SSR 89-4c : SECTIONS 202(a), 211, 213, AND 214 OF THE SOCIAL SECURITY ACT (42 U.S.C. 402(a), 411, 413, AND 414) SELF-EMPLOYMENT INCOME -- TRADE OR BUSINESS -- CONSULTING SERVICES

20 CFR 404.1066

Doshi v. Sec. of HHS, 1A Unempl. Ins. Rep. (CCH) ¶ 14,045A (N.D. Ill., E. Div.)

: The claimant applied for retirement insurance benefits on March 14, 1985. He contended that he had been self-employed as a consultant since 1981, giving advice on such matters as taxation, immigration, investments, real estate, and the import-export trade with India. The Secretary found that the claimant's consulting work did not constitute a bona fide trade or business; therefore, the income that the claimant had derived from his work was not creditable for Social Security purposes. Consequently, the claimant lacked the requisite number of quarters of coverage needed for fully insured status and his application was denied. The claimant then filed a civil action seeking judicial review of the Secretary's decision. The evidence of record showed that the claimant's alleged clients were relatives; that his qualifications to give advice on taxation, immigration, and investments were suspect; and that the services he rendered were often personal in nature, such as reviewing medico-economic publications for his son and helping his daughter-in-law find an apartment. During the years in question, the claimant had virtually no business expenses. He worked out of his home until 1983 when he began working out of an apartment that was rented by a friend. The claimant did not use business stationery until 1983; he did not advertise; and although he claimed to have business cards, he did not have any with him at the time of his administrative hearing. The district court found that the above evidence clearly supported the Secretary's decision that the claimant's business was not bona fide. Moreover, the court found no merit to the claimant's contentions that the Secretary had failed to fully develop the record, had not examined the record in its entirety, and had imposed an improper burden of proof on the claimant. In view of the foregoing, the district court held that the Secretary's decision denying the claimant's application for retirement insurance benefits is affirmed.

PLUNKETT, District Judge:

Pending are cross-motions for summary judgment filed by plaintiff Mansukhlal Doshi ("Doshi") and defendant Dr. Otis R. Bowen, Secretary of Health and Human Services (the "Secretary"). Doshi seeks review of a final decision of the Secretary denying his application for old-age or retirement benefits. Doshi seeks reversal of the Secretary's determination or, alternatively, remand to the Secretary for consideration of new evidence. For the following reasons, we affirm the Secretary's determination.

Procedural Background

On March 14, 1985, Doshi applied for Retirement Insurance Benefits under Title II of the Social Security Act (Federal Old-Age, Survivors, and Disability Insurance.) (R. 56-59). The Secretary denied the application on May 14, 1985 (R. 60-61) because a claims representative determined that Doshi was not conducting a bona fide trade or business from 1982 through 1984. Doshi purported to be an investment counselor. The representative determined that Doshi created his clients and duties for the sole purpose of providing social security coverage. (Id.) The representative believed that Doshi and his son (who was Doshi's biggest client) "created a situation to give the son a write-off and the father quarters of coverage." (Id.)

Doshi requested reconsideration of the denial of benefits on the grounds his activities as a consultant was a business covered under the Social Security Act (R. 62-63). Doshi stated "(1) My business was conducted in good faith for producing income; (2) there was continuity of operations; (3) I was regularly conducting the same and am still doing so; (4) I do and did hold myself out to others as selling my services." (R. 63). On September 3, 1985, the Secretary denied Doshi's request for reconsideration on the same grounds as before -- he did not derive income from a trade or business (R. 65-70). The Secretary also ruled that Doshi's 1981 income, in addition to the years 1982 through 1984, was not derived from a bona fide trade or business (R. 70).

