20 CFR 404.415 and 404.430
The issue is whether the claimant had wages of more than $417 per month or performed substantial services in self-employment since becoming entitled to Old-Age Insurance Benefits. Resolution of this issue is necessary to determine if the claimant's benefits are subject to work deductions.
The evidence of record indicates that the claimant, who attained age 65 on June 20, 1980, filed an application for Old-Age Insurance Benefits on April 30, 1980. In his application, the claimant indicated that he expected his total earnings for 1980 to be $30,000, and further indicated that he would earn more than $417 per month in employment or perform substantial services in self-employment in all the months in 1980. The claimant's wife also stated in writing that she did not wish to file to Wife's Insurance Benefits on his earnings record because he was not retiring. On May 9, 1980, SSA advised the claimant that, because of his estimated earnings for 1980, he would not be due any benefits for that year.
On July 25, 1980, the claimant stated in writing that when he had estimated his 1980 income in his application for benefits, he had included investment income from his business. He further stated that, as of July 1, 1980, he had reduced his work activity and that his son would head up the business. He also stated that his son and another employee whom they were promoting would take over his duties. The claimant's daily work activities were reduced to coming to the office each morning, approximately four days a week, where he would drink coffee, look over the mail, and decide what errands he wanted to run. He would then leave around noon or a little thereafter. The claimant's monthly salary, beginning with July 1, 1980, was $417 (the monthly exempt amount applicable to taxable years ending in 1980).
The claimant owns 93% of the stock of the business in question. His son owns the remaining shares. The business, a corporation carrying the claimant's name, primarily processes advertising through the mail and sells specialty office-type items. Besides the claimant, the business employs seven employees. The claimant was president of the company and his son was vice president. The claimant alleges that prior to July 1, 1980, he worked full-time in the business and was paid a salary of $2,064 per month. The evidence of record reflects that after July 1, 1980, the claimant received from the corporation $417 per month as an employee and dividends as a stockholder.
If both the claimant's salary and dividends are charged against him as wages under the Act, then clearly, he should be charged with excess earnings and would not be due Old-Age Insurance Benefits as of July 1980. It was the claimant's contention, however, that the dividends are not chargeable to him as wages. Nevertheless, SSA found that the claimant was not due benefits as of July 1980 because he had failed to reduce his involvement with the corporation to the extent that the true value of his services was correctly reflected by his $417 monthly salary.
Section 202(a) of the Act provides for the payment of Old-Age Insurance Benefits to a person who meets certain requirements.
Section 203(b) provides for the imposition of deductions against benefits for months in which an individual is charged with excess earnings under the Act.
Section 203(f) provides rules for the charging to the benefits of specific months amounts of excess earnings. This section provides that excess earnings will not be charged to (i.e., cause loss of) benefits in any month in which the individual did not engage in self-employment and did not render services for wages of more than the applicable exempt amount. This section also provides that there is a presumption that an individual has been engaged in self-employment in a month until it is shown that he or she did not render substantial services in such month with respect to any trade or business. A similar presumption applies to earnings from wages; it is presumed, with respect to any month, that an individual rendered services for wages of more than the applicable exempt amount until the contrary is shown.
It is evident from the record that on July 1, 1980, and thereafter, the claimant has attempted to rearrange his business affairs in a manner to achieve maximum return from the corporation as well as to receive full monthly Old-Age Insurance Benefits under the Act. There is, of course, nothing wrong in this as a person may properly arrange his business, personal, and professional affairs so as to receive full benefits under the Act. However, it must be remembered that the benefits in question are retirement benefits, and it is the intent of the Act that the beneficiary be retired within the meaning of the Law to be eligible for the full monthly cash benefits. The Law does not require a beneficiary to retire completely to qualify for benefit payments, and significant employment may be engaged in before all monthly benefits are subject to deductions. The intent and wording of the Act cannot be circumvented, however, by arrangements whereby reported earnings are substantially less than the value of the services performed, and the real value of the services are received as remuneration in a different manner. One court has held, for instance, that a corporate officer may not by a "scheme of shifting wages" indirectly receive remuneration in another form which is in effect wages to him in order to avoid deductions for excess earnings under the Act (see SSR 63-40c (C.B. 1960-1965)).
In the instant case, the question presented is whether the dividends that the claimant receives from this 93% ownership of the corporation are really wages paid to him for the true value of his services performed as a corporate officer. Stated in a different manner, can the claimant, as a corporate officer and principal stockholder in the corporation, set his salary at a level allowed by Law to be eligible for full benefits and make up the difference between his new salary and prior salary by having remuneration for his services paid in the form of dividends. If the preponderance of the evidence establishes that this is what the claimant has done, then the claimant is not due benefits because his work activity is such that he has not met the conditions of retirement.
Under the Act, an officer of a corporation is defined as an employee (section 210(j)). Since the claimant is an employee, then the remuneration that he receives for services performed is considered wages and not income from self-employment. Under the Act, dividends received from stock ownership are excluded in determining net earnings from self-employment (section 211(a)(2)). However, as previously pointed out, dividends that are used to remunerate a corporate officer for the value of his services cannot escape being classified as wages. If the value of the claimant's services are commensurate with the $417 per month he receives as a salary from the corporation, then the dividends he receives are not considered remuneration for services rendered.
The evidence of record indicates that the claimant was in a position to set, and did set, the amount of his salary. The evidence must be evaluated though to see if the claimant actually restricted his work activities as of July 1, 1980, to a point whereby his $417 monthly salary was actually the true value of the services he performed. If so, then the claimant should be considered retired under the Act. In deciding whether the value of the services performed by the claimant are commensurate with his monthly salary, SSA looked to the evidence to see what services the claimant actually performed as of July 1, 1980. If he has been active in the management and operation of the corporation, which he has developed over a number of years into an apparently successful operation, then his new salary would not truly reflect the value of his services, and the claimant could not be considered retired for purposes of the Act.
The evidence of record reflects that the claimant only spends a few hours each day at his place of employment. His aged mother lives nearby and he checks on her daily. The claimant testified that, for reasons of marital adjustment to retirement, it is actually better for him to get up and get out of the house each day and go to the office. He testified that he devotes one day each week to volunteer services in the radiology department at one of the local hospitals. The testimony reflected that the claimant usually arrives at his office around 8:15 a.m., eats a light breakfast, and reads the newspaper. He then takes care of his and his mother's personal business, such as paying bills. The evidence reflects that the only work he did as an employee was to make deliveries to customers in a nearby radius of the office, which usually took around 30 minutes. The claimant testified that he took a long lunch period and left the office shortly thereafter.
The testimony at the hearing reflected that the claimant's duties have been greatly curtailed. His duties before July 1, 1980, have been assumed by his son and another employee recently promoted due to the claimant's retirement.
It is the claimant's employment setting that creates a question as to his retirement status. Undoubtedly, in his position, he can control his salary, duties, and other factors concerning his employment. However, it is because of his ability to control these factors that he can carefully arrange his affairs so as to receive maximum return from the corporation as well as full monthly Old-Age Insurance Benefits under the Act. The preponderance of the credible evidence supports the claimant's position that he has retired. Accordingly, the services performed by the claimant since July 1980 were commensurate with his $417 monthly salary. Therefore, the dividends that the claimant received from the business since July 1980 did not constitute remuneration for services rendered and thus were not earnings for deduction purposes. Consequently, the claimant has been retired within the meaning of the Act and due Old-Age Insurance Benefits since July 1980.
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