Part XIV, Chapter 4, Section CFederal Tax Information (FTI) Match: Post Award Audit (PAA) for Pension and Parents' Dependency and Indemnity Compensation (DIC) Beneficiaries

The Office of Performance Analysis & Integrity (OPA&I) selects beneficiary files for the data match and sends the files to Hines Information Technology Center (ITC).Reference: For more information on OPA&I selection, see M21-1, Part XIV, 4.C.1.c.

Hines ITC sends the file to the SSA and IRS.

The SSA and IRS run this file against their files.

Files are then returned from both the SSA and IRS.

Hines ITC combines the SSA and IRS files and matches the combined file against the corporate record.

Hines ITC performs a filter to exclude those cases where development based on income or net worth is not required.Reference: For more information on Hines ITC filtering of matches, see M21-1, Part XIV, 4.C.1.d.

For cases not filtered, Hines ITC

• establishes the appropriate end product (EP) for the pension management center (PMC)
• mails the appropriate letter(s) to the beneficiary, and
• uploads the letter(s) to the secured Federal tax information (FTI) file repository (FFR).

beneficiary's share of income, credits, deductions, etc.

21P-8049, Request for Details of Expenses.

changes in corporate control and capital structure

21P-8049.

distributions from pensions, annuities, retirement or profit-sharing plans, individual retirement arrangements (IRAs), insurance contracts, etc.

21P-8049.

partner’s share of income, credits, deductions, etc.

• 21P-4165, Pension Claim Questionnaire for Farm Income, and
• 21P-8049.

shareholder's share of undistributed taxable income, credits, deductions, etc.

21P-8049.

statement for recipients of certain government payments

21P-4165 if the income type is agricultural subsidies.Note: A VA form is not mailed when the income type is unemployment compensation.

statement for recipients of dividends and distributions

21P-8049.

statement for recipients of miscellaneous income

• 21P-4165
• 21P-4185, Report of Income From Property or Business, or
• 21P-8049 __

• medical payments, or

• other income

• 21P-4185 ,__ and

• 21P-8049.

rents

• 21P-4165
• 21P-4185, and
• 21P-8049.

royalties

• 21P-4165, and
• 21P-8049.

substitute payments for dividends

21P-8049.

statement for recipients of proceeds from real estate brokers and barters exchange transactions

21P-8049.

statement for recipients of proceeds from real estate transactions

21P-4185.

• verifies the matched amount
• verifies more income than the match amount, or
• verifies less income than the matched amount with substantiating evidence

beneficiary verified amount.

• verifies less income than the matched amount without substantiating evidence, and
• reported income would result in the reduction or discontinuance of benefits, or
• the beneficiary does not respond

PAA worksheet. Note: In the decision notice, give the beneficiary the opportunity to provide evidence to support the claim of less income. Beneficiaries should also be provided a VA Form 21P-8416, Medical Expense Report, and given the opportunity to submit unreimbursed medical expenses that they paid to reduce an overpayment. Reference: For more information on time limits to submit amended income information to reduce an overpayment, see M21-1, Part IX, Subpart iii, 1.H.1.f.

DATE LETTER MAILED

the date the beneficiary letter was mailed by Hines ITC. Note: This field will be blank if the PAA was excluded by Hines ITC.

PAA WAS AUTOMATICALLY FILTERED DATE

the date the automatic filter was completed by Hines ITC to exclude the match.

REASON

the automatic filter reasons for exclusion of the match, provided by Hines ITC. The following are the filter reasons:

• beneficiary reported deceased
  • terminated for full calendar year of match
  • _current medical expenses reduce countable income to zero _
  • income of record for matched year, is greater than income reported by IRS/SSA
  • income on award equals zero and FTI equals zero, or
  • discrepant income is within threshold.

Reference: For the full description of Hines ITC filtering reasons, see M21-1, Part XIV, 4.C.1.d.

C-FILE NUMBER

the file number of the pension or Parents' DIC award.

