements will be issued every month during which a final rule addition or modification is made to the parts of Title 38 covered by this book. Supplements will be numbered consecutively as issued.

Modifications in this supplement include the following:

1. On 24 October 2003, the VA published a final rule, effective that same date, to exclude from income and net worth computations in the pension and parents’ dependency and indemnity compensation programs any money received under the Victims of Crime Act of 1984. Changes:

 In §3.261, added a new entry (41) in paragraph (a);

 In §3.262, added a new paragraph (z);

 In §3.263, added a new paragraph (h);

 In §3.272, added a new paragraph (v); and

 In §3.275, added a new paragraph (j).

B61–1

3.261-13.261—Character of income; exclusions and estates3.261-1

§3.261 Character of income; exclusions and estates.

The following factors will be considered in determining whether a claimant meets the requirements of §§3.250, 3.251 and 3.252 with reference to dependency, income limitations and corpus of estate:

Pension;Pension;

Dependencyold-lawSection 306

(a) IncomeDependencyand indemnity(veterans,(veterans,See

(parents)compensationsurvivingsurviving

spouses, andspouses, and

children)children)

(1) Total income from employment,

business, investments, or rentsIncludedIncludedIncludedIncluded§3.262(a)

(2) Income of spouseIncludedIncludedExcludedIncluded§3.262(b)

(3) Earnings of members of family under legal ageIncludedExcludedExcludedExcluded§3.250(b)(2)

§3.252(e)(3)

(4) Earned income of child-claimantIncludedExcluded

(5) Gifts, including contributions from adult

members of family:

PropertyIncludedIncludedIncludedExcluded§3.262(k)

MoneyIncludedIncludedIncludedIncluded

(6) Value of maintenance by relative, friend,

or organizationExcludedExcludedExcludedExcluded§3.262(c)

(7) Rental value of property owned by andExcludedExcludedExcludedExcluded

resided in by claimant

(8) Charitable donationsExcludedExcludedIncludedExcluded§3.262(d)

(No. 61 11/25/03)

3.261-23.261—Character of income; exclusions and estates3.261-2

Pension;Pension;

Dependencyold-lawSection 306

(a) IncomeDependencyand indemnity(veterans,(veterans,See

(parents)compensationsurvivingsurviving

spouses, andspouses, and

children)children)

(9) Family allowance authorized by service

personnelIncludedIncludedIncludedIncluded

(10) Reasonable value of allowances to

person in service in addition to base payIncludedIncludedIncludedIncluded except

as earned income

of child-claimant

(11) Mustering-out payExcludedIncludedExcludedIncluded except

as earned income

of child-claimant

(12) Six-months’ death gratuityExcludedExcludedExcludedExcluded

(13) Bonus or similar cash gratuity paid by any

State based on service in Armed Forces

of United StatesExcludedExcludedExcludedExcluded

(14) Retired Serviceman’s Family Protection

Plan; Survivor Benefit Plan (10 U.S.C. ch. 73):

Retired Serviceman’s Family Protection

Plan (Subch. I):

AnnuitiesExcludedExcludedExcludedExcluded

Refund (10 U.S.C. 1446)IncludedIncludedIncludedIncluded

Survivor Benefit Plan (Subch. II)

(Pub. L. 92-425; 86 Stat. 706)IncludedIncludedIncludedIncluded§3.262(e)

Annuity under §653, Pub. L. 100-456IncludedIncludedExcludedExcluded§3.262(r)

(No. 61 11/25/03)

3.261-33.261—Character of income; exclusions and estates3.261-3

Pension;Pension;

Dependencyold-lawSection 306

(a) IncomeDependencyand indemnity(veterans,(veterans,See

(parents)compensationsurvivingsurviving

spouses, andspouses, and

children)children)

(15) Retirement pay received direct from

service departmentIncludedIncludedIncludedIncluded§3.262(e)

§3.262(h)

(16) Retirement benefits; generalIncludedIncludedIncludedIncluded§3.262(e)

(17) Social security benefits:

