SSR 65-28c: SECTION 211(a). -- NET EARNINGS FROM SELF- EMPLOYMENT -- RENTALS FROM REAL ESTATE -- SERVICES TO TENANTS OF OFFICE BUILDING
20 CFR 404.1052(a)
MALONEY v. CELEBREZZE, 337 F.2d 231 (3d Cir., 1964)
- Where appellant who is not a real estate dealer for many years managed and operated an office building in which he had an ownership interest, and where he contends that in addition to the services usually and customarily rendered in connection with the operation of a modern office building, he furnished for the convenience of the individual tenants: janitorial work within the offices, including the daily removal of trash; installation and servicing of water coolers and air conditioning equipment; installation, alteration and repair of partitions; installation and repair of lighting fixtures and related equipment; and night elevator service, held, these services, being clearly of the type usually and customarily furnished in connection with the efficient operation of a modern office building, were not such as to change the essential character of appellant's income as "rentals from real estate," and, accordingly, such income may not be included in computing his net earnings from self-employment.
SMITH, Circuit Judge:
This action to review a final decision of the appellee, brought by the appellant pursuant to § 205(g) of the Social Security Act, 42 U.S.C.A., § 405(g), came before the court below on the usual cross-motions for summary judgment. After hearing, and upon a review of the record in its entirety, the court below sustained the motion of the appellee and entered judgment accordingly. The present appeal followed.
The appellant, joined by his wife, and alleging that he had been self-employed during the critical period prior to 1958, filed a claim for old age insurance benefits allegedly due and payable under the pertinent provisions of § 202 of the Act, 42 U.S.C.A., 402. On the basis of the evidence presented before a Hearing Examiner, as to which there is no genuine dispute, the appellee found that during the critical period the appellant's sole income was derived from the operation and management of an office building and that this income constituted rentals from real estate and was therefore not includable in the computation of net earnings from self-employment under § 211(a)(1) of the Act, 42 U.S.C.A. 411(a)(1).
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Section 211 of the Act, supra, provides in pertinent part as follows: "(a) The term 'net earnings from self-employment' means the gross income . . . derived by an individual from any trade or business carried on by such individual . . .; except that in computing such gross income . . . (1) There shall be excluded rentals from real estate . . . unless such rentals are received in the course of a trade or business as a real estate dealer." Since the appellant was admittedly not a "real estate dealer" he was not eligible for old age insurance benefits under the Act if, as found by the appellee, his sole income during the critical period constituted "rentals from real estate."
The appellant's sole income during the critical period prior to 1958, except for certain income from investments, was derived from the operation and management of an eight story building the title to which was acquired by his wife in 1912 under the will of her father. At the time of its acquisition the building was a warehouse but after extensive alterations, undertaken in 1921, was converted into a modern office building. Thereafter the appellant assumed full responsibility for the management and operation of the building and for all intents and purposes treated it and the income therefrom as his own. From 1921 to 1958, the appellant reported the gross rental income as his own for income tax purposes, and from 1954 through 1957 reported the net income as subject to the self-employment tax. On the basis of these facts, and others more fully detailed in the record, the appellee found that the appellant had an ownership interest in the building and was not an employee. This finding is not disputed.
The appellant here maintains, as he has throughout the proceedings, that in addition to the services usually and customarily rendered in connection with the operation of a modern office building, he furnished services to the individual tenants. He argues that these services were primarily for the convenience of the tenant and were of such a nature as to place his net income beyond the scope and application of the exclusionary provision of § 211(a)(1), supra. The appellant, in support of his argument, cites § 404.1052(a)(3) of the Regulations 42 U.S.C.A., App., 20 C.F.R. 404.1052(a)(3).
According to the contention of the appellant, the additional services including the following: janitorial work within the offices, including the daily removal of trash; installation and servicing of water coolers and air-conditioning equipment; installation, alteration and repair of partitions; installation and repair of lighting fixtures and related equipment; and, night elevator service. These services were clearly of the type usually and customarily furnished in connection with the efficient operation of a modern office building. These services were not such as to change the essential character of the appellant's income as "rentals from real estate," within the meaning of the exclusion clause.
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The judgment of the court below will be affirmed.
 This section of the regulations reads as follows:
404.1052 Income Excluded From Net Earnings From Self- Employment. -- For the purpose of computing net earnings from self-employment, the gross income derived by an individual from a trade or business carried on by him, the allowable deductions attributable to such trade or business, and the individual's distributive share of the ordinary net income or ordinary net loss from any trade or business carried on by a partnership of which he is a member shall be computed in accordance with the following special rules:
(a) Rentals From Real Estate. --
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(3) 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 other quarters in hotels, boarding houses, or apartment houses furnishing hotel services, or in tourist camps or tourist homes, or for the use or occupancy of space in parking lots, warehouses, or storage garages, do not constitute rentals from real estate; consequently, such payments are included in determining net earnings from self-employment. 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, exists, stairways and lobbies, the collection of trash, and so forth, are not considered as services rendered to the occupant. [Ed.]