Federal Tax Information (FTI) Match: Post Award Audit (PAA) for Pension and Parents' Dependency and Indemnity Compensation (DIC) Beneficiaries

Overview

In This Section

This section contains the following topics:

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1. Operational Performance and Establishing Controls

Introduction

This topic contains general information on operational performance and establishing controls, including

• definition of a PAA
• overview of the match
• Office of Performance Analysis & Integrity (OPA&I) filtering of matches
• Hines Information Technology Center (ITC) filtering of matches
• PAA worksheets
• PAA end product (EP)
• claims jurisdiction for PAA, and
• periodic release dates for PAA.

Change Date

June 17, 2025

XIV.4.C.1.a. Definition: PAA

The post award audit (PAA) is an income match with the Internal Revenue Service (IRS) and the Social Security Administration (SSA) that allows the Department of Veterans Affairs (VA) to ensure a beneficiary continues to be entitled to VA benefits. The match is conducted only

• after a grant of benefits and only if there is a current award, and
• unlike upfront verification, without the initiation of a claim from a Veteran or survivor.

XIV.4.C.1.b. Overview of the Match

The table below provides an overview of the match.

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XIV.4.C.1.c. OPA&I Filtering of Matches

OPA&I selects eligible beneficiary records to send to Hines ITC. Prior to selecting records, OPA&I will automatically exclude records in which the beneficiary

• has a pending FTI eligible EP during the PAA match
• has had an FTI eligible EP claim established within two years from the date OPA&I selects records for a PAA match
• is receiving a payment of $90 due to Medicaid status as of the date of the PAA selection
• has a missing cost-of-living adjustment line for the tax year of the requested match, or
• is deceased.

Note: The first two bullets apply to EP series with claim labels listed in M21-1, Part XIV, 4.A.1.d.

XIV.4.C.1.d. Hines ITC Filtering of Matches

Prior to releasing PAAs to the PMCs, Hines ITC will exclude the matches in which the

• beneficiary is deceased
• medical expenses of record exceed the higher of either the
• total income of record in the corporate record, or
• total countable FTI
• benefit was discontinued for the full calendar year matched
• total income of record for the year matched in the corporate record is greater than the total countable FTI
• total income in the corporate record for the matched year is $0 and the total countable FTI is $0
• total countable FTI exceeds the income in the corporate record, for the same year, by $100 or less, or
• following three statements are true
• value listed in the NET WORTH field in the corporate record is $0
• the total income reported on IRS Form 1099-INT, Statement for Recipients of Interest Income, is less than or equal to $100, and
• the medical expenses of record exceed the greater of income in the corporate record or total countable FTI.

Exception: Hines ITC will not exclude those cases identified for a substantial net worth discrepancy in which medical expenses exceed the greater income.

XIV.4.C.1.e. PAA Worksheets

Hines ITC will produce worksheets and upload them with the secured category description of IRS/SSA – Verification within the secured FFR for all matched cases, including those that were filtered by Hines ITC.

Note: The worksheets associated with the matches filtered by Hines ITC require no further action.

Reference: For more information pertaining to the data shown on the PAA worksheets, see M21-1, Part XIV, 4.C.4.

XIV.4.C.1.f. PAA EP

For those matches not excluded, Hines ITC automatically establishes an EP 154 with the claim label

• Post Award Audit for those beneficiaries without a fiduciary, or
• Post Award Audit – Fid Review for those beneficiaries with a fiduciary.

Notes:

• The suspense date is automatically set for 65 days.
• If at any time while the EP 154 is pending the beneficiary obtains a fiduciary, update the claim label to Post Award Audit – Fid Review.

Important:

• Only one EP 154 is allowed per beneficiary record. If an EP 154 is pending and the beneficiary is selected for a subsequent PAA match, cancel the newest EP(s) and adjudicate the award using the earliest established EP 154.
• Leave the EP pending until final action is taken.

Example: An EP 154 is established on December 16, 2020, due to a PAA. A review of the record shows that a second EP 154, established October 5, 2019, is due to an income verification match (IVM). Cancel the EP that was established December 16, 2020, and work the PAA and the IVM under the EP established October 5, 2019.

Reference: For more information on when a fiduciary may verify FTI, see M21-1, Part XIV, 4.B.4.

XIV.4.C.1.g. Claims Jurisdiction for PAA

Jurisdiction is determined based on the beneficiary’s address of record in the corporate record and established at the appropriate PMC.