Old age and survivors’, and

disability insuranceIncludedIncludedIncludedIncluded§3.262(f)

Charitable programsExcludedExcludedIncludedExcluded

Lump-sum death paymentsIncludedExcludedIncludedExcluded

Supplemental security incomeExcludedExcludedIncludedExcluded

(18) Railroad Retirement benefitsExcludedIncludedDisabilityIncluded§3.262(g)

pension—

Excluded;

Death pension—Included

(19) Retirement pay waived under Federal

statuteExcludedExcludedExcludedIncluded§3.262(h)

(No. 61 11/25/03)

3.261-43.261—Character of income; exclusions and estates3.261-4

Pension;Pension;

Dependencyold-lawSection 306

(a) IncomeDependencyand indemnity(veterans,(veterans,See

(parents)compensationsurvivingsurviving

spouses, andspouses, and

children)children)

(20) Department of Veterans Affairs payments:

PensionExcludedExcludedExcludedExcluded

Compensation and dependency and

indemnity compensationExcludedExcludedExcludedExcluded

World War I adjusted compensationExcludedIncludedExcludedIncluded

U.S. Government life insurance or national

service life insurance for disability or death,

maturity of endowment policies, and dividends,

including special and termination dividendsExcludedExcludedExcludedExcluded

Servicemembers’ group life insuranceExcludedExcludedExcludedExcluded

Veterans’ group life insuranceExcludedExcludedExcludedExcluded

Servicemembers’ indemnityExcludedExcludedExcludedExcluded

Subsistence allowance (38 U.S.C. ch. 31)IncludedIncludedIncludedIncluded

Veterans educational assistance in excess

of amounts expended for training

(38 U.S.C. ch. 34)IncludedIncludedIncludedIncluded

Educational assistance (38 U.S.C. ch. 35)------ExcludedExcluded

Special allowance under 38 U.S.C. 1312(a)ExcludedIncludedExcludedIncluded

Statutory burial allowanceExcludedExcludedExcludedExcluded

AccruedExcludedIncluded, exceptExcludedIncluded, except

accrued asaccrued as

reimbursementreimbursement

(21) Compensation (civilian) for injury or deathIncludedIncludedIncludedIncluded§3.262(i)

(No. 61 11/25/03)

3.261-53.261—Character of income; exclusions and estates3.261-5

Pension;Pension;

Dependencyold-lawSection 306

(a) IncomeDependencyand indemnity(veterans,(veterans,See

(parents)compensationsurvivingsurviving

(parents)spouses, andspouses, and

children)children)

(22) Contributions by a public or private employer to a:

Public or private health or hospitalization

plan for an active or retired employeeExcludedExcludedExcludedExcluded

Retired employee as reimbursement for

premiums for supplementary medical

insurance benefits under the Social

Security Program (Pub. L. 91-588;

84 Stat. 1580)IncludedIncludedExcludedExcluded

(23) Overtime pay; Government employeesIncludedIncludedDisability Included

pension—Excluded.

Death pension—

Included

(24) Commercial life insurance; disability, accident,

or health insurance, less payments of medical

or hospital expenses resulting from the accident

or disease for which payments are made.Included (asIncluded (asIncluded,Included(as§3.262(j)

received)received)(special received)

provision)

(25) Commercial annuities or endowmentsIncluded (asIncluded Included,Included §3.262(j)

received) (special(special (special

provision)provision)provision)

(26) Dividends from commercial insuranceExcludedExcludedExcludedExcluded

(No. 61 11/25/03)

3.261-63.261—Character of income; exclusions and estates3.261-6

Pension;Pension;

Dependencyold-lawSection 306

(a) IncomeDependencyand indemnity(veterans,(veterans,See

(parents)compensationsurvivingsurviving

(parents)spouses, andspouses, and

children)children)

(27) Insurance under Merchant Marine Act

of 1936, as amendedIncludedIncludedIncludedIncluded

(28) Reimbursement for casualty loss

(Pub. L. 100-456).IncludedExcludedIncludedIncluded§3.262(t)

