SSR 73-33c: Section 211(d) (42 U.S.C. 411(d)).—Net Earnings from Self-Employment—Partnership Alleged—Husband and Wife
20 CFR 404.1050 and 404.1051(f)
Ross v. Richardson, U.S.D.C., N.D., Miss., No. WC 71-33-K (8/10/72) (CCH, UIR, Vol. 1A, Fed. para. 16,837)
Plaintiff entered verbal agreement with firm to serve as self-employed commissioned agent. Services were performed at home with assistance of his wife. Payment for services was to plaintiff only, earnings were reported in his name for tax purposes, and wife had no social security number. All federal tax returns listed her as housewife. Plaintiff, alleging the business arrangement was a joint venture with his spouse, appealed from Secretary's denial of his claim for lump-sum death payment and surviving child's insurance benefits resulting from lack of wife's insured status for social security purposes. Held, substantial evidence supports Secretary's finding that plaintiff was sole proprietor of business arrangement; his wife's relationship to his duties was in nature of "family arrangement" and gave rise to no self-employment income creditable for social security purposes; therefore, no lump-sum death payment nor child's insurance benefits are payable on her earnings record.
KEADY, Chief Judge: This action was brought by Winston Ross, plaintiff, pursuant to 42 U.S.C. §405(g) to obtain judicial review of the final decision of the Secretary of Health, Education, and Welfare denying plaintiff's claim to a lump-sum death payment and surviving child's insurance benefits under the Social Security Act, 42 U.S.C. §301 et seq.
Defendant having moved for summary judgment on the record below, we are required to affirm if the Secretary's findings are supported by substantial evidence on the record as a whole. McCarty v. Richardson,—F.2d—5 Cir. 1972); Richardson v. Perales, 402 U.S. 389, 28 L. Ed. 2d 842 (1971); Cross v. Finch, 427 F. 2d 406 (5 Cir. 1970). Review of the record discloses the following relevant facts.
Plaintiff's wife died on July 4, 1969, at the age of 35. On October 1, 1969, plaintiff applied for a social security number for his wife as a deceased wage earner. On the following day, plaintiff applied to the Social Security Administration for a lump-sum death payment, pursuant to 42 USC §402(i), and surviving child's insurance benefits, pursuant to 42 USC §402(d), on behalf of their four minor children. In conjunction with his claims, plaintiff filed a statement alleging that he had entered into a verbal business agreement with Kimmel Aviation Company, Inc., Houston, Mississippi, to serve as a part-time commissioned agent and to perform such additional services as needed, including bookkeeping, setting flight schedules, and depositing monies. Plaintiff stated that the services were performed at home and that, since he was frequently away, his wife assumed the major part of the work. Plaintiff further stated that he and his wife considered the business arrangement to be a joint venture from which each was to share equally on a 50-50 basis. The gravamen of plaintiff's claim was that his wife was entitled to insurance coverage from 1966 until the time of her death in 1969 because of the nature of the business relationship.
On November 10, 1969, plaintiff was notified by the Social Security Administration that his wife had acquired none of the statutory minimum quarters of social security coverage at the time of her death, thus no survivor benefits were payable.1 Plaintiff requested reconsideration of the administration's adverse ruling and submitted a statement by the president of Kimmel Aviation Company, Inc. that the company had entered into the business agreement with the understanding that plaintiff's wife would perform the duties of bookkeeping and billing. Upon reconsideration on January 19, 1970, the administration declined to overturn its original decision and concluded that the facts did not support plaintiff's claim that the enterprise was operated as a joint venture or a partnership. On the contrary, the administration noted that the aviation firm honored its verbal contract by paying plaintiff only; the earnings from the agreement were reported to the Internal Revenue Service as plaintiff's alone with no mention of the alleged partnership or joint venture; indeed, no application for a social security number for plaintiff's wife had ever been filed until after her death.
Upon plaintiff's timely request, a hearing on his claim was held on August 11, 1970. After consideration of the testimony and the evidence of record, the hearing examiner concluded that plaintiff's wife had acquired no self-employment income creditable for social security purposes and thus lacked the required quarters of coverage at the time of her death. The hearing examiner found that the evidence was conclusive that plaintiff alone had agreed with Kimmel Aviation Company, Inc., to serve as a commissioned agent and that his wife's relationship to his duties and responsibilities was in the nature of a "family arrangement" whereby plaintiff was the sole proprietor of the enterprise and the wife merely assisted in the work. The hearing examiner based his decision on the following relevant facts:
Claimant's wife performed at least half or more of the work required in connection with this business operation. She considered herself a housewife, and preferred assisting her husband in working at home rather than being employed outside the home. The children also assisted to a limited extent. Mrs. Ross did not apply for a Social Security Account Number during her lifetime, but such was secured after her death. All of the checks made in payment for the services of the claimant in the form of commissions were made in claimant's name only. Wage and tax statements (Form W-2) for 1966 through 1968 were made in claimant's name only. All tax returns filed with Internal Revenue Service for the years 1966 through 1968 listed Mrs. Ross' occupation as housewife, no Social Security Account Number was given for her, and no partnership returns were filed. It was common knowledge or belief among the people in the local community that the claimant was the manager in the crop dusting activity while his wife performed most of the work. Hearing Examiner's Decision, p. 7 (Sept. 18, 1970).
The hearing examiner's decision was approved by the Appeals Council, Social Security Administration, on April 26, 1971.
Initially, we note that the burden was on plaintiff in the administrative proceedings below to prove the existence of a partnership between himself and his wife by a preponderance of the evidence. Williams v. Gardner, 359 F. 2d (5 Cir. 1966). The Social Security Act, 42 USC §411(d), provides that the terms "partnership" and "partner" shall have the same meaning as recognized by the Internal Revenue Code.
In Commissioner of Internal Revenue v. Culbertson, 337 U.S. 733, 742, 93 L. Ed. 1659, 1665 (1949), the Supreme Court said that whether a family partnership exists for income tax purposes depends on the true intent of the parties as shown by the facts surrounding their agreement. The Court there stated:
The question is . . . whether, considering all the facts—the agreement, the conduct of the parties in execution of its provisions, their statements, the testimony of disinterested persons, the relationship of the parties, their respective abilities and capital contributions, the actual control of income and the purposes for which it is used, and any other facts throwing light on their true intent—the parties in good faith and acting with a business purpose intended to join together in the present conduct of the enterprise.
Similarly, the rule expressed in Culbertson is applicable to determine whether a partnership exists in social security cases. Wright v. Celebrezze, 262 F. Supp. (N.D.N.Y. 1965), aff'd, Wright v. Gardner, 370 F.2d 332 (2 Cir. 1966).
After a careful review of the record, including the evidence adduced in the proceedings below, the court concludes that there is substantial evidence to support the Secretary's findings that plaintiff was the sole proprietor of the business enterprise with Kimmel Aviation Company, Inc., and plaintiff's wife had no self-employment income creditable for social security purposes at the time of her death. The court concludes, therefore, that the Secretary's decision that neither plaintiff nor his children were entitled to insurance benefits based upon their applications filed on October 2, 1969, must be sustained and upheld.
Therefore, defendant's motion for summary judgment is sustained and the complaint is dismissed with prejudice.
1. USC §402(d) and (i) provide for lump-sum death payment and child's insurance benefits only if the wage earner dies as a "fully or currently insured individual." 42 USC §414 defines a fully insured individual as one with at least 6 quarters of coverage and a currently insured individual one "who had not less than six quarters of coverage during the thirteen-quarter period ending with (1) the quarter in which he died. . . ."