[House Report 106-403]
[From the U.S. Government Publishing Office]





106th Congress                                                   Report
  1st Session           HOUSE OF REPRESENTATIVES                106-403

=======================================================================



 
                 FOR THE RELIEF OF RICHARD W. SCHAFFERT

                                _______


 October 20, 1999.--Referred to the Private Calendar and ordered to be 
                                printed

                                _______
                                

Mr. Smith of Texas, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 1023]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 1023) for the relief of Richard W. Schaffert, having 
considered the same, reports favorably thereon without 
amendment and recommends that the bill do pass.

                           TABLE OF CONTENTS

                                                                  

                                                                 Page
Purpose and Summary........................................           1
Background and Need for the Legislation....................           2
Hearings...................................................           2
Committee Consideration....................................           2
Committee Oversight Findings...............................           2
Committee on Government Reform Findings....................           3
New Budget Authority and Tax Expenditures..................           3
Congressional Budget Office Cost Estimate..................           3
Constitutional Authority Statement.........................           3
Agency Views...............................................           4

                          Purpose and Summary

    H.R. 1023 would waive the three-year statute of limitations 
on filing of an amended 1983 tax return for Mr. Richard W. 
Schaffert so that he could recover a tax refund that would have 
been due him based on a 1988 disability judgment by the 
Veterans Administration.

                Background and Need for the Legislation

    Mr. Schaffert retired from the Navy in 1983--disabled with 
injuries he sustained as a fighter pilot in Vietnam. He 
originally filed for disability compensation in July of 1983. 
Personal circumstances and appeals delayed the final processing 
of his application until 1988. At that time, the VA rated Mr. 
Schaffert with an 80 percent disability retroactive to February 
1983. Because the amount of the disability compensation is 
deducted from his military pension, the only actual benefit 
from the disability award is that it is non-taxable. Mr. 
Schaffert filed amended tax returns for all the years prior to 
1988. He received a tax refund for each of the years except 
1983 because a refund for 1983 was barred by the three-year 
statute of limitations. The refund would be $2,133.33 plus 
interest.
    The official Department of the Treasury report on the bill 
in the 102nd Congress opposed the legislation on the ground 
that ``private relief bills work to undermine public confidence 
in the tax system'' and that waiving the statute of limitations 
for Mr. Schaffert would set a ``highly undesirable precedent'' 
and ``jeopardize the efficient administration of the tax 
laws.'' However, the District Director of the Internal Revenue 
Service sent Mr. Schaffert's congressman at the time a letter 
stating ``Although we understand that Mr. Schaffert did not 
cause the delay and we are sympathetic to Mr. Schaffert's 
situation, we cannot allow his claim . . . The only solution 
available to allow a refund to Mr. Schaffert would be the 
introduction of special legislation''.
    Under the subcommittee chairmanship of Congressman Barney 
Frank, the House bill for Mr. Schaffert passed the House in the 
102nd , but died in the Senate.

                                Hearings

    The committee's Subcommittee on Immigration and Claims held 
no hearings on H.R. 1023.

                        Committee Consideration

    On September 30, 1999, the Subcommittee on Immigration and 
Claims met in open session and ordered favorably reported the 
bill H.R.1023 without amendment by voice vote, a quorum being 
present.
    On October 5, 1999, the Committee on the Judiciary met in 
open session and ordered reported favorably the bill H.R. 1023, 
by voice vote, a quorum being present.

                      Committee Oversight Findings

    In compliance with clause 2(l)(3)(A) of rule XI of the 
Rules of the House of Representatives, the committee reports 
that the findings and recommendations of the committee, based 
on oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

                Committee on Government Reform Findings

    No findings or recommendations of the Committee on 
Government Reform and Oversight were received as referred to in 
clause 2(l)(3)(D) of rule XI of the Rules of the House of 
Representatives.

               New Budget Authority and Tax Expenditures

    Clause 2(l)(3)(B) of House Rule XI is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 2(l)(3)(C) of rule XI of the 
Rules of the House of Representatives, the committee sets 
forth, with respect to the bill, H.R. 1023, the following 
estimate and comparison prepared by the Director of the 
Congressional Budget Office under section 403 of the 
Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, October 12, 1999.
Hon. Henry J. Hyde, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1023, a bill for 
the relief of Richard W. Schaffert.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is John R. 
Righter, who can be reached at 226-2860.
            Sincerely,
                                  Dan L. Crippen, Director.
H.R. 1023--A bill for the relief of Richard W. Schaffert.
    H.R. 1023 would waive the statute of limitations on an 
amended tax return for 1983. The waiver would allow Mr. 
Schaffert to recover an overpayment of taxes that resulted from 
the Veterans Administration granting him a military disability 
appeal in 1988. The change in Mr. Schaffert's disability status 
retroactively lowered his 1983 taxable income, resulting in an 
overpayment of $2,133.33. CBO estimates that waiving the 
statute of limitations for Mr. Schaffert would result in a 
refund of this overpayment plus interest, thus increasing 
direct spending in fiscal year 2000 by around $8,000. Because 
the bill would affect direct spending, pay-as-you-go procedures 
would apply.
    The CBO staff contact is John R. Righter, who can be 
reached at 226-2860. This estimate was approved by Peter H. 
Fontaine, Deputy Assistant Director for Budget Analysis.