Doshi requested a hearing before an Administrative Law Judge (R. 26), which was held on February 13, 1986, in Evanston, Illinois (R. 28-55). At the hearing before ALJ Dale A. Garwal, Doshi appeared and was represented by a paralegal from the Prairie State Legal Services Office. (Id.) Doshi testified and submitted numerous documents on his own behalf (R. 31-51; 130-55). On March 28, 1986, the ALJ ruled that Doshi was not entitled to retirement insurance benefits (R. 13-18). The ALJ concluded that "the evidence does not establish that the claimant did conduct a bona fide business during the years 1981 through 1984" (R. 15).

Doshi requested review of the ALJ's adverse determination (R. 9-12), and the Appeals Council denied the request October 1, 1986 (R. 3-4). The Appeals Council concluded that Doshi received a fair hearing and there was no basis for reviewing the ALJ's findings (R. 3).

Having exhausted his administration remedies, Doshi now seeks judicial review pursuant to 42 U.S.C. § 405(g).

Legal Framework

Every individual who (1) is a "fully insured individual," (2) has attained the age of 62, and (3) has filed an application for old-age insurance benefits, is entitled to receive old-age (or retirement) insurance benefits. 42 U.S.C. § 402(a). The Secretary ruled that Doshi was not a "fully insured individual." The term "fully insured individual" means, as pertinent here, an individual who has not less than one quarter of coverage for each calendar year after 1950 and before the year he or she turns sixty-two years old. 42 U.S.C. § 414(a). Since Doshi was born on December 27, 1919 (R. 56), and turned sixty-two in 1981, he needed thirty quarters of coverage to be "fully insured." 20 C.F.R. § 404.115.

The term "quarter of coverage" means, for calendar years after 1977, a calendar quarter in which an individual receives wages or is credited with "net earnings from self-employment" in an amount which equals or exceeds an amount specified by the Secretary. 42 U.S.C. § 413(a)(2)(A)(ii). The "amounts specified" per quarter for the years 1978 through 1985 were the following: $250 for 1978; $260 for 1979; $290 for 1980; $310 for 1981; $340 for 1982; $370 for 1983; $390 for 1984; and $410 for 1985 (see R. 68). 42 U.S.C. § 413(d); 20 C.F.R. §§ 404.143-404.144, Subpart B, Appendix. In order to receive four quarters of coverage in one year (the maximum number of quarters of coverage a person can earn in one year), an individual must earn at least four times the "amount specified." (For example, an individual will have earned four quarters of coverage in 1984 if he or she received wages or self-employment income exceeding $1,560.)

The term "net earnings from self-employment" is defined as "the gross income, as computed under subtitle A of Title 26, derived by an individual from any trade or business carried on by such individual, less the deductions allowed under such subtitle which are attributable to such trade or business . . . ." 42 U.S.C. § 411(a). In other words, "net earnings from self-employment" equals a person's taxable income from a trade or business.

The phrase "trade or business" is not defined in the Social Security Act or the regulations. The regulations simply provide that "[w]ith some exceptions, the term 'trade or business' has the same meaning as it does when used in section 162 of the [Internal Revenue] Code [26 U.S.C. § 162]." 20 C.F.R. § 404.1066. Section 162 of the Internal Revenue Code does not define the term "trade or business"; indeed, nowhere in the tax code or tax regulations is a general definition of "trade or business" provided. See Commissioner v. Groetzinger, _____ U.S. _____, 107 S. Ct. 980, 983 (1987). In his opinion, ALJ Garwal used the following legal standard:

: The regulatory definition of what constitutes a trade or business is derived from sections of the Internal Revenue Code. These regulations provide that all facts and circumstances in a particular case must be considered in determining whether a trade or business is being conducted. These regulations define a valid trade or business as activity conducted over a substantial period of time during which a person holds himself out to the public as selling goods or services. The regulations also cite as indicia of a bona fide business factors such as having a reputation in the community, having a "calling" such as a business or profession and having goods or services available to the public (usually by means of advertising). The ALJ ultimately held that "[the] facts in this case simply do not support a conclusion that the claimant has conducted a bona fide business" (R. 16).

(R. 15-16).