Other fire insuranceExcludedExcludedExcludedExcluded§3.262(t)

(29) Bequests, devises and inheritances:

PropertyIncludedExcludedIncludedExcluded§3.262(k)

MoneyIncludedIncludedIncludedIncluded

Joint bank accountsIncludedIncludedIncludedExcluded§3.262(k)(1)

(30) Profit from sale of propertyExcludedExcludedExcludedExcluded§3.262(k)

(31) Jury duty or obligatory civic dutiesExcludedExcludedExcludedExcluded

(32) Relocation payments (Pub. L. 90-448;

Pub. L. 90-495)ExcludedExcludedExcludedExcluded§3.262(c)

(33) The following programs administered by the ACTION agency:

Foster Grandparent Program and Older

Americans Community Service Programs

payments (Pub. L. 93-29; 87 Stat. 55)ExcludedExcludedExcludedExcluded§3.262(q)(1)

Volunteers in Service to America (VISTA),

University Year for ACTION (UYA),

Program for Local Services (PLS),

ACTION Cooperative Volunteers (ACV),

Foster Grandparent Program (FGP), and

Older American Community Service Programs,

Retired Senior Volunteer Program (RSVP),

Senior Companion Program (Pub. L. 93-113;

87 Stat. 394)ExcludedExcludedExcludedExcluded§3.262(q)(2)

(No. 61 11/25/03)

3.261-73.261—Character of income; exclusions and estates3.261-7

Pension;Pension;

Dependencyold-lawSection 306

(a) IncomeDependencyand indemnity(veterans,(veterans,See

(parents)compensationsurvivingsurviving

(parents)spouses, andspouses, and

children)children)

(34) The Service Corps of Retired Executives (SCORE)

and Active Corps of Executives (ACE) administered

by the Small Business Administration.

(Pub. L. 93-113; 87 Stat. 394)ExcludedExcludedExcludedExcluded§3.262(q)(2)

(35) Agent Orange settlement payments

(Pub. L. 101-201)ExcludedExcludedExcludedExcluded§3.262(s)

(36) Restitution to individuals of Japanese

ancestry (Pub. L. 100-383).ExcludedExcludedExcludedExcluded§3.262(u)

(37) Income received by American Indian

beneficiaries from Trust or

Restricted lands (Pub. L. 103-66)ExcludedExcludedExcludedExcluded§3.262(v)

(38) Income received under Section 6 of the

Radiation Exposure Compensation Act

(Pub. L. 101-426)ExcludedExcludedExcludedExcluded§3.262(w)

(39) Cash, stock, land or other interests received

from a Native Corporation under the

Alaska Native Claims Settlement Act

(43 U.S.C. 1601, et seq.)ExcludedExcludedExcludedExcluded§3.262(x)

(40) Monetary allowance under 38 U.S.C.

chapter 18 for certain individuals

who are children of Vietnam veterans

(38 U.S.C. 1823(c))ExcludedExcludedExcludedExcluded§3.262(y)

(No. 61 11/25/03)

3.261-83.261—Character of income; exclusions and estates3.261-8

Pension;Pension;

Dependencyold-lawSection 306

(a) IncomeDependencyand indemnity(veterans,(veterans,See

(parents)compensationsurvivingsurviving

(parents)spouses, andspouses, and

children)children)

(41) Income received under the Victims of

Crime Act of 1984 (42 U.S.C. 10601-

10605).Excluded1Excluded1Excluded1Excluded1§3.262(z)

(b) Deduction of Amounts Paid by Claimant

(1) Unusual medical expensesNot authorizedAuthorizedNot authorizedAuthorized§§3.262(b)(1), & (l)

(2) Veteran: just debts, expenses of

last illness, and burialNot authorizedAuthorized,Not authorizedAuthorized§§3.262(m) & (o)

except debts

(3) Veteran’s spouse or child:

expenses of last illness and

burialNot authorizedNot authorizedNot authorizedAuthorized§3.262(n)

(4) Parent’s spouse: just debts;

expenses of last illness

and burialNot authorizedAuthorized------§3.262(o)

(5) Prepayments on real property

mortgage after death of

spouse (Pub. L. 91-588)Not authorizedNot authorizedNot authorizedAuthorized§3.262(k)(6)

conditionally

______

1. The compensation received through a crime victim compensation program will be excluded from income computations unless the total amount of assistance received from all federally funded programs is sufficient to fully compensate the claimant for losses suffered as a result of the crime.

