Social Security Ruling SSR 94-1c; Supplemental Security Income DisabilityIllegal Activity as Substantial Gainful Activity

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Social Security Administration

Social Security Ruling SSR 94-1c; Supplemental Security Income--

Disability--Illegal Activity as Substantial Gainful Activity

AGENCY: Social Security Administration, HHS.

ACTION: Notice of Social Security ruling.

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SUMMARY: In accordance with 20 CFR 422.406(b)(1), the Commissioner of

Social Security gives notice of Social Security Ruling 94-1c. This

Ruling is based on the decision of the U.S. Court of Appeals for the

Seventh Circuit in Dotson v. Shalala, which affirmed the U.S. district

court decision upholding the decision of the Secretary of Health and

Human Services denying the claimant's application for disability

benefits under the supplemental security income program. Among other

things, the court of appeals determined that the decision of the

Secretary that the illegal activity in which the claimant engaged to

support a drug addiction constituted substantial gainful activity (SGA)

was consistent with the Social Security Act and the Secretary's

regulations and supported by substantial evidence, and that in

determining whether such activity was SGA, the cost of the claimant's

narcotics could not be deducted from the claimant's income as an

impairment-related work expense.

EFFECTIVE DATE: January 12, 1994.

FOR FURTHER INFORMATION CONTACT: Joanne K. Castello, Office of

Regulations, Social Security Administration, 6401 Security Boulevard,

Baltimore, MD 21235, (410) 965-1711.

SUPPLEMENTARY INFORMATION: Although we are not required to do so

pursuant to 5 U.S.C. 552(a)(1) and (a)(2), we are publishing this

Social Security Ruling in accordance with 20 CFR 422.406(b)(1).

Social Security Rulings make available to the public precedential

decisions relating to the Federal old-age, survivors, disability,

supplemental security income, and black lung benefits programs. Social

Security Rulings may be based on case decisions made at all

administrative levels of adjudication, Federal court decisions,

Commissioner's decisions, opinions of the Office of the General

Counsel, and other policy interpretations of the law and regulations.

Although Social Security Rulings do not have the force and effect

of the law or regulations, they are binding on all components of the

Social Security Administration, in accordance with 20 CFR

422.406(b)(1), and are to be relied upon as precedents in adjudicating

other cases.

If this Social Security Ruling is later superseded, modified, or

rescinded, we will publish a notice in the Federal Register to that

effect.

(Catalog of Federal Domestic Assistance Program No. 93.807

Supplemental Security Income)

Dated: December 21, 1993.

Shirley S. Chater,

Commissioner of Social Security.

Sections 1611 and 1614(a) of the Social Security Act (42 U.S.C. 1382

and 1382c(a)) Supplemental Security Income--Disability--Illegal

Activity as Substantial Gainful Activity

20 CFR 416.910, 416.920(a)-(b), 416.971, 416.972(a)-(c), 416.973(a)-

(b), 416.974 (a)(1), (b)(2)(vii) and (b)(3)(vii), and 416.976

Dotson v. Shalala, 1 F.3d 571 (7th Cir. 1993)

The claimant applied for disability benefits under the supplemental

security income program, alleging that he was disabled due to asthma,

multiple allergies, and past drug abuse. His application was denied

initially and upon reconsideration and he requested a hearing before an

administrative law judge (ALJ). At the hearing, the claimant testified

that he currently used $200-$300 worth of narcotics each day and that

he supported his drug habit through stealing and panhandling. Based on

the claimant's testimony, the ALJ concluded that the claimant's

stealing and panhandling constituted substantial gainful activity (SGA)

worth an average of approximately $5,600 per month. Specifically, the

ALJ found that due to the poor area in which the claimant panhandled,

the bulk of his income must be derived from stealing, which the ALJ

determined involved significant physical and mental activities. The ALJ

concluded that because the claimant was engaging in SGA, he was not

disabled and, therefore, not eligible for disability benefits. The

Appeals Council declined to review the ALJ's decision which became the

final decision of the Secretary. The claimant sought judicial review in

Federal district court. The district court upheld the Secretary's

decision and the claimant appealed to the Court of Appeals for the

Seventh Circuit.

On appeal, the claimant argued that illegal activity undertaken to

support a drug addiction cannot constitute SGA; that assuming such

activity can constitute SGA, the Secretary's finding of SGA in his case

was unsupported by substantial evidence; and that if illegal activity

to support a drug habit can be considered SGA, then the Secretary, in

determining SGA, was required to deduct the cost of the narcotics from

the claimant's income as an impairment-related work expense.

Additionally, the claimant contended that using illegal activity as a

basis for finding SGA denied him due process and equal protection of

the law.