                   Constitutional Authority Statement

    Pursuant to rule XI, clause 2(1)(4) of the Rules of the 
House of Representatives, the committee finds the authority for 
this legislation in Article 1, Section 8 of the Constitution.

                              Agency Views

    The comments of the Department of Treasury and the 
Department of Veterans Affairs in the 102nd Congress are as 
follows:

                        Department of the Treasury,
                                 Washington, DC, November 13, 1991.
Hon. Jack Brooks, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: This is in response to your letter of 
October 17, 1991, to Secretary Brady requesting comments 
regarding H.R. 2563, a bill for the relief of Richard W. 
Schaffert. Your letter was referred to this office because it 
concerns a matter of tax policy.
    The bill would provide an exception for Mr. Schaffert from 
the statutory period of limitations for claims of refund 
provided by the tax code. The Treasury Department has 
historically opposed bills which would grant private exemption 
or relief from our tax system. We recognize that there are many 
situations in which taxpayers, whether because of inadvertence 
or misfeasance, are subject to tax consequences which they did 
not expect or contemplate. In many cases, the taxpayers 
involved are ones who would evoke universal sympathy or 
respect. The Treasury Department believes, however, that 
private relief bills work to undermine public confidence in the 
tax system. Our system is premised on the assumption that the 
tax law will apply equally to all taxpayers, big or small, rich 
or poor.
    The statutory period of limitations on filing claims is 
essential to ensure finality in tax administration. The statute 
serves to bar, after the lapse of a reasonable period of time, 
both the filing of a claim for refund by the taxpayer and the 
assessment of additional taxes by the government. Granting of 
special relief would constitute a highly undesirable precedent, 
encouraging other taxpayers who would seek to file untimely 
claims for refund. Such a development would jeopardize the 
efficient administration of the tax laws and would require the 
government to retain records which could otherwise be destroyed 
after the statutory period of limitations had expired.
            Sincerely,
                    Kenneth W. Gideon, Assistant Secretary.
                                               (Tax Policy)

                 The Secretary of Veterans Affairs,
                                 Washington, DC, November 12, 1991.
Hon. Jack Brooks, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: We are pleased to respond to your 
request for a report on H.R. 2563, 102d Congress, a bill ``For 
the relief of Richard W. Schaffert.''
    This bill provides that the limitations relating to the 
filing and allowing of a claim for credit or refund of tax 
overpayments set forth in sections 6511 and 6514 of the 
Internal Revenue Code shall be waived for Richard W. Schaffert 
for the taxable year 1983. The bill provides that in order for 
its provisions to apply to Mr. Schaffert, he shall file a claim 
within one year from the date of enactment of the bill.
    Although the relationship of the Department of Veterans 
Affairs (VA) to Mr. Schaffert is not stated in the bill itself, 
it is our understanding the relationship is as follows. Mr. 
Schaffert has been in receipt of military retirement pay since 
his retirement from the service in 1983. In March 1985 he was 
awarded VA disability compensation at the 10% rate effective 
retroactively from February 1983, the month following his 
discharge from active service. In May 1987, he was awarded VA 
disability compensation at the 80% rate also effective 
retroactively from February 1983.
    Federal law (38 U.S.C. Sec. 5304) prohibits a veteran from 
receiving military retirement pay and VA disability 
compensation concurrently. A veteran, however, pursuant to 38 
U.S.C. Sec. 5305 may waive military retirement pay up to the 
amount of the VA compensation to which the veteran is entitled. 
Since military retirement pay is taxable and VA compensation is 
not, it is generally in the veteran's interest to waive as much 
retirement pay as possible.
    Military retirement pay, however, cannot be waived 
retroactively, and accordingly, Mr. Schaffert received no VA 
disability compensation until April 1985, at which time he 
waived a portion of military retirement pay in order to receive 
VA benefits at the 10% rate. In June 1987 he began to receive 
VA disability compensation at the 80% rate.
    Apparently, when VA disability compensation is awarded 
retroactively, as in this case, the IRS presumes that a veteran 
would have waived military retirement pay in order to receive 
tax-exempt VA compensation. In 1988 Mr. Schaffert filed a claim 
for a refund for the tax he paid on the amount of military 
retirement pay which he would have been entitled to waive in 
order to receive VA disability compensation for years from 1983 
to 1987. Although we understand he received refunds for taxes 
paid in and after 1984, the limitations on refunds imposed by 
26 U.S.C. Sec. Sec. 6511 and 6514 prevent him from receiving a 
refund for 1983.
    In order to permit the Committee to fully consider all 
aspects of this matter, I have had my staff prepare the 
enclosed chronology detailing the adjudication of Mr. 
Schaffert's VA claim. I understand that Mr. Schaffert believes 
it took VA five years to process his claim and to correctly 
notify him of his rating. That, however, is not a completely 
accurate characterization.
    Although Mr. Schaffert's original claim was filed in July 
1983, he was not available for a medical examination until he 
returned from Europe in August 1984. After an examination, 
service connection was granted in March 1985, eight months 
after his return from Europe. One year later, in March 1986, he 
appealed the rate of disability awarded in that decision. In 
May 1987, based on additional medical evidence, he was granted 
an evaluation of 80% assigned retroactively from the date of 
his discharge from service. This was considered a full grant of 
the benefits sought on appeal.
    In any event, whether the limitations provided in sections 
6511 and 6512 should be waived in this case is a matter within 
the purview of the Treasury Department. Accordingly, VA defers 
to that department, who we understand will be responding to you 
under separate cover, as to whether this measure is warranted.
    The Office of Management and Budget advises that there is 
no objection from the standpoint of the Administration's 
program to the submission of this report to the Congress.
            Sincerely yours,
                                       Edward O. Derwinski.