SSN

the Veteran’s Social Security number (SSN).

STUB

the Veteran’s stub name as it is shown in the corporate record.

ENTITLEMENT CODE

one of the following:

• Veterans Pension
• Survivors Pension, or
• Parents' DIC.

INCOME RECIPIENT’S NAME

the name of the

• beneficiary, or
• survivor.

INCOME RECIPIENT’S SSN

the SSN of the

• beneficiary, or
• survivor.

INCOME RECIPIENT’S ADDRESS

the address of the

• beneficiary, or
• survivor.

PAYER NAME AND ADDRESS

the name and address of the individual, business, or entity that paid the income.

ACCOUNT NUMBER

the account number associated with the income paid, if applicable.

GROSS INCOME

the gross amount of income, as provided by the payer of the income.

IRS SOURCE

the IRS form name on which the income was reported. Example: Statement for Recipients of Certain Government Payments.

IRS INCOME TYPE

the specific type of gross income as reported to IRS on the applicable IRS form. Example: The IRS provides VA from the IRS Form 1099-G, Statement for Recipients of Certain Government Payments , the following income information:

• box one, unemployment compensation, and
  • box seven, agriculture payments.

If FTI is received documenting an individual received income reported on IRS Form1099-G , the field on the PAA worksheef, IRS INCOME TYPE, will display

• unemployment compensation, or
• agriculture subsidies.

INDICATOR 1

supplemental information provided by the income payer on the IRS form. Indicator 1 will be provided when the gross income reported to IRS is received on the following forms:

• 1099-CAP, Changes in Corporate Control and Capital Structure (Info Copy Only)
  • 1099-MSA, Distributions from Medical Savings Accounts
  • 1099-Q, Qualified Tuition Program Payments , or
  • _1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans. _

Note: In most cases, interpretation of the information is not required, as Hines ITC will provide the income classification on the PAA worksheet.

INDICATOR 2

supplemental information provided by the income payer on the IRS form. It is only available on the IRS Form 1099-R. Note: In most cases, interpretation of the information is not required, as Hines ITC will provide the income classification on the PAA worksheet.

COUNT AS

the VBA income classification.

1

Review the COUNT AS field for each income amount received and follow the instructions in the table below. If the COUNT AS field states … Then ...

• Income from SSA , or

  • Recurring Income

  • count on an open-ended basis from the first day of the month after the month during which the income is first received, and

  • take no further action unless other types of income are reported on the worksheet.

Note: If there is no evidence to show otherwise, presume that the income was received in January of the tax year shown on the PAA worksheet.

Nonrecurring Income

• count this income from the first day of the month after the month during which the income is first received
  • remove the income after 12 months, and
  • take no further action unless other types of income are reported on the worksheet.

Note: If there is no evidence to show the date in which the income is received, presume that the income was received in January of the tax year shown on the PAA worksheet. Reference: For more information regarding the effect nonrecurring income has on pension payments, see M21-1, Part IX, Subpart iii, 1.A.6.e.

Nonrecurring Income *(noted with an asterisk)

review the evidence of record to determine if the income can be excluded under 38 CFR 3.272(e). If the income can … Then ...

be excluded

do not count the income.

not be excluded

• count this income from the first day of the month after the month during which the income is first received
  • remove the income after 12 months, and
  • take no further action unless other types of income are reported on the worksheet.

Note: If there is no evidence to show the date in which the income is received, presume that the income was received in January of the tax year shown on the PAA worksheet. In the final letter to the beneficiary, provide notice of the following: Evidence shows you received the following income which may profit from the sale of property: [insert income] If you did not receive this income through the course of business, the income can be excluded. To have the income excluded, provide us the amount of income and evidence showing the income was not received due to profit from a business, such as a letter from the income payer.Reference: For more information regarding the effect nonrecurring income has on pension payments, see M21-1, Part IX, Subpart iii, 1.A.6.e.