The court of appeals found nothing in the Social Security Act (the

Act) or the Secretary's implementing regulations which requires SGA to

be lawful. The court noted that under the regulations, work activity is

substantial if it ``involves doing significant physical or mental

activity'' and is gainful if it is ``the kind of work usually done for

pay or profit, whether or not a profit is realized.'' The court stated

that these considerations ``apply with almost equal ease irrespective

of the legality of the activities involved,'' and that, therefore,

``[w]hether legally or illegally employed, the regulations direct an

ALJ to focus on whether the claimant is performing significant physical

or mental activities, and doing so with the intent of earning money or

making a profit.'' Finding that neither the Act nor the regulations

recognizes a distinction between lawful and unlawful activity for

purposes of determining SGA, the court of appeals concluded that

illegal activity can constitute SGA.

The court also determined that the claimant's uncontradicted

testimony regarding the thievery in which he engaged to support his

$200-$300 per day drug habit provided substantial evidence to support

the ALJ's finding that the claimant was engaged in SGA. The court

rejected the claimant's contention that the cost of narcotics must be

deducted from his income as an impairment-related work expense. The

court noted that to be considered an impairment-related work expense

under the Secretary's regulations, a drug must ``reduce or eliminate''

the symptoms of a claimant's impairment, or ``slow down its

progression.'' Contrary to these criteria, the court found that in this

case the claimant's use of drugs was the basis of his alleged

disability, and that his continued usage of drugs only exacerbated his

medical condition. The court also found the claimant's due process and

equal protection arguments to be without merit. Accordingly, the court

of appeals affirmed the decision of the district court upholding the

Secretary's decision denying the claimant's application for disability

benefits.

Engel, Senior Circuit Judge*

\*\Sitting by designation.

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Harold Wayne Dotson, a Supplemental Security Income claimant,

appeals the district court's grant of summary judgment in favor of

Donna E. Shalala, Secretary of the Department of Health and Human

Services. In granting summary judgment, the district court upheld an

administrative law judge's finding that Dotson was engaging in

substantial gainful activity by supporting a $200- to $300-per-day

heroin and cocaine habit through illegal means. See Dotson v. Sullivan,

813 F. Supp. 651 (C.D. Ill. 1992). Because we agree that illegal

activity can constitute substantial gainful activity, we affirm.

I. Background

Dotson applied for Supplemental Security Income benefits on

September 25, 1989, alleging disability since 1968 due to asthma,

multiple allergies, and past drug abuse. The Social Security

Administration denied his application on January 10, 1990, and again

upon reconsideration on May 21, 1990. Dotson then requested and

received a hearing before an administrative law judge (``ALJ''). At the

administrative hearing, Dotson testified that he uses $200 to $300

worth of heroin and cocaine each day. Additionally, he testified that

he supports his drug habit by hustling. When asked to define hustling,

Dotson replied: ``steal, beg, whatever, you know.''

With regard to his begging, Dotson stated that he usually

panhandles at the Warner Homes, which are located in a poor

neighborhood in Peoria, Illinois. As to Dotson's thievery, the

following colloquy occurred during the administrative hearing:

Q. [By ALJ] Where do you steal at?

A. [By Dotson] You can do that anywhere. Wherever we can find a

place to.

Q. Give me an idea. Give me some examples.

A. The mall, downtown, wherever. You just ride and look and, you

know.

Q. How long do you spend riding and looking until you find a place

to steal?

A. As long as you have to.

Q. Like how long?

A. Sometime--

Q. All day long?

A. Sometimes it takes all day.

Q. What kinds of things have you stolen this month?

A. This month?

Q. Uh huh.

A. I, well, I like to, I try to concentrate on saws.

Q. On what?

A. Saws.

Q. Saws?

A. You know, the chainsaws, the little bitty chainsaws?

Q. Where do you find those at?

A. Everywhere, everywhere.

Q. And once you get them, what do you do with them?

A. You sell them.

Q. To who?

A. A lot of people buy.

Q. Well, where do you find--I wouldn't imagine there would be a lot

of demand for them in Warner homes.

A. No.

Q. Where do you go to sell the chainsaws?

A. Different businesses.

Q. Like what?

A. Small businesses.

Q. Give me some examples.

A. Like small stores or cleaners, different places like that.

Q. Do you have to travel around to these places? How long does it

take you to find somebody to buy a saw?

A. Usually, they already, you have been--you kind of already know

they probably want one.

Q. So you have already canvassed these places earlier? You have

gone out and--

A. No, you have probably sold them stuff and they can give you kind

of an idea about what else they might like, you know.

