SSR 78-1c: SECTION 211(a)(1) (42 U.S.C. 411(a)(1)) NET EARNINGS FROM SELF-EMPLOYMENT -- RENTALS FROM REAL ESTATE -- SERVICES TO TENANT
20 CFR 404.1053(d)(2)
SSR 78-1c
Hill v. Califano, 1A U.I.R. ¶ 15369 (Ga., 6-8-77)
- The claimant rented one room of her trailer to a heart patient and in return provided light services beyond normal maintenance and repair, which included occasional cooking, cleaning and changing of linens, and routine nursing assistance. The claimant contended that the income received from this activity constituted net earnings from self-employment as defined in section 211(a) of the Social Security Act. Held, the claimant's services did not amount to extensive activity over a substantial period of time such that she could be considered to have been engaged in a trade or business, and therefore, the income she received did not constitute net earnings from self-employment, but rentals from real estate.
OWENS, District Judge:
The sole question in this appeal from the denial of social security benefits is whether the claimant's receipt of income during the years 1971 to 1974 constitutes "net earnings from self-employment" derived from a "trade or business" under 42 U.S.C.A. § 411(a), thereby entitling her to quarters of coverage during those years so as to qualify her under the special earnings requirements of the Act applicable to disability claims or whether instead whatever income she received was excludable "rentals from real estate." 42 U.S.C.A. § 411(a)(1).
While working full-time as a packing clerk at the Anniston, Alabama, packing depot for most of the relevant time period, the plaintiff took care of one heart patient in her five room trailer home; she also cared for patients, she testified, during 1966 to 1968. Her heart patient described their arrangement as follows:
- "Due to a heart condition (blocked arteries) by one E. H. Caswell (patient), it is understood and agreed that one Kathryn Hill (Medical self-help & Red Cross nurse-12/8/72) agrees to look after and care for patient during his illness. In return the patient agrees to pay for any and all expenses incurred during his illness -- including medicine, food, utilities, and $75.00 for rent on trailer to cover any depreciation on space occupied. Travel expenses to take patient to doctor would be in addition to the above -- including trips to Birmingham & Anniston, Alabama. Driver used her Pontiac on all trips, and acted as practical or nurse assistant driving patient."
In January 1975, claimant represented to the Social Security Administration, in connection with her application, that she had cared for several patients, and described her activities as follows:
- "I kept open heart surgery patients in my home in 1971, 1972, 1973 and 1974.
- "I charged approximately $50 a month. I changed their linens, checked to see if they took medication on time, put drops in their eyes, assisted in bathing them and sometimes prepared their food. They furnished their own groceries. I had an extra bedroom and this was used for the patients."
However, "semi-invalid" her one patient in 1971 to 1974 was, and whatever his condition was because of his coronary problems, he most definitely was not bed-ridden: he often ate meals at the Army depot club and frequently asked the plaintiff to drive him places, including a swimming pool. Although the plaintiff testified that she worked, on the average, four to five hours every day taking care of the patient, the evidence does not indicate that she did much more for him than cook and perhaps change linens.
Significantly, the plaintiff did not consider herself "self-employed" contemporaneously with the rendering of what she now contends are "services": she paid social security self-employment tax for the years 1971, 1972, and 1973 only by amendment in September 1974.[1] Similarly, on her applications for the benefits she disclaimed that she had been self-employed.
The statute provides that
- "There shall be excluded rentals from real estate and from personal property leased with the real estate . . . unless such rentals are received in the course of a trade or business. . . ." 42 U.S.C.A. § 411(a)(1).
The Social Security regulations defining what constitutes excludable "rental income" provide in pertinent part:
- "Payments for the use or occupancy of rooms or other space where services are also rendered to the occupant, such as for the use or occupancy of rooms or rooms or other quarters in hotels, boarding houses, or apartment houses, furnishing hotel services, or in tourist camps or tourist homes, or payments for the use or occupancy of space in parking lots, warehouses, or storage garages, do not constitute rentals from real estate. . . . Generally, services are considered rendered to the occupant if they are primarily for his convenience and are other than those usually or customarily rendered in connection with the rental of rooms or other space for occupancy only. The supplying of maid service, for example, constitutes such service; whereas the furnishing of heat and light, the cleaning of public entrances, exits, stairways, and lobbies, the collection of trash, and so forth, are not considered as services rendered to the occupant.