   CHRONOLOGY OF DISABILITY COMPENSATION CLAIM OF RICHARD W. SCHAFFERT
                             CSS 507 40 0380



5-18-56          Honorable service.
  to
1-31-83

7-26-83          Received VA Form 21-526 as a claim for disability
                  compensation for hearing loss and a neurological
                  disease affecting the upper extremities, back, and
                  right leg. Subsequently, requests for service medical
                  records and a VA examination were processed.

9-29-83          Received letter from the veteran stating he was in
                  Europe and would not be able to report for an
                  examination.

10-13-83         Our letter to the veteran explaining that we could not
                  take action on his claim without a VA examination. He
                  was asked to inform us when he returned to the United
                  States.

6-25-84          Received letter from the veteran stating that he was
                  returning to this country and would like an
                  examination to be scheduled between 8-15-84 and 8-21-
                  84 because that would fit into his schedule.

7-12-84          Our letter to the veteran asked for evidence of medical
                  treatment since discharge from service.

7-20-84          A VA examination was requested.

8-20-84          The VA examination form was returned with the statement
                  that the examination was cancelled by the veteran.
                  Apparently, this was a miscommunication by the
                  examining station since the veteran wished to re-
                  schedule his examination.

11-14-84         Received letter from the veteran requesting the status
                  of his claim.

11-19-84         Request for a VA examination was processed.

2-8-85           VA examination was accomplished.

3-27-85          Rating decision granting service connection for
                  myelitis at a 10 percent level and for bilateral
                  hearing loss at a O percent level. The combined
                  evaluation of 10 percent was effective 2-1-83, the
                  date after discharge from service.

4-9-85           Award action paying compensation from 4-1-85 because
                  the veteran was receiving retired pay which could not
                  be waived retroactively.

4-16-85          Letter from the veteran stating that the effective date
                  of his award should have been 2-1-83, the date after
                  discharge from service.

5-2-85           Our letter to the veteran explaining that, due to the
                  receipt of retired pay, compensation could not be paid
                  retroactively.

3-18-86          Received letter from the veteran appealing our decision
                  granting a 10 percent evaluation for myelitis.

5-30-86          Statement of the Case was sent to the veteran outlining
                  our decision and citing the pertinent laws and
                  regulations.

6-18-86          Received the veteran's VA Form 1-9 as a substantive
                  appeal. Another VA examination was scheduled to
                  accurately assess the current level of disability. The
                  veteran also submitted additional medical evidence
                  showing increased severity.

8-1-86           A complete and extensive VA examination was conducted
                  in Vienna, Austria.

5-8-87           After an extensive delay in receiving the completed
                  examination report, rating action was completed
                  granting an increased evaluation of 80 percent which
                  was retroactively effective 2-1-83. This was
                  considered a full grant of benefits sought on appeal.

5-22-87          Action taken to award the increase only from 6-1-87
                  because the veteran was in receipt of retired pay
                  which could not be waived retroactively.

7-2-87           Received VA Form 21-686C and a certified copy of the
                  veteran's marriage certificate.

10-13-87         Award action adding one dependent to the veteran's
                  award.

4-11-91          Received VA Form 21-686C showing the veteran was
                  divorced on 5-14-89 and remarried on 8-30-90.

5-30-91          Award action taken to correctly reflect the veteran's
                  reported dependency status.


                                

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