In Groetzinger, the Supreme Court attempted to describe a "trade or business" for purposes of § 162(a) of the Internal Revenue Code:

: Not every income-producing and profit-making endeavor constitutes a trade or business. The income tax law, almost from the beginning, has distinguished between a business or trade, on the one hand, and "transactions entered into for profit but not connected with . . . business or trade," on the other. See Revenue Act of 1916, § 5(a) Fifth, 39 Stat. 759. Congress "distinguished the broad range of income or profit producing activities from those satisfying the narrow category of trade or business." Whipple v. Commissioner, 373 U.S. 193, 197 (1963). We accept the fact that to be engaged in a trade or business, the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer's primary purpose for engaging in the activity must be for income or profit. A sporadic activity, a hobby, or an amusement diversion does not qualify.

107 S. Ct. at 987.

The Court stated that the determination of the existence of a trade or business "requires an examination of the facts in each case." 107 S. Ct. at 988, quoting Higgins v. Commissioner, 312 U.S. 212, 217 (1941).

The Secretary in our case ultimately ruled that Doshi had not derived income from a bona fide "trade or business" in the years 1981 through 1984. The primary issue presented to us is whether the Secretary's determination was supported by substantial evidence.

Evidence Presented

Doshi was born on December 27, 1919, in India (R. 56). Doshi attended high school and college in India, receiving a master's degree in economics and political science from the University of Bombay in 1947 (R. 155). Doshi worked for the government of the state of Gujarat in India from 1948 to 1976, rising to become Assistant Director of Industries (R. 33). Doshi attended Roosevelt University in Chicago, Illinois during 1971, but he received no degree (R. 32, 155). Also during 1971, Doshi worked for TSC Industries, Inc. in Chicago; Doshi was in charge of its freight project (R. 155). From 1976 to 1979, Doshi was employed by Arat Electro Chemicals Pvt., Ltd., in Ahmedabad, India, as an administrative officer (R. 155).

In 1979, Doshi apparently emigrated to the United States (R. 33). When he filed his claim for social security benefits in 1985, Doshi claimed to have been working in the United States since 1979 mainly as a consultant (R. 34). Doshi claimed to give advice on matters involving taxation, immigration, investments, real estate, and the import-export trade with India (R. 36-37). From 1981 to 1984, Doshi had a total of eight clients (R. 37): his son, Dr. Ashok Doshi; his daughter, Dr. Niranjana Shah and her husband, Dr. Dipak Shah; his son, Dipak Doshi and his wife, Chetan Doshi; his daughter's father-in-law or brother-in-law, Dipak Shah; Rohit Shah (same); and Dr. Ashok Doshi's professional corporation (R. 94-95).

From 1981-1983, Doshi worked out of his house in Highland Park, Illinois (R. 34); in 1983, Doshi began working out of an "office" in Chicago that was really an apartment rented by a friend (R. 35). During the period 1981-1984, Doshi did no advertising (R. 39), and although he claimed to have business cards, he did not have any with him at the hearing before the ALJ (R. 39). Doshi did not use business stationery until 1983. (Id.)

Doshi testified he charged his clients $30 per hour for his services (R. 40). From 1981 through 1984, Doshi reported income in the following amounts: 1981 ($15,182); 1982 ($6,600); 1983 ($2,000); 1984 ($2,450) (R. 71-72, 81, 86, 88). The services Doshi claims he provided he clients varied. Doshi submitted several invoices evidencing services he allegedly provided his clients, but all bore dates after August 1983 (R. 101-26). On December 15, 1983, Doshi billed Chetan Doshi (Doshi's daughter-in-law) $250 because he "discussed prospects for attaining M.S. degree, explained importance thereof in the job market, accompanied [her] to different universities, helped her in making applications and prepared resume" (R. 102). On January 31, 1984, Doshi billed his son, Dr. Ashok Doshi, $420 for "[s]tudy of medico-economic periodicals and other literature of 1983 and presenting the gist to you . . . [f]iling of papers for 1983 . . . [s]tudy of Cashco drilling project" (R. 126). Indeed, much of Doshi's services consisted of reviewing medico-economic publications and filing papers for Dr. Ashok Doshi (R. 108, 119, 121, 124). On August 31, 1984, Doshi billed Chetan Doshi $150 because he "assisted [her] in search of the apartment and in selecting the present one" (R. 118). Doshi also billed his clients for advice concerning various investment opportunities on several occasions (see R. 105, 109, 111-13, 115, 116, 125) and on immigration matters once (R. 114).