20 C.F.R. § 404.1053(d)(2).
Neither the regulation, with its references to "hotels, boarding houses, or apartment houses," nor any of the generally reported cases dealing with this issue appear to contemplate the situation presented here: occupancy of a residence more or less in common by the claimant and another in connection with which the claimant provides minimal services beyond maintenance and the furnishing of normal utilities such as light and heat. The cases have uniformly dealt with a claimant whose income has been derived from the rental of several separate apartments in the real property in which the claimant also lives, Conklin v. Celebrezze, 319 F.2d 569 (7th Cir. 1963), or the ownership and management of an apartment building or complex. Delno v. Celebrezze, 347 F.2d 159 (9th Cir. 1975); Hudson v. Celebrezze, 220 F.Supp. 738 (E.D. N.C. 1963); Thorbus v. Hobby, 124 F.Supp. 868 (S.D. Cal. 1954), aff's sub nom., Folsom v. Foteet, 235 F.2d 937 (9th Cir. 1956). See also Maloney v. Celebrezze, 337 F.2d 231 (3d Cir. 1964) (management of office building); Braaksma v. Celebrezze, 246 F.Supp. 767 (S.D. Cal. 1965) (building and renting of houses). Moreover, in each of the cases in which it has been found that a claimant's rental income was not excludable because it arose from the conduct of a "trade or business," the claimant's activities in connection with the rental income fell within the test enunciated by McDowell v. Ribicoff, 292 F.2d 174, 178 (2d Cir.), cert. denied, 368 U.S. 919, 82 S.Ct. 240, 7 L.Ed.2d 135 (1961):
- "The phrase 'trade or business' connotes something more than an act or course of activity engaged in for profit. . . . [It] must refer not merely to Acts engaged in for profit, but to extensive activity over a substantial period of time during which the Taxpayer holds himself out as selling goods or services."
Thus, in Conklin, supra, Thorbus, supra, and Delno, supra, each of the landlord/claimants provided substantial services, above and beyond normal maintenance and repair functions normally associated with ownership and leasing of property, to a number of tenants on a continuing basis. The thread running through each case is well stated in Thorbus, supra, 124 F.Supp. at 871 (emphasis original):
- "[The facts] can lead only to the conclusion that the plaintiff worked at this this apartment house, in addition to merely renting the rooms."
In contrast to those cases, the claimant here rented only one room to one tenant in connection with which she performed relatively light services on a casual basis: somewhat irregular cooking, occasional cleaning and changing linens, and perhaps some nursing assistance such as assistance in bathing and checking medication.[2] Whether characterized as "nursing" or "maid" services in connection with the renting of the room, these activities are not the "extensive activity over a substantial period of time" which amounts to a "trade or business." To be sure, the tenant here being somewhat incapacitated may have required special assistance from the plaintiff; nevertheless, the help he received, in substance was only slightly more than that which one person might ordinarily render to another who is living in the same residence. In short, it cannot be concluded here that the plaintiff "worked at" her trailer so as to lead to the conclusion that she was engaged in a "trade or business;" her income was derived from her property, not her labor, and as such does not constitute self-employment income under 42 U.S.C.A. § 411. Cf. Delno v. Celebrezze, 347 F.2d 159, 161, § n.2 (9th Cir. 1965).
The Secretary's decision is supported by substantial evidence, is correct as a matter of law, and is, therefore, affirmed.
[1] A Claimant is not necessarily bound by previous declarations of liability for social security tax which are inconsistent with the position taken when benefits are applied for. See Rasmussen v. Gardner, 374 F.2d 589 (10th Cir. 1967). Nevertheless, the court considers such information relevant in considering all the facts and circumstances on which a decision as to whether a claimant has been engaged in a trade or business is based.
[2] Although the plaintiff testified that she spent four to five hours each day rendering services to her patient, the record considered as a whole supports the factual conclusion that the services she supplied were as described in the text.