Not Income for VBA purposes

• do not count this as income, and
• take no further action unless other types of income are reported on the worksheet.

This amount is included in gross benefits. Do not count twice. Subtract excess contributions from gross benefits after 12 months

• do not count this as income, and
• follow the steps in the table below.

1

Review the Income Source on the PAA worksheet and locate the two incomes received from Distributions from Medical Savings Accounts. The income types should differ and will be

• gross benefits, and
• earnings on distributive excess contributions.

2

Review the income classification for the income type, gross benefits. Is the income classification nonrecurring?

• If yes , take no further action unless other types of income are reported on the worksheet.
• If no , go to Step 3.

3

Count the full amount of the income type, gross benefits, for 12 months.

4

After 12 months, reduce gross benefits amount by the amount of the income type, earnings on distributive excess contributions. Reference: For an example, see M21-1, Part XIV, 4.C.3.e.

• Unknown , or
• blank/empty

go to Step 2.

any other language

• send an encrypted e-mail to VAVBAWAS/CO/P&F POL & PROC with the following information:
  • claim number
  • claimant name, and
  • PAA worksheet field information including the
    • PAYER NAME
    • GROSS INCOME
    • IRS SOURCE
    • IRS INCOME TYPE
    • INDICATOR 1, and
    • INDICATOR 2, and
• wait for further instructions from Pension and Fiduciary (P&F) Service.

2

Review the IRS SOURCE field and follow the instructions in the table below. If the IRS SOURCE field states … Then ...

Changes in Corporate Control and Capital Structure

review the evidence of record to determine if the income can be excluded under 38 CFR 3.272(e). If the income can … Then ...

be excluded

do not count the income.

not be excluded

• count this income from the first day of the month after the month during which the income is first received
  • remove the income after 12 months, and
  • take no further action unless other types of income are reported on the worksheet.

Note: If there is no evidence to show the date in which the income is received, presume that the income was received in January of the tax year shown on the PAA worksheet. In the final letter to the beneficiary, provide notice of the following: Evidence shows you received the following income which may profit from the sale of property: [insert income] _If you did not receive this income through the course of business, the income can be excluded. To have the income excluded, provide a statement regarding the income that should be included and evidence showing the income was not received due to profit from a business. The evidence can in the form of a statement from the income payer. _ Reference: For more information regarding the effect nonrecurring income has on pension payments, see M21-1, Part IX, Subpart iii, 1.A.6.e.

Distributions from Pensions, Annuities, Retirement or Profit-sharing Plans, IRAs, Insurance Contracts, Etc.

follow the instructions in M21-1, Part XIV, 4.C.4.d. Note: M21-1, Part XIV, 4.C.4.d only pertains to Distributions from Pensions, Annuities, Retirement or Profit-sharing Plans, IRAs, Insurance Contracts, Etc.

Distributions from Medical Savings Accounts

go to Step 3. Note: Step 3 only pertains to Distributions from Medical Savings Accounts.

Qualified Tuition Program Payments

• count this income from the first day of the month after the month during which the income is first received
  • do not remove from the award unless there is evidence to show that the income stopped, and
  • take no further action unless other types of income are reported on the worksheet.

Note: If there is no evidence to show the date in which the income is received, presume that the income was received in January of the tax year shown on the PAA worksheet.

3

Review the INDICATOR 1 field and follow the instructions in the table below. Note: This step pertains only when the IRS SOURCE field is Distributions from Medical Savings Accounts. If the INDICATOR 1 field states (or displays) … Then …

• empty (or blank)

  • Disability

  • Normal Distribution , or

  • Not Set

  • count this income from the first day of the month after the month during which the income is first received

  • do not remove from the award unless there is evidence to show that the income stopped, and

  • take no further action unless other types of income are reported on the worksheet.

Note: If there is no evidence to show the date in which the income is received, presume that the income was received in January of the tax year shown on the PAA worksheet.

