SSR 65-42c: SECTION 205(c). -- STATUTE OF LIMITATIONS -- CORRECTION OF EARNINGS RECORD
20 CFR 404.804, 404.806, and 404.807
STROH v. CELEBREZZE, CCH U.I.R. Vol. 1, Fed. Para. 15,026 (U.S.D.C., D. Mont. Billings Div., Div. No. 391 (7/16/63))
- The plaintiff did not report self-employment income on his federal income tax returns for the years 1946 through 1957. In 1958 he entered into an agreement with the Internal Revenue Service to extend to June 30, 1960, the time limitation prescribed in the Internal Revenue Code for the assessment of his Federal income and self-employment tax liability for the years 1953, 1954, and 1955. On March 26, 1959, he paid deficiency taxes, including self-employment tax for these years. Held, since the plaintiff's agreement with the Internal Revenue Service extending the time limitation in the Internal Revenue Code for the assessment of his taxes did not extend the limitation period for correcting his social security earnings record prescribed in section 205(c) of the Social Security Act, and since under that section (with exceptions not pertinent here) earnings records may only be corrected within 3 years, 3 months and 15 days after the year in which self-employment income is derived, the plaintiff's social security earnings record may be corrected in include his self-employment income for 1955 but not for 1953 and 1954.
JAMESON, District Judge:
This is an action brought under Section 205(g) of the Social Security Act, as amended, 42 U.S.C.A. § 405(g), to review a "final decision" of the Secretary of Health, Education and Welfare. Both parties have moved for summary judgment, and the case is before the court upon the pleadings, the briefs of the parties, and a certified copy of the transcript of the record.
Plaintiff, from about 1946 through 1958, was self-employed in the business of constructing homes. His income from this business was not reported on his federal income tax returns from 1946 through 1957.
During the latter part of 1958 plaintiff was informed that an audit of his income tax returns for certain years, including the years 1953, 1954 and 1955 was being undertaken. Plaintiff executed agreements with the Internal Revenue Service whereby he agreed to extend the statute of limitations for the assessment of his federal income tax liability and self-employment tax liability for the years under consideration until June 30, 1960. On March 26, 1959, plaintiff paid deficiency taxes, including self-employment taxes, for the years 1953, 1954 and 1955.
Plaintiff, on September 22, 1959, made application for a Social Security Pension. The application was disallowed on the ground that plaintiff was not fully insured, in that he had an insufficient number of quarters of coverage under Section 214(a)(2)(A) of the Social Security Act, 42 U.S.C.A. § 414(a)(2)(A). It was held that the defendant need not amend nor correct his records concerning plaintiff's self-employment income for the years 1953, 1954 and 1955 because such a correction was barred by the statute of limitations. On appeal, the Appeals Council reversed as to the year 1955 and affirmed as to the years 1953 and 1954.
Section 205(c)(1)(B) of the Act, 42 U.S.C.A. § 405(c)(1)(B), provides: "For the purposes of this subsection -- * * * The term 'time limitation' means a period of three year, three months and fifteen days."
Section 205(c)(5)(F) of the Act, 42 U.S.C.A. § 405(c))5)(F), as amended, provides in part as follows:
"(5) After the expiration of the time limitation following any
year in which * * * self- employment income was derived or alleged to have
been derived by, an individual, the Secretary may change or delete any
entry with respect to * * * self-employment income in his records of such
year for such individual or include in his records of such year for such
individual any omitted item of * * * self-employment income but only --
* * *
"(F) to conform his records to --
- (i) tax returns or portions thereof (including information returns and other written statements) filed with the Commissioner of Internal Revenue * * *
- except that no amount of self-employment income of an individual for any taxable year (if any return or statement was filed after the expiration of the time limitation following the taxable year) shall be included in the Secretary's records pursuant to this subparagraph;" (Emphasis added.)
The Appeals Council held that inasmuch as the taxes had been paid on March 26, 1959, and since this was within three years, three months and fifteen days after the close of the taxable year 1955, credit should be allowed for the taxes paid for that year; but more than three years, three months and fifteen days having elapsed since the taxable years of 1953 and 1954, no credit could be allowed on the books for the taxes paid for those years.
Plaintiff argues that the phrase "time limitation", as used in the last clause of the subparagraph quoted above, refers to the statute of limitations made applicable by the Internal Revenue Code where a taxpayer has agreed to an extension of the statute of limitations for the assessment of taxes. Plaintiff contends that the agreement to an extension of the statute of limitations until June 30, 1960, extended to that date the time in which the records could be amended.
The sole question presented concerns the interpretation of the phrase "time limitation" as used in the statute.
Section 205(c)(4)(C) of the Social Security Act, 42 U.S.C.A. § 405(c)(4)(C), provides in part as follows:
- "After the expiration of the time limitation following any year * * *
- "(C) the absence of any entry in the Secretary's records as to the self-employment income alleged to have been derived by an individual in such year shall be conclusive for the purposes of this subchapter that so such alleged self-employment income was derived by such individual in such year unless it be shown that he filed a tax return of his self-employment income for such year before the expiration of the time limitation following such year, in which case the Secretary shall include in his records the self-employment income of such individual for such year."
