SSR 79-14a: SECTIONS 203(f)(5) and 211(a)(3) (42 U.S.C. 403(f)(5) and 411(a)(3) NET EARNINGS FROM SELF-EMPLOYMENT -- TREATMENT OF CARRY OVER CROP SALES
20 CFR 404.429, 404.1050 and 404.1055
- The claimant, an old-age insurance beneficiary, stopped his farming operation in 1972. He had sales from a carry over crop of $6,711 in 1973 even though he did not engage in any other farming activities that year. The claimant contended that the sale was a liquidation of a capital asset and that the $6,711 net profit was not net earnings from self-employment and not includable in determining the amount of his earnings for deduction purposes. Section 211(a)(3) of the Social Security Act does not exclude from the definition of net earnings from self-employment profits from the sale of property held primarily for sale to customers in the ordinary course of the trade or business. Held, the carry over crop is property held for sale in his trade or business and the $6,711 net profit is net earnings from self-employment and is included in determining his earnings for deduction purposes.
The general issues before the Appeals Council is whether the claimant's old-age insurance benefits for 1973 are subject to work deductions and, if so, whether recovery of any ensuing overpayment may be waived. Specifically at issue is whether the claimant had any net earnings from self-employment in 1973.
The claimant, born on May 17, 1906, was entitled to old-age insurance benefits beginning May 1971. In 1973 the claimant worked for wages of $2035 and earned over $175, the monthly limit, in May, August, and October through December 1973. The claimant also had a net of $6711 in 1973 from his farm crop raised in 1972 but carried over and sold in 1973. It was determined initially and upon reconsideration that the net proceeds from his 1972 crop that were received in 1973 constituted net earnings from self-employment and earnings for deduction purposes. The claimant's total earnings were, therefore, found to be his wages of $2035 and his self-employment income of $6711 for a total of $8746. Deductions were imposable against the benefits payable in the 5 months in which he earned over $175.00. Because he had been paid full benefits for these months, he was overpaid $1239.50. There were no months in 1973 in which the claimant rendered substantial services in self-employment. He leased the farm to a non-relative in September 1972 and he did not farm in 1973.
The administrative law judge found that the sale of the crop in 1973 was a "liquidation of assets" and was not earnings for 1973. He, therefore, found that the claimant only earned $2035 in 1973 and because the allowable amount was $2100, deductions did not apply. The administrative law judge held that the $1239.50 recovered in 1976 as repayment of the overpayment was improperly withheld.
The claimant's tax return shows that he files on a cash basis. In accordance with Section 451 of the Internal Revenue Code of 1954, his income, arising out of the trade or business of being a farmer, received in a calendar year for services performed in a previous year constitutes net earnings from self-employment in the year in which the monies are received. The fact that the claimant was not farming in 1973 is immaterial.
The sale of the crop was also not a liquidation of an asset. Section 211(a)93) of the Social Security Act does not exclude from the definition of net earnings from self-employment profits from the sale of "property held primarily for sale to customers in the ordinary course of the trade or business." The claimant's crop is property held for sale in his trade or business and is not excluded from the definition of "net earnings from self-employment."
Accordingly, the Appeals Council finds that the $6711 net profit the claimant received from the sale of his farm crop in 1973 is includable in determining the amount of his earnings for deductions purposes. He had total earnings of $8746 in 1973 and was overpaid $1239.50.
The Appeals Council finds that the claimant was without fault in causing the overpayment. The claimant did not understand that the proceeds from the sale of his 1972 crop in 1973 would constitute 1973 earnings. His letter to the Appeals Council makes it clear that he did not think he would earn more than $2100 in 1973.
Recovery of overpayment, however, is found by the Appeals Council not to defeat the purpose of title II of the Social Security Act. The claimant has failed to demonstrate that the recovery of the overpayment in 1976 deprived him of income required for ordinary and necessary living expenses. The refund information he has submitted to the Appeals Council shows that at the present time recovery would not defeat the purpose of title II.
There is no evidence that recovery of the overpayment was against equity and good conscience. The claimant did not give up a valuable right or change his condition for the worse because of overpayment. Recovery of the overpayment is, therefore, not waived.