Based on Dotson's testimony, the ALJ found that Dotson's stealing

and panhandling constituted substantial gainful activity (``SGA'')

worth an average of approximately $5,600 per month and, accordingly,

denied his claim for SSI benefits. Specifically, the ALJ found that,

due to the poor area in which Dotson panhandles, the bulk of his income

must come from illegal means. As to the nature of Dotson's criminal

endeavors, the ALJ concluded:

In order to steal he must ``case'' the area in which he has

determined to steal the property. He must then plan on how he is

going to steal the property and then actually steal it. During the

month in which the hearing was held the claimant was stealing

chainsaws. Lifting and carrying the chainsaws would also be

significant physical activity. The planning and execution of the

larceny entails significant mental activity. From these activities

the claimant earns enough money to support his cocaine habit and

provide him with other money in substantial amounts exceeding $200

to $300 a day. [Emphasis in original.]

On July 9, 1991, the Appeals Council declined to review the ALJ's

decision. Dotson then filed the instant action against the Secretary of

the Department of Health and Human Services (``Secretary'') in federal

court. On July 1, 1992, with cross-motions for summary judgment before

it, the district court granted the Secretary's motion for summary

affirmance and entered a separate judgment against Dotson and in favor

of the Secretary. See Dotson v. Sullivan, 813 F. Supp. 651 (C.D. Ill.

1992). This appeal followed.

II. Discussion

Dotson essentially raises four arguments. First, he believes that

illegal activities undertaken solely to satisfy a drug addiction cannot

constitute SGA. Second, assuming that illegal activity can constitute

SGA, Dotson claims that the ALJ's finding of SGA in his case is

unsupported by substantial evidence. Third, Dotson contends that if

illegal activity undertaken to support a drug habit can constitute SGA,

then the Secretary is required to deduct the cost of the narcotics from

the claimant's income as an impairment-related work expense. Fourth and

finally, Dotson believes that using illegal activities to furnish the

basis for finding SGA denies him due process and equal protection of

the laws under the United States Constitution.

A. Overview

The Social Security Act (``Act''), as amended, 42 U.S.C. 301 et

seq., provides for the payment of benefits to disabled persons. Title

II of the Act governs the payment of Old-Age, Survivors, and Disability

Insurance (``OASDI'') benefits to disabled persons who have contributed

to the Social Security program. 42 U.S.C. 401 et seq. Title XVI of the

Act, the title under which Dotson filed his application for benefits,

provides for the payment of Supplemental Security Income (``SSI'')

benefits to disabled persons who are indigent. 42 U.S.C. 1382 et seq.;

see generally Bowen v. Yuckert, 482 U.S. 137, 140 (1987). Both Titles

II and XVI define disability as an ``inability to engage in any

substantial gainful activity by reason of any medically determinable

physical or mental impairment which can be expected to result in death

or which has lasted or can be expected to last for a continuous period

of not less than twelve months ***.'' 42 U.S.C. 423(d)(1)(A),

1382c(a)(3)(A).

Pursuant to statutory authority, the Secretary has promulgated

regulations establishing a five-step sequential analysis for

determining whether an SSI claimant is disabled. See 20 CFR 416.920;

Sullivan v. Zebley, 493 U.S. 521, 525 (1990).\1\ The first step of the

process, and the only one relevant for purposes of this appeal,

requires the Secretary to determine whether the claimant is engaging in

SGA. See 20 CFR 416.920(a). A finding of SGA means that the claimant is

ineligible for SSI benefits. Id. at Sec. 416.920(b); Yuckert, 482 U.S.

at 140. In this case, because the ALJ found that Dotson's stealing and

panhandling constituted SGA, he denied Dotson's claim for benefits

without moving to the next step in the sequential analysis.\2\

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\1\For other, more generalized, SSI eligibility requirements,

see 20 CFR 416.202.

\2\The parties have devoted some attention to the issue of

whether panhandling, or the income therefrom, can cause a person to

become ineligible for SSI benefits. We decline to reach this issue.

As noted above, the ALJ determined that, due to the poor area in

which Dotson panhandles, the bulk of his income comes from illegal

activities. We believe the ALJ's finding to be supported by

substantial evidence and, therefore, leave the panhandling issue to

a court with the question properly before it.

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B. Illegal Activity as SGA

Our research reveals that we are the first appellate court to

address the issue of whether illegal activity can support a finding of

SGA. The handful of federal trial courts faced with this question,

including the district court below, have answered unanimously in the

affirmative.\3\ Because the ALJ and district court's determination that

illegal activity can constitute SGA is a construction of the

Secretary's regulations, we review this decision of law de novo. See

Johnson v. Sullivan, 922 F.2d 346, 356 (7th Cir. 1990).

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\3\See Bell v. Sullivan, 817 F. Supp. 719 (N.D. Ill. 1993)

(Marovich, J.); Jones v. Sullivan, 804 F. Supp. 1045 (N.D. Ill.

1992) (Holderman, J.); Curtis v. Sullivan, 764 F. Supp. 119 (N.D.

