EFFECTIVE DATE: 5/23/86
Whether, after the statutory time limitation for correcting an earnings record has expired, the absence of an entry of self-employment income for a year in which no timely tax return of self-employment income was filed in conclusive evidence that no self-employment income was derived by the worker in that year.
Section 205(c)(40(C) and 205(c)(5)(F) of the Social Security Act (42 U.S.C. 405(c)(4)(C) and 405(c)(5)(F)); 20 C.F.R. 404.803(c)(3), 404.822(b)(2); SSR 82-20c
SIXTH (MICHIGAN, OHIO, TENNESSEE, KENTUCKY)
Grigg v. Finch, 418 F.2d 661 (6th Cir. 1969)
Mr. Grigg filed a claim for disability benefits which required a certain number of quarters of Social Security coverage. In order to meet this requirement, Mr. Grigg attempted to establish additional quarters of coverage for the years 1956 and 1957 based upon IRS Forms 1099 (i.e., Information Returns about certain kinds of payments made to a taxpayer) filed by the Detroit Conservatory of Music with IRS reflecting payments made to Mr. Grigg in those years. He had filed no income tax returns for 1956 and 1957 and the statutory time limitation for correcting his earnings record had run with respect to those years. In reliance upon section 205(c)(4)(C) of the Social Security Act, 42 U.S.C. 405(c)(4)(C), which provides that
the Secretary refused to credit Mr. Grigg with self- employment income for 1956 and 1957. As a result, the Secretary found that Mr. Grigg had only 18 quarters of coverage (which was less than the amount required for entitlement to benefits) in the relevant 40 quarter period and denied his claim for disability insurance benefits due to the lack of insured status. Mr. Grigg sought review of the Secretary's decision by the United States District Court for the Eastern District of Michigan. The district court reversed the decision of the Secretary finding that the information returns (Forms 1099) filed by the Detroit Conservatory of Music were sufficient, applying section 205(c)(5)(F) of the Act, to permit crediting self-employment income for the hears in question. The Secretary then appealed the district court's judgment to the Court of Appeals for the Sixth District.
The United States Court of Appeals for the Sixth Circuit agreed with the district court's view that Mr. Grigg should be credited with quarters of coverage for self-employment income derived in 1956 and 1957. The court held that notwithstanding section 205(c)(4)(C) of the Social Security Act (42 U.S.C. 405(c)(4)(C)), the information returns (Forms 1099) concerning payments made to Mr. Grigg which were timely filed by the Detroit Conservatory of Music were sufficient to give the Secretary actual or constructive knowledge under section 205(c)(5)(F) of the Act (42 U.S.C. 405(c)(5)(F)) that Mr. Grigg had sufficient self-employment income in the years 1956 and 1957 to be credited with quarters of coverage for those years. The court interpreted the phrase "absence of an entry in the Secretary's records" in section 205(c)(4)(C) of the Social Security Act to mean an "absence" which persists even after inclusions in the Secretary's records allowed by section 205(c)(5)(F) and reasoned that the Forms 1099 filed by the Detroit Conservatory of Music satisfied the requirements for inclusion via the latter section as "tax returns or portions thereof (including information returns and other written statements) filed with the Commissioner of Internal Revenue." The court remanded the case for an adjudication of disability and instructed the Secretary to amend Mr. Grigg's earnings record to reflect self-employment income for 1956 and 1957, thus allowing Mr. Grigg to attain insured status.
Where the time limit for the correction of an earnings record for a year has expired and the worker had not timely filed a tax return of self-employment income for that year, The Secretary treats the absence of an entry of self-employment income in the worker's earnings record that year as conclusive evidence that no such income was earned during that year. Section 205(c)(4)(C), 20 C.F.R. 404.803(c)(3), 404.822(b)(2). Section 205(c)(5)(F) (42 U.S.C. 405(c)(5)(F)) is not considered applicable in the instant case since an information return (Form 1099) filed by a third party, although timely filed is not considered a filing of a tax return by the individual for purposes of correcting his or her earnings record. Accordingly, no amendment of the earnings record to include self- employment income for that year is permitted. In Grigg, however, the court applied section 205(c)(5)(F) and required the Secretary to credit the worker with self-employment income for such a year, notwithstanding his failure to file an income tax return for that year, where a disinterested third party had timely filed a form 1099 reflecting payments to the worker in the year in question thereby giving the Secretary actual and construction notice of Mr. Grigg's self-employment income.
This ruling applies only where the claimant resides in Michigan, Ohio, Kentucky, or Tennessee at the time of the determination or decision at any level of administrative review, i.e., initial, reconsideration, administrative law judge hearing or Appeals Council review.
When evaluating a request by a worker for an amendment of his or her earnings record to reflect alleged self-employment income for a year in which the worker did not file an income tax return reflecting self-employment income and for which the statutory time limitation for filing an income tax return and for correcting the earnings record has un, SSA will credit the worker with the appropriate self-employment income for that year only where all of the following conditions are met: (1) the worker's receipt of self-employment income is documented by Internal Revenue Service Forms 1099 (2) timely filed by disinterested third parties (3) reflecting the payment of self-employment income to the worker in the period alleged.
Date of Publication
 Section 205(c)(50(F) (42 U.S.C. 405(c)(5)(F)) provides that the Secretary may change, delete or include an entry in an earnings record to conform the records to tax returns or portions thereof (including information returns) filed with the Commissioner of Internal Revenue timely.
 It is significant to note that the Form 1099 will reflect only the gross amount of money paid to the worker. In order to determine the amount of self-employment income to be credited to the worker's earnings record, it will be necessary to determine the net earnings from the self-employment (i.e., the amount received as reflected in the Form 1099 should be reduced by the amount of the worker's deductible expenses).
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