(No. 61 11/25/03)

3.261-1§3.261—Character of income; exclusions and estates3.261-1

[28 FR 31, Jan. 1, 1963, as amended at 29 FR 15205, Nov. 11, 1964; 31 FR 15632, Dec. 13, 1966; 33 FR 15286, Oct. 15, 1968; 36 FR 8446, May 6, 1971; 37 FR 6677, Apr. 1, 1972; 37 FR 7092, Apr. 8, 1972; 37 FR 21436, Oct. 11, 1972; 38 FR 872, Jan. 5, 1973; 38 FR 26804, Sept. 26, 1973; 38 FR 28826, Oct. 17, 1973; 40 FR 13305, Mar. 26, 1975; 40 FR 57459, Dec. 10, 1975; 41 FR 17386, Apr. 26, 1976; 42 FR 43834, Aug. 31, 1977; 57 FR 59298, Dec. 15, 1992; 58 FR 12174, Mar. 3, 1993; 58 FR 31909, June 7, 1993; 58 FR 33766, June 21, 1993; 59 FR 37695, July 25, 1994; 60 FR 2522, Jan. 10, 1995; 60 FR 18355, Apr. 11, 1995; 62 FR 35970, July 3, 1997; 62 FR 51278, Sept. 30, 1997; 67 FR 49586, July 31, 2002; 68 FR 60852, Oct. 24, 2003]

Supplement Highlights references: 6(2), 8(3), 12(7), 14(4), 15(3), 31(1), 54(2), 61(1).

Reserved

(No. 61 11/25/03)

3.262-1§3.262—Evaluation of income 3.262-1

§3.262 Evaluation of income.

(a) Total income. All income from sources such as wages, salaries, earnings, bonuses from employers, income from a business or profession or from investments or rents as well as the fair value of personal services, goods or room and board received in lieu thereof will be included.

(1) Salary is not determined by “takehome” pay, but includes deductions made under a retirement act or plan and amounts withheld by virtue of income tax laws.

(2) The gross income from a business or profession may be reduced by the necessary operating expenses, such as cost of goods sold, or expenditures for rent, taxes, and upkeep. Depreciation is not a deductible expense. The cost of repairs or replacement may be deducted. The value of an increase in stock inventory of a business is not considered income.

(3) A loss sustained in operating a business, profession, or farm or from investments may not be deducted from income derived from any other source.

(b) Income of spouse. Income of the spouse will be determined under the rules applicable to income of the claimant.

(1) Parents. Where the mother and father or remarried parent and spouse are living together, the total combined income will be considered in determining dependency, or in determining the rate of dependency and indemnity compensation payable to the parent. This rule is equally applicable where both parents have remarried and each is living with his or her spouse. If the remarriage of a parent has been terminated, or the parent is separated from his or her spouse, income of the spouse will be excluded.

(2) Veterans. The separate income of the spouse of a disabled veteran who is entitled to pension under laws in effect on June 30, 1960, will not be considered. Where pension is payable under section 306(a) of Pub. L. 95-588, to a veteran who is living with a spouse there will be included as income of the veteran all income of the spouse in excess of whichever is the greater, the amount of the spouse income exclusion specified in section 306(a)(2)(B) of Pub. L. 95-588 as increased from time to time under section 306(a)(3) of Pub. L. 95-588 or the total earned income of the spouse which is reasonably available to or for the veteran, unless hardship to the veteran would result. Each time there is an increase in the spouse income exclusion pursuant to section 306(a)(3) of Pub. L. 95-588, the actual amount of the exclusion will be published in the “Notices” section of the Federal Register. The presumption that inclusion of such income is available to the veteran and would not work a hardship on him or her may be rebutted by evidence of unavailability or of expenses beyond the usual family requirements. (Authority: 38 U.S.C. 1521(f); sec. 306(a)(2)(B) of Pub. L. 95-588)