This section was interpreted by the Appeals Council in this language in the instant case:
- "It is our view that the primary purpose underlying section 205(c)(4)(C) of the Act is to protect a taxpayer, who has reported self-employment income within the time limitation for the particular year involved, so that he will not be prejudiced by the fact that such income, through no fault of his own, has not been entered in the Secretary's records within the time limitation. * * * Since the audit by Internal Revenue Service, which brought to light data upon which liability for self- employment tax could be imposed, did not occur until after the expiration of the time limitation, the correction of the Secretary's records with respect to the claimant's self-employment for 1953 and 1954 is precluded by the provisions of section 205(c)(5)(F) of the Social Security Act." (Emphasis original.)
The regulations promulgated by the Administration support the position taken by the Appeals Council. § 404.801(c) provides that "for the purposes of this subpart the term 'time limitation' means a period of 3 years, 3 months, and 15 days. * * *". Section 404.804 provides in part:
"For the purposes of proceedings before the Secretary or any court, such
records shall, as provided in this Subpart I, be evidence of the amounts
of earnings of such individuals and the periods of such earnings. The
absence of an entry as to an individual's earnings with respect to any
period shall be evidence that the individual had no earnings in such
period. After the expiration of the time limitation, as defined in §
404.801(c), following any year:
* * *
- "(c) The absence of an entry in the Administration's records as to the self-employment income alleged to have been derived by an individual in such year shall be conclusive that no such income was derived by such individual in such year unless it is shown that he filed a tax return of his self-employment income for such year before the expiration of the time limitation following such year. See § 404.807(b) with respect to conforming earnings records to tax returns of self-employment income." (Emphasis added.)
"(b) Tax Returns of self-employment income --
* * *
- "(2) Tax returns filed after expiration of time limitation. The Administration shall not, pursuant to § 404.806(f) or § 404.806(k), include in its records the amount of self-employment income of an individual for any taxable year if the tax return or portion thereof which evidences such income was filed after the expiration of the time limitation following the taxable year in which such self-employment income was derived or in which a deletion of wages was made. (This provision is not applicable to earnings which are derived in any taxable year ending after 1954 and before 1960 by a minister * * *) In the case of a self-employment tax return filed after the expiration of the time limitation, the Administration may only revise its records to reflect a decrease * * *." (Emphasis added.)
Section 404.806(f) provides that the Administration may change the records even after the expiration of the time limitation, to conform to tax returns filed with the Commissioner of Internal Revenue, except as provided in § 404.807. Section 404.806(k) provides that the Administration can include self- employment income in the records, even after the expiration of the time limitation, up to the amount of any wages that were mistakenly deleted by the Administration, provided such income is included in a return filed within the time limitation.
One exception has ben engrafted upon the general prohibition against change of the records to include self-employment taxes where the return was not filed within the time limitation. Congress has provided, by the Social Security Amendments of 1960, that the general prohibition does not apply to ministers and like persons for certain stated years. This exception was noted in § 404.807(b)(2) of the Regulations quoted supra.
While no reported cases were found passing upon the question here presented, one unreported case substantiates the position taken by the Appeals Council. In Martlew v. Ribicoff, digested in 1 CCH, UIR, para. 14, 526 (E.D. Tex. 1962), the court affirmed a decision of the Appeals Council in a case similar to the instant case. In that case the Council had said that "it is held that his agreement to an extension of the time limitation for an assessment of taxes could not also serve to extend the time limitation with respect to the correction of the earnings records under the Social Security Act".
It is true, as plaintiff contends, that it was never intended that the courts should abdicate their conventional judicial function to review, and where the administrative decision is based upon conclusions not reasonably reached upon due consideration of all relevant issues presented, or applies an arbitrary standard, or misinterprets the provisions of the Act or Regulations, the court may properly reject the administrative decision. On the other hand, administrative decisions interpreting the Act and Regulations are entitled to weight, and the administrative interpretation is controlling unless it is plainly erroneous or inconsistent with the Regulations. It cannot be said that the Appeals Council here has applied an arbitrary standard or misinterpreted the provisions of the Act or Regulations.
The statute and regulations specifically define the term "time limitation" as it is used in the portions of the statute here under consideration. Had Congress meant that the statute of limitations applicable under the Internal Revenue Code in situations such as the present one should apply, it could easily have so stated. As noted supra, one exception has been engrafted upon the general rule. plaintiff would have this court include another exception. That is not within the province of this court.
I cannot escape the conclusion that the definition of "time limitation" contained in Section 205(c)(1)(B) of the Social Security Act, 42 U.S.C.A. § 405(c)(1)(B) is applicable. It may wee be, as plaintiff contends, that the result is harsh and inequitable. That is often true in the application of statutes of limitations. Nevertheless a statute of limitations "must be strictly adhered to by the judiciary" and "(R)emedies for resulting inequities are to be provided by Congress, not by the courts".
The decision of the Appeals Council is affirmed and defendant's motion for summary judgment is granted.
 20 Code of Federal Regulations Chap. 111 Old Age and Survivors Insurance -- Subpart I Maintenance and Revision of Records of Wages and Self Employment Income § 404.801 et seq.
 Public Law 86-778; 74 Stat. 924, U.S. Code Cong. & Admin. News, 86th Cong. 2d Sess. 1960, Sec. 101(e).
 See Brannon v. Ribicoff, D. Mont. 1961, 200 F.Supp. 697, 700 and cases there cited.
 See Dowell v. Folsom, D. Mont. 1957, 157 F.Supp. 46, 51, and cases there cited.
 Kavanagh v. Nobel, 1947, 332 U.S. 536, 539, 68 S.Ct. 235, 92 L.Ed. 150.