The ALJ doubted the veracity of Doshi's consulting business. Most, if not all, of Doshi's clients were relatives, either blood or through marriage. His largest client was his son (all of Doshi's billings in 1981 were to Dr. Ashok Doshi; 83% of Doshi's billings in 1983 were to Dr. Ashok Doshi or his professional corporation; 70% of Doshi's billings in 1984 were to Dr. Ashok Doshi). He incurred virtually no business expenses, he worked out of his home until 1983, and he kept informed through the use of free government publications. He did not use business stationery until 1983 and had no business cards with him at the hearing (R. 16). The ALJ found no evidence that Doshi had any qualifications to give advice on taxation, immigration, or investments. (Id.) The ALJ also found that many of the services Doshi provided his clients (reviewing literature for his son, helping his daughter-in-law find an apartment, etc.) were not bona fide business services. (Id.) The ALJ concluded that Doshi did not receive income from a bona fide trade or business from 1981 through 1984, and therefore was not eligible for quarters of coverage during those years. Since Doshi otherwise had only 13 quarters of coverage, he was not fully insured and not entitled to old-age benefits (R. 18).

Discussion

Our task is to review the evidence in the record to determine if the Secretary's decision is supported by substantial evidence. "Substantial evidence" is "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Richardson v. Perales, 402 U.S. 389, 401 (1971). Our examination of the evidence convinces us it is adequate to support the ALJ's conclusion. Doshi submitted no business records for 1981 or 1982 to the ALJ. Doshi has now submitted records for 1981 to this court. (Doshi's Motion for Summary Judgment, Attachments A1-A10). Even if we consider this "new evidence," our decision does not change. All of Doshi's 1981 billings were to his son, Dr. Ashok Doshi. The services provided were, in part, for reviewing literature, sorting and filing papers, making phone calls, etc. More importantly, Doshi still has presented no evidence of his business activities for 1982.

The evidence clearly supports the inference that Doshi's Business was not bona fide. His clients were relatives, his qualifications were suspect, and his services rendered were often personal in nature. The fact that no one directly contradicted Doshi's testimony is irrelevant. The ALJ observed Doshi's demeanor and found his story lacking in veracity. We find no basis to overrule the ALJ's decision and, accordingly, affirm.

We find no merit to Doshi's contention the ALJ failed to fully develop the record. Doshi was represented by a paralegal assistant, and had a full and complete opportunity to make his case. At the hearing, the ALJ asked numerous questions to elicit information concerning Doshi's business, allowed Doshi's representative to ask questions, and allowed Doshi to make a statement on his own behalf. There is no indication that the ALJ prevented Doshi from presenting any evidence either at or after the hearing. (Doshi argues he did not know he could submit evidence after the hearing was over, but this argument is weak because Doshi submitted a copy of his resume after the hearing was over (R. 155).)

We also find no merit to Doshi's contention that the ALJ examined only part of the record rather than the whole. The ALJ addressed all the evidence in the record in making his decision. Finally, we find meritless Doshi's contention that the ALJ imposed on Doshi an improper burden of proof. There is no evidence ALJ Garwal did any such thing. The ALJ drew an inference contrary to Doshi's interest, but that does not make the decision legally erroneous.

Conclusion

The Secretary's decision denying Doshi old-age benefits is affirmed. Doshi's motion for summary judgment is denied; the Secretary's motion for summary judgment is granted.