• Death

• Distribution to a Non-Spousal Beneficiary , or

• Prohibited Transaction

• count this income from the first day of the month after the month during which the income is first received

• remove the income after 12 months, and

• take no further action unless other types of income are reported on the worksheet.

Note: If there is no evidence to show the date in which the income is received, presume that the income was received in January of the tax year shown on the PAA worksheet. Reference: For more information regarding the effect nonrecurring income has on pension payments, see M21-1, Part IX, Subpart iii, 1.A.6.e.

Excess Contributions

do not count this as income.

1

Review the IRS INCOME TYPE field and follow the instructions in the table below. If the IRS INCOME TYPE field states … Then …

Gross distributions

go to Step 2.

• Other income , or

• Unrealized appreciation

• do not count this as income, and

• take no further action unless other types of income are reported on the worksheet.

2

Review the INDICATOR 1 field and follow the instructions in the table below. If the INDICATOR 1 field states (or displays) … Then …

• a number 1 , or

  • Total Distribution

  • count this income from the first day of the month after the month during which the income is first received

  • remove the income after 12 months, and

  • take no further action unless other types of income are reported on the worksheet.

Notes:

• If there is no evidence to show the date in which the income is received, presume that the income was received in January of the tax year shown on the PAA worksheet.
• A number 1 or total distribution indicates the payer of income checked Box 2b of 1099-R. A total distribution is
  • one or more distributions, within the applicable tax year, in which the entire balance of the account is distributed, or
  • a final payment made on a periodic or installment payment.

Reference: For more information regarding the effect nonrecurring income has on pension payments, see M21-1, Part IX, Subpart iii, 1.A.6.e.

• a number 0
• Information Not Provided , or
• Not Checked

go to Step 3.

any other language

• send an encrypted e-mail to VAVBAWAS/CO/P&F POL & PROC with the following information:
  • claim number
  • claimant name, and
  • PAA worksheet field information including the
    • PAYER NAME
    • GROSS INCOME
    • IRS SOURCE
    • IRS INCOME TYPE
    • INDICATOR 1, and
    • INDICATOR 2, and
• wait for further instructions from P&F Service.

3

Review the INDICATOR 2 field and use the table below to determine the action to take. If the INDICATOR 2 field states … Then …

• 1—Early distribution, no known exception.

• 1—Early distribution, no known exception, B—Designated Roth account distribution

• 1—Early distribution, no known exception, D—Annuity payments from nonqualified annuities and distributions from life insurance contracts

• 2—Early distribution, exception applies

• 2—Early distribution, exception applies, B—Designated Roth account distribution.

• 2—Early distribution, exception applies, D—Annuity payments from nonqualified annuities and distributions from life insurance contracts

• 3—Disability, D—Annuity payments from nonqualified annuities and distributions from life insurance contracts

• 4—Death, D—Annuity payments from nonqualified annuities and distributions from life insurance contracts

• 7—Normal distribution, B—Designated Roth account distribution

• 7—Normal distribution, D—Annuity payments from nonqualified annuities and distributions from life insurance contracts

• Annuity payments from nonqualified annuities and distributions from life insurance contracts

• B—Designated Roth account distribution, U—Dividends distributed from an ESOP under section 404(k)

• Charitable gift annuity

• Disability

• Dividends distributed from an ESOP under section 404(k)

• Designated Roth account distribution

• Early distribution from a Roth IRA

• Early distribution from a SIMPLE IRA in the first 2 years, no known exception

• Normal distribution

• Qualified distribution from a Roth IRA

• Roth IRA distribution, exception applies

• RRB-Supplemental

• RRB1—Tier 1

• RRB1—Tier 2 , or

• RRB1—Vested dual benefits

• count this income from the first day of the month after the month during which the income is first received

• do not remove from the award unless there is evidence to show that the income stopped, and

• take no further action unless other types of income are reported on the worksheet.

Note: If there is no evidence to show the date in which the income is received, presume that the income was received in January of the tax year shown on the PAA worksheet.

