SSR 65-27: SECTION 211(a)(1). -- NET EARNINGS FROM SELF-EMPLOYMENT -- MATERIAL PARTICIPATION -- MEANING OF "OWNER OR TENANT" OF LAND
SSR 65-27
- A widow's children orally agreed to let her have lifetime possession and control of a farm which was part of their father's unsettled estate. The widow, pursuant to an implied agreement with the sharecroppers, supervised all of the farming activities and participated in major decisions regarding the farm operation, either personally or through her son. She also paid 50 percent of the farm expenses and received 50 percent of the profits. Held: (1) the widow had sufficient interest in the farm to constitute her the "owner or tenant" of the farm within the meaning of section 211(a) of the Act; and (2) she materially participated in the production and management of production of the farm commodities, under an implied agreement for such participation. Therefore, her income from the farm may be included in computing her net earnings from self-employment.
The claimant, R, filed application for old-age insurance benefits in 1961 alleging that she had been self-employed as a farmer in the years 1956 through 1961 and had derived income in excess of $400 in each of those years. R's entitlement to the benefits she claimed depended upon whether these earnings were creditable to her social security earnings account.
R's husband was the owner of the farm situated in South Carolina and died intestate in January 1956 domiciled in that State. He was survived by R and five children. No written conveyance of, or written agreement relative to, the title to the farm has been executed by R or any of the children. However, the five children orally agreed to let K remain in possession and control of the farm for life. She, therefore, exercised dominion over the farm and treated it as her own. None of R's children has ever derived any financial benefits from the farm.
The farm was operated by two sharecroppers who together paid 50 percent of the expenses of the operations and retained 50 percent of the cash crop sales. R paid the other 50 percent of the expenses and received the other 50 percent of the sales. When money was borrowed the note was co-signed by R and one of her sons. This son had daily contact with the sharecroppers, supervised all phases of their activities, and performed some of the physical work on the farm. However, he consulted with R before major decisions were made and at times R, her son, and the sharecroppers jointly planned the farming operations.
Although the agreement with the tenants did not specify the extent to which R was to participate in the management of production or the production activities connected with the farm, the nature of R's activities or those of her son indicates that the tenants must have agreed to, or expected, the performance of such activities by R or her agent; this warrants a finding that R's right to so participate was at least implied in the agreement between the parties.
The issue to be decided is whether R has net earnings from self-employment of at least $400 in each of the years 1956 through 1961, in order to credit her with the quarters of coverage necessary for her entitlement to benefits.
Section 211(a)(1) of the Act provides that in computing gross income and deductions for social security purposes rental income from real estate, including crop-share rental income, shall be excluded unless the rentals are received in the course of a trade or business as a real estate dealer. However, farm rental income may be included in computing gross income and deductions where such income is received (1) under an arrangement providing for the owner or tenant to materially participate in the production or the management of the production of the agricultural or horticultural commodities to be produced by another individual on the land, and (2) there is material participation by the owner or tenant with respect to any such agricultural or horticultural commodity.
Since the actions performed by R personally and through her son are sufficient to constitute material participation in the production or the management of the production of crops, the primary issue is whether or not R is an "owner or tenant" of the farm within the meaning of the foregoing statutory provision.
Under the laws of South Carolina, upon the death of the owner the title to real estate descends immediately to the heirs, subject only to sale by the administrator to pay the debts of the decedent. Ross v. Beachman, 33 F. Supp. 3 (S.C. 1940). Where there are sufficient assets to pay the debts of the estate without selling the real property, the administrator's only duty is to administer the personal property and make distribution of the decedent's estate among those entitled thereto. Ross v. Beachman, Supra, Glenn v. Worthy, 168 S.E. 705 (S.C. 1933). In addition, South Carolina courts favor family settlements of family property, provided that such settlements are not in disregard of the rights of third persons and are not counter to express provisions of law. Also, the heirs can effect among themselves oral partitions of an estate. Roundtree v. Lane, 10 S.E. 941 (S.C. 1890). Section 57-306 of the South Carolina Code of Laws states that:
- All estates, * * * and any uncertain interests of, in, to or out of any lands, tenements or hereditaments, made or created * * * by parole and not put in writing and signed by the parties so making or creating them, or their agents thereunto lawfully authorized by writing, shall have the force and effect of estates at will only. * * *
In the instant case, there were sufficient funds to pay the debts of the estate without selling the real property. Further, under applicable law, R acquired as an heir an interest in the farm immediately upon the death of her husband. Moreover, she acquired by the consent and acquiescence of her five children a legally recognized interest in the outstanding shares and has in accordance therewith exercised dominion over the entire farm and treated it as her own. As a result, R has an interest in the farm at least equal to a tenancy at will.
Accordingly, it is held that R had sufficient interest in the farm to constitute her the "owner or tenant" thereof within the meaning of section 211(a) and, that she materially participated personally and through her son in the production and management of production of the farm crops during all the years 1956 through 1961. Therefore, her farm income is creditable as earnings from self-employment for such years, and she is fully insured and entitled to the old-age insurance benefits for which she filed application.