(c) Maintenance. The value of maintenance furnished by a relative, friend, or a charitable organization (civic or governmental) will not be considered income. Where the claimant is maintained in a rest home or other community institution or facility, public or private, because of impaired health or advanced age, money paid to the home or to the claimant to cover the cost of maintenance will not be considered income, regardless of whether it is furnished by a relative,

(No. 61 11/25/03)

3.262-1§3.262—Evaluation of income 3.262-1

friend or charitable organization. The expense of maintenance is not deductible if it is paid from the claimant’s income, except as provided in paragraph (1) of this section in claims for dependency and indemnity compensation.

(d) Charitable donations. Charitable donations from public or private relief or welfare organizations will not be considered income except in claims for pension under laws in effect on June 30, 1960. In the latter cases, additional charitable allowances received by a claimant for members of his or her family may not be divided per capita in determining the amount of the claimant’s income.

(e) Retirement benefits; general. Retirement benefits, including an annuity or endowment, paid under a Federal, State, municipal, or private business or industrial plan are considered income as limited by this paragraph. Where the payments received consist of part principal and part interest, interest will not be counted separately.

(1) Protected pension. Except as provided in this paragraph (e)(1), effective January 1, 1965, in determining income for pension purposes under laws in effect on June 30, 1960, 10 percent of the retirement payments received by a veteran, surviving spouse, or child will be excluded. The remaining 90 percent will be considered income as received. Where the retirement benefit is based on the claimant’s own employment, payments will not be considered income until the amount of the claimant’s personal contribution (as distinguished from amounts contributed by the employer) has been received. Thereafter the 10 percent exclusion will apply.

(2) Pension; Pub. L. 86-211. Except as provided in this subparagraph, effective January 1, 1965, in determining income for pension purposes, under Pub. L. 86-211 (73 Stat. 432), 10 percent of the retirement payments received by a veteran, the veteran’s spouse, surviving spouse, or child will be excluded. The remaining 90 percent will be considered income as received. Where a person was receiving or entitled to receive pension and retirement benefits based on his or her own employment on December 31, 1964, the retirement payments will not be considered income until the amount of the claimant personal contribution (as distinguished from amounts contributed by the employer) has been received. Thereafter the 10 percent exclusion will apply.

(3) Compensation. In determining dependency of a parent for compensation purposes, all payments will be considered income as received.

(4) Dependency and indemnity compensation. Except as provided in this subparagraph, effective January 1, 1967, in determining income for dependency and indemnity compensation purposes, 10 percent of the retirement payments received by a deceased veteran’s parent or by the parent’s spouse will be excluded. The remaining 90 percent will be considered income as received. Where a parent was receiving or entitled to receive dependency and indemnity compensation and retirement benefits based on his or her own employment on December 31, 1966, the retirement payments will not be considered income until the amount of the claimant’s personal contribution (as distinguished from amounts contributed by the employer) has been received. Thereafter the 10 percent exclusion will apply. (Authority: 38 U.S.C. 1315(g), 1503(a)(6))

(No. 61 11/25/03)

3.262-1§3.262—Evaluation of income 3.262-1

(f) Social Security benefits. Old age and survivor’s insurance and disability insurance under title II of the Social Security Act will be considered income as a retirement benefit under the rules contained in paragraph (e) of this section. Benefits received under noncontributory programs, such as old age assistance, aid to dependent children, and supplemental security income are subject to the rules contained in paragraph (d) of this section applicable to charitable donations. The lumpsum death payment under title II of the Social Security Act will be considered as income except in claims for dependency and indemnity compensation and for pension under Pub. L. 86-211 (73 Stat. 432).