• 1—Early distribution, no known exception, 8—Excess contributions plus earnings/excess deferrals (and/or earnings) taxable

• 1—Early distribution, no known exception, K—Distribution of IRA assets not having a readily available FMV

• 1—Early distribution, no known exception, L—Loans treated as deemed distributions under section 72(p)

• 1—Early distribution, no known exception, P—Excess contributions plus earnings/excess deferrals taxable

• 2—Early distribution, exception applies, 8—Excess contributions plus earnings/excess deferrals (and/or earnings) taxable

• 2—Early distribution, exception applies, K—Distribution of IRA assets not having a readily available FMV

• 2—Early distribution, exception applies, P—Excess contributions plus earnings/excess deferrals taxable

• 4—Death, 8-Excess contributions plus earnings/excess deferrals (and/or earnings) taxable

• 4—Death, A—May be eligible for 10-year tax option

• 4—Death, B—Designated Roth account distribution

• 4—Death, G—Direct rollover and direct payment

• 4—Death, H—Direct rollover of a designated Roth account distribution to a Roth IRA.

• 4—Death, K—Distribution of IRA assets not having a readily available FMV

• 4—Death, P—Excess contributions plus earnings/excess deferrals taxable

• 7—Normal distribution, A—May be eligible for 10-year tax option

• 7—Normal distribution, K—Distribution of IRA assets not having a readily available FMV

• 8—Excess contributions plus earnings/excess deferrals (and/or earnings) taxable, B—Designated Roth account distribution

• 8—Excess contributions plus earnings/excess deferrals (and/or earnings) taxable, J—Early distribution from a Roth IRA

• 8—Excess contributions plus earnings/excess deferrals (and/or earnings) taxable, K—Distribution of IRA assets not having a readily available FMV

• B—Designated Roth account distribution, L—Loans treated as deemed distributions under section 72(p)

• B—Designated Roth account distribution, P—Excess contributions plus earnings/excess deferrals taxable

• Death

• Distribution of IRA assets not having a readily available FMV

• Excess contributions plus earnings/excess deferrals taxable

• Excess contributions plus earnings / excess deferrals (and/or earnings) taxable

• J—Early distribution from a Roth IRA, P—Excess contributions plus earnings/excess deferrals taxable

• Loans treated as deemed distributions under section 72(p)

• May be eligible for 10-year tax option , or

• Prohibited transaction.

• count this income from the first day of the month after the month during which the income is first received

• remove the income after 12 months, and

• take further action unless other types of income are reported on the worksheet.

Note: If there is no evidence to show the date in which the income is received, presume that the income was received in January of the tax year shown on the PAA worksheet. Reference: For more information regarding the effect nonrecurring income has on pension payments, see M21-1, Part IX, Subpart iii, 1.A.6.e.

• 4—Death, L—Loans treated as deemed distributions under section 72(p)

• 6—Section 1035 exchange, W—Charges or payments for purchasing qualified long-term care insurance contracts under combined arrangements

• B—Designated Roth account distribution, G—Direct rollover and direct payment

• Cost of current life insurance protection

• Direct rollover and direct payment

• Direct rollover of a designated Roth account distribution to a Roth IRA

• Distributions under Employee Plans Compliance Resolution System (EPCRS)

• G—Direct rollover and direct payment, K—Distribution of IRA assets not having a readily available FMV

• Recharacterized IRA contribution made for 2014

• Recharacterized IRA contribution made , or

• Section 1035 exchange.

• do not count this as income, and

• take no further action unless other types of income are reported on the worksheet.

any other language

• send an encrypted e-mail to VAVBAWAS/CO/P&F POL & PROC with the following information:
  • claim number
  • claimant name, and
  • PAA worksheet field information including the
    • PAYER NAME
    • GROSS INCOME
    • IRS SOURCE
    • IRS INCOME TYPE
    • INDICATOR 1, and
    • INDICATOR 2, and
• wait for further instructions from P&F Service.