Exception: If the beneficiary has a fiduciary, then jurisdiction is based on the beneficiary’s address of record in the Veterans Benefits Management System (VBMS).

XIV.4.C.1.h. Periodic Release Dates for PAA

PAAs will be established twice per fiscal year to support an equitable distribution throughout the year.

2. Notification and Verification Requests

Introduction

This topic contains information on the notification and verification letters, including

• independent verification
• due process
• compression letter
• automatic generation of compressed letter
• effective date of proposed action for the compressed letter, and
• attachments mailed with beneficiary letter.

Change Date

January 25, 2017

XIV.4.C.2.a. Independent Verification

The terms of the computer matching agreement require VA to make reasonable efforts to independently verify FTI received from the source agencies, IRS and SSA. For independent verification, VA will only send letters to the recipient of the identified income.

XIV.4.C.2.b. Due Process

Due process procedures require VA to give the beneficiary 60 days to submit evidence to show why a reduction or discontinuance should not be made.

Reference: For more information on due process, see

• M21-1, Part I, Subpart i, 1.B, and
• 38 CFR 3.103.

XIV.4.C.2.c. Compression Letter

Beginning in fiscal year 2016, the matching agreements with IRS (unearned income) and SSA (earned income) allow for compression of independent verification and due process. This is different from the IVMs in which two separate steps were required. The compressed letter allows VA to reduce the time it takes to process the match.

Reference: For more information on how to process IVMs, see M21-1, Part XIV, 4.D.

XIV.4.C.2.d. Automatic Generation of Compressed Letter

Hines ITC will automatically issue a compressed letter to the beneficiary at the time the EP is automatically established. The letter provides the beneficiary of the identified income 60 days to respond.

Notes:

• All letters are identified with a notation, CONTAINS FTI.
• Depending on the number of pages of the letter and attachments, automated letters are mailed in either a
• blue envelope, or
• a manila envelope.

References: For information on

• identifying undeliverable mail containing FTI, see M21-1, Part II, Subpart i, 1.A.2.d, and
• safeguarding FTI, see M21-1, Part XIV, 4.B.

XIV.4.C.2.e. Effective Date of Proposed Action for the Compressed Letter

For the purposes of the compressed letter, VA will

• presume that the FTI was received in January of the tax year matched and propose to adjust effective February 1, and
• propose the most adverse action to stop the benefit effective February 1 of the tax year matched unless evidence is received to the contrary.

Important: Although the most adverse action is proposed, claims processors must take the most appropriate action based on the evidence of record.

Reference: For examples on final award actions, see M21-1, Part XIV, 4.C.3.d and e.

XIV.4.C.2.f. Attachments Mailed With Beneficiary Letter

VA forms will be attached to the beneficiary letter based on the IRS Source and IRS Income Type identified. Use the table below to determine the VA form(s) Hines ITC mailed to the beneficiary.

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Exception: Beneficiaries of Parents' Dependency and Indemnity Compensation (DIC) will not receive VA Form 21P-8049.

3. Final Action for PAA

Introduction

This topic contains information on final action of the award, including

• when to take final action
• additional development
• finalizing the PAA claim
• example 1 of final award actions, and
• example 2 of final award actions.

Change Date

January 18, 2022

XIV.4.C.3.a. When to Take Final Action

Do not take final action until a reasonable income verification process is completed. In most cases, the verification process is considered completed when the compressed letter is sent to the beneficiary and the 60-day response period has expired.

Note: In all cases, final action may be taken prior to the expiration of the 60-day due process period if the beneficiary waives the due process rights.

Reference: For an example of when further development may be required, see M21-1, Part XIV, 4.C.3.d.

XIV.4.C.3.b. Additional Development

In some instances, further development may be required. The EP must be left pending until the issue is finalized.

If further development is required, but evidence received from the beneficiary could be used to adjust the benefit, take interim action while resolving the discrepancy. The effective date of the interim action should be based on the evidence of record.

Reference: For an example of when further development may be required, see M21-1, Part XIV, 4.C.3.d.

XIV.4.C.3.c. Finalizing the PAA Claim

Once the verification and due process period are complete for PAA, take final action based on the table below.

