20 CFR 404.1051(f)

SSR 73-32

Where sole owner of business established purported partnership with wife who performed no duties, had no investment, and lacked any knowledge as to its operation, held, such transfer of interest, bona fide from procedural viewpoint, is but one factor in determining existence of a partnership and cannot be considered controlling factor where no valid partnership was in existence either before or after the transfer and sole dominion and control over capital and operation of business remains vested in one person.

R and W, husband and wife, alleged formation of a partnership beginning January 1, 1965, for the operation of a retail clothing store. This was done upon advice of R's accountant in order to provide an insured status for W in the event Medicare legislation was eventually enacted. R had been self-employed for many years, primarily operating his business as a sole proprietorship until 1965.

W performed no duties, had no authority to hire or fire employees, and did not wait on customers. She came to the store during the week, sat and read the newspaper, brought lunch to R, and usually remained in the store all day for the safety and well-being of R. She had nothing to do with the business, did no bookkeeping, gave no purchase orders for goods, and on her application for a social security account number listed herself as "unemployed" in 1965. Her earnings record contained reportings of self-employment income from the business beginning with 1965. W died in August 1969 and the question of her insured status for the payment of death benefits arose.

The issue presented is whether W was properly credited with self-employment income from the alleged partnership with her husband in the operation of the clothing store.

The evidence clearly reflects that R and W entered into a scheme designed to provide the wife with self-employment income in order to obtain coverage under the Social Security Act. Such attempts to gain coverage are not illegal and if actually entered upon and performed in such a manner as to meet the requirements of the Act may in fact provide such coverage. Members of the same family may and do form valid partnerships which are recognized for social security purposes. To be recognized as a partnership for tax and social security purposes the legal relationship of partners must be established. The basic test for determining the existence of this relationship is whether the parties in good faith intended to join together to conduct a business as partners and actually did so. Their intent is a question of fact to be ascertained from all the circumstances in the case including the agreement of the parties, their respective abilities and contributions, their statements and conduct, the actual control of income, and any other facts throwing light on their intent.

The evidence supporting the allegation of a partnership in this case consists of the records of the business and the statements of R. The facts establish that prior to 1965 R had for many years operated his own business in which his wife had no share or part; that after January 1965, while W was present at the place of business, she did not share in its operation or contribute to its capital; that W was not knowledgeable in business matters and was not employed during her marriage to R, thus had no reason to acquire her own account number until October 1965; that on such date she considered herself unemployed; that such income as was credited to W and such estate as she left on her death resulted from divisions of profits and capital by R without her contribution. It is further shown by the facts that W went to R's store for personal rather than business reasons, that is, there was felt to be a need for R to have companionship during the day. Such behavior is not unreasonable, and if W helped about the store in other ways, a fact which the record hardly substantiates, such assistance does not constitute a partnership.

The procedural mechanics were followed in changing business records to reflect W as a purported partner and tax returns were filed indicating the business to be a partnership. Such a transfer of interest appears bona fide, but such transfer is only one factor in determining the existence of a partnership. It would not be the controlling factor where no valid partnership was in existence either before or after the transfer and sole dominion and control over the capital and operation of the business continued to be vested in one person. Under the circumstances presented here, there was no valid partnership between R and W created in January 1965 or at any time thereafter.

Accordingly, it is held that W had no self- employment income or earnings for the years 1965 through the date of her death in August 1969, and thus had no insured status for the payment of survivors benefits.

Back to Table of Contents