SSR 66-8: SECTION 205(c) -- CORRECTION OF EARNINGS RECORD
20 CFR 404.805 and 404.807
- Where the claimant's earnings record showed self- employment income credited to his account for the years 1960 through 1962; where the claimant also had reported self-employment income for 1959 on his tax return, but such income was not credited to his account; and where an investigation was initiated on May 1, 1964, as a result of which it was determined that the claimant's income for all 4 years was excludable from net earnings from self-employment, held, the claimant's social security earnings record may be corrected by deleting the erroneous entries for the years 1961 and 1962 because the time limitation (3 years, 3 months, and 15 days) following those years had not expired; however, the amount entered for 1960 may not be deleted because the time limitation following that year had expired. Further held, since the claimant's income for 1959 (which had not been credited to his account) was excluded from net earnings from self- employment, such income may not be entered on the records of the Administration.
For the taxable years 1959 through 1962, the claimant filed timely tax returns reporting, as self-employment income, the income he received from an office building in which he had an ownership interest. His reported income for 1960, 1961, and 1962 was credited on the records of the Administration but no entry was made for 1959. On May 1, 1964, the Administration began an investigation, in view of varying descriptions of the nature of claimant's real estate activity in his tax returns, to determine whether the reported income constituted self-employment income. The investigation was actively pursued and it was subsequently determined that the claimant's income from the building constituted "rentals from real estate" and, since it was not received by the claimant in the course of a trade or business as a real estate dealer, was excluded from net earnings from self- employment. In view of this determination, the first question presented is whether the amounts entered on the records of the Administration to the claimant's account for the years 1960, 1961, and 1962 may be deleted.
As pertinent to this question, section 205(c)(4) of the Act provides that prior to the expiration of the time limitation (a period of 3 years, 3 months, and 15 days) following a taxable year, the Secretary may correct an entry of self-employment income for such year, if it is brought to his attention that such entry is erroneous. The Secretary may, pursuant to these provisions, delete the erroneous entries for the 1961 and 1962 taxable years because the investigation regarding the correctness of the entries began before the expiration of the time limitation with respect to such years. The time limitation with respect to the taxable year 1960, however, had expired and, therefore, the posted earnings for that year may not be deleted from the earnings record.
The second question is whether the Secretary is required to make an entry on his records for 1959, to credit the noncovered earnings which the claimant had reported by a timely filed tax return for that year.
Section 205(c)(5) of the Act, as pertinent thereto, provides inter alia, that 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 revise his records to include any omitted items of self- employment income to conform such records to tax returns or portions thereof (including information returns and other written statements) filed with the Commissioner of Internal Revenue under chapter 2 of the Internal Revenue code of 1954, "Tax of Self- Employment Income," provided that such return or statement was filed prior to the expiration of the time limitation following the taxable year.
If the amount reported on the claimant's 1959 tax return had constituted self-employment income, the earnings record, pursuant to section 205(c)(5), could be revised to conform such record to the return. However, the Act does not require the Secretary to post any amount as self-employment income for 1959 when it does not appear that the claimant had any taxable self-employment income for 1959 and was never entitled to have any amounts recorded as such.
Accordingly, it is held that the amounts erroneously entered on the records of the Administration to the claimant's account for 1961 and 1962 may be deleted, but that the amount entered for 1960 may not be deleted. Further held, that since the claimant's income for 1959 constituted rentals from real estate and was excluded from net earnings from self-employment, such reported earnings may not be entered on the records of the Administration.