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Notes:

• Although the most adverse action is proposed, claims processors must take the most appropriate action based on the evidence of record.
• The determination that a running pension award should be reduced or discontinued is not bound under the favorable finding rule found in 38 CFR 3.104(c) with respect to the initial award of pension. Therefore, favorable findings from the decision to grant pension do not have to be rebutted in order to reduce a running pension award.

Important: PMCs must store FTI created for PAA in the secured FFR folder. Documents that contain FTI can be viewed via the FTI DOCUMENTS tab in VBMS.

XIV.4.C.3.d. Example 1: Final Award Actions

Scenario: The Veteran’s income for VA purposes (IVAP) is $0. The PAA discovered income of $1,000 in wages (considered recurring income) and $2,000 in gambling winnings (considered nonrecurring income). Veteran states as related to the wages, of being a victim of identity theft. He provided no evidence pertaining to the identity theft and he did not dispute the gambling winnings.

Result: Take interim action to count the gambling winnings, removing the gambling winnings after it has been counted for 12 months. In the decision notice,

• advise the Veteran that additional evidence is required in order for VA not to count the wages
• provide the examples of proof of identity theft contained in M21-1, Part XIV, 4.D.11.e
• inform the Veteran that if evidence is not received regarding proof of identity theft, the final action will be taken to count the wages, and
• give the Veteran 30 days to respond.

After the 30 days has expired, if the Veteran

• does not respond or provides insufficient evidence of identity theft, count the wages on the Veteran’s awards as recurring income, finalize the award, and provide decision notification to the Veteran, or
• responds with sufficient evidence, do not count the wages, clear the EP, and provide decision notification to the Veteran.

Reference: For more information on decision notification requirements, see M21-1, Part VI, Subpart i, 1.B.1.b.

XIV.4.C.3.e. Example 2: Final Award Actions

Example: The Veteran’s IVAP is $3,000 due to the retirement income reported in the application for pension in 2019. The compressed letter was mailed to the Veteran advising him of the income identified from the PAA for tax year 2020. The PAA showed the income in the table below. The Veteran did not respond to the letter.

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Result: Continue counting the retirement income. Adjust the Veteran’s award beginning February 1, by including the $2,000 Gross Benefits from the Distributions from Medical Savings Accounts. After 12 months, remove $200 from the $2,000 which was received from Earnings on Distributive Excess Contribution. Finalize the award and provide decision notice to the Veteran.

4. PAA Worksheet

Introduction

This topic contains information on the PAA worksheet, including

• PAA worksheet data
• PAA worksheet data definitions
• determining income classification
• PAA worksheet - IRS SOURCE field reads distributions from pensions, annuities, retirement or profit-sharing plans, IRAs, insurance contracts, etc.
• sample PAA worksheet (page one), and
• sample PAA worksheet (additional pages).

Change Date

April 2, 2020

XIV.4.C.4.a. PAA Worksheet Data

PAA worksheets may contain the following:

• applicable tax year
• month and year of match
• date letter mailed or the filter reason and date
• Veteran’s claims information
• benefit type
• income recipient information
• payer name and address
• gross income
• recurring income
• nonrecurring income
• unknown income, and
• not income for Veterans Benefits Administration (VBA) purposes.

References: For information on

• Hines ITC filter reasons, see M21-1, Part XIV, 4.C.1.d, and
• a sample PAA worksheet, see M21-1, Part XIV, 4.C.4.e and f.

XIV.4.C.4.b. PAA Worksheet Data Definitions

The table below explains the data received on the PAA worksheet. Review the income, as reported by IRS, for

• income, and
• net worth.

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Reference: For more information on determining how long the income should be counted on the award, see M21-1, Part XIV, 4.C.4.c.

XIV.4.C.4.c. Determining Income Classification

Claims processors must consider how long the FTI should be counted when determining the final award. Review the PAA worksheet and follow the steps in the table below to determine how long the income should be counted.

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XIV.4.C.4.d. PAA Worksheet- IRS SOURCE Field Reads Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, Etc.

Follow the steps in the table below when the IRS SOURCE field reads Distributions from Pensions, Annuities, Retirement or Profit-sharing Plans, IRAs, Insurance Contracts, Etc.

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XIV.4.C.4.e. Sample PAA Worksheet (Page One)

Below is a sample of the first page of a PAA worksheet.

XIV.4.C.4.f. Sample PAA Worksheet (Additional Pages)

Below is a sample of an additional page of a PAA worksheet.