A bill to amend title 38, United States Code to authorize compensated work therapy for patients of Veterans' Administration hospitals and outpatient clinics and members of VA domiciliaries.

Authorizes the Administrator of Veterans' Affairs, upon the recommendation of the Chief Medical Director, to utilize the services of patients and members in Veterans' Administration hospitals and domiciliaries for therapeutic and rehabilitative purposes, at nominal remuneration. Provides that such patients and members shall not under such circumstances be held or considered as employees of the United States for any purpose.

Directs the Administrator to prescribe the conditions for the utilization of such services.

Authorizes the Administrator, upon the recommendation of the Chief Medical Director, to obtain work or work projects from non-Veterans' Administration sources, and prescribe terms and conditions for the participation of patients and members in Veterans' Administration hospitals, out-patient clinics and domiciliaries, in such work or work projects as part of their therapeutic or rehabilitation program.

Authorizes the Administrator or his designee to enter into contracts to obtain work or work projects suitable for the compensated work therapy program, which shall not be subject to the Federal Property and Administrative Service Act of 1949.

Directs the Administrator or his designee to pay out of the Veterans' Administration Special Therapeutic and Rehabilitation Activities Fund, established under this Act, moneys to patients and members participating in the compensated work therapy program authorized at such rate as he shall determine.

Provides that for the purposes of the Internal Revenue Code of 1954 any remuneration received by patients and members participating in the compensated work therapy program authorized under this Act shall not be subject to Federal employment taxes or the income tax withholding provisions of such Code, nor shall any Federal, State, or other taxing authorities levy any tax on such earnings as income.

Establishes in the Treasury of the United States a revolving fund known as the Veterans' Administration Special Therapeutic and Rehabilitation Activities Fund for the purpose of carrying out the provisions of this Act.

Authorizes the appropriation of up to $5,000,000 for the establishment of such Fund.