Ill. 1991) (Bua, J.); Moore v. Sullivan, No. 91 C 20369, 1992 WL

199257 (N.D. Ill. Aug. 4, 1992) (Reinhard, J.; unpublished); Love v.

Sullivan, No. 91 C 7863, 1992 WL 86193 (N.D. Ill. Apr. 22, 1992)

(Conlon, J.; unpublished); Dugan v. Bowen, No. 87-3713, 1989 WL

281911 (S.D. Ill. Nov. 8, 1989) (unpublished), rev'd on other

grounds sub nom. Dugan v. Sullivan, 957 F.2d 1384 (7th Cir. 1992);

Hart v. Sullivan, ______ F. Supp. ______, No. C-92-1172 SBA, 1992 WL

496646 (N.D. Cal. Dec. 30, 1992). Cf. Hammonds v. Celebrezze, 260 F.

Supp. 992 (N.D. Ala. 1965) (claimant's illegal manufacture of

whiskey not conclusive evidence of SGA absent evidence of earnings).

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As the definition of disability quoted above indicates, the

inability to engage in SGA is a statutory prerequisite to obtaining

either SSI or OASDI benefits. Nonetheless, Congress delegated to the

Secretary the responsibility for defining SGA. 42 U.S.C. 1382c(a)(3)(D)

(Title XVI). In response to the Act's mandate, and as the components of

the term suggest, the Secretary has defined SGA as ``work activity that

is both substantial and gainful.'' See 20 CFR 416.972. Work activity is

substantial if it ``involves doing significant physical or mental

activities.'' Id. at Sec. 416.972(a). Work activity is gainful if it is

``the kind of work usually done for pay or profit, whether or not a

profit is realized.'' Id. at Sec. 416.972(b); see generally Callaghan

v. Shalala, 992 F.2d 692 (7th Cir. 1993) (discussing elements of

SGA).\4\ Activities such as taking care of one's self, performing

household tasks, engaging in hobbies or therapy, and attending school,

clubs, or social programs generally do not constitute SGA. 20 CFR

416.972(c).

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\4\For a reconstituted formulation of the above definition, see

20 CFR 416.910, which provides: ``Substantial gainful activity means

work that--(a) Involves doing significant and productive physical or

mental duties; and (b) Is done (or intended) for pay or profit.''

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The foregoing framework underscores the dual nature of an ALJ's

inquiry into whether a claimant is engaging in SGA. Under the

substantiality prong of the analysis, an ALJ considers the nature of

the undertakings comprising the claimant's work activity. Thus, the

degree to which a claimant's work requires the use of ``expertise,

skills, supervision and responsibilities'' becomes relevant in

determining whether that work constitutes SGA. See 20 CFR 416.973(a).

Additionally, an ALJ will consider how well a claimant performs his or

her work activities:

If you do your work satisfactorily, this may show that you are

working at the substantial gainful activity level. If you are

unable, because of your impairments, to do ordinary or simple tasks

satisfactorily without more supervision or assistance than is

usually given other people doing similar work, this may show that

you are not working at the substantial gainful activity level. If

you are doing work that involves minimal duties that make little or

no demands on you and that are of little or no use to your employer,

or to the operation of a business if you are self-employed, this

does not show that you are working at the substantial gainful

activity level.

Id. at Sec. 416.973(b).

In evaluating the gainfulness of a claimant's work, an ALJ's

inquiry is more circumscribed. Here, as noted above, the claimant's

undertakings need be only of the type that normally result in pay or

profit. In other words, a claimant can be found to be engaging in SGA

without earning any income. See Callaghan, 992 F.2d at 695-96

(unprofitable business owner was engaging in SGA).5 This is not to

say that a claimant's earnings are irrelevant for purposes of

determining whether he or she is engaging in SGA. See, e.g., 20 CFR

416.974(a)(1). To the contrary, a claimant who earns on average less

than $300 per month is presumed not to be engaging in SGA, while a

claimant who makes more than an average of $500 per month is

presumptively ineligible for SSI benefits. Id. at

Secs. 416.974(b)(3)(vii), (b)(2)(vii).6 As with most legal

presumptions, however, these income guidelines are rebuttable and ``do

not relieve an ALJ of the duty to develop the record fully and

fairly.'' Dugan v. Sullivan, 957 F.2d 1384, 1390 (7th Cir. 1992)

(citations and internal quotations omitted).

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\5\Accordingly, substantial but non-remunerative volunteer work

would fall short of SGA because people normally do not volunteer

their services for pay or profit. See Social Security Law and

Practice Sec. 37:4 at 8 (Timothy E. Travers et al. eds., 1987).

Evidence of such volunteer work, however, could be used to deny a

claimant benefits at a later stage in the sequential evaluation

process. See 20 CFR 416.971.

\6\In contrast to the OASDI provisions of the Act, the SSI

program is particularly concerned with a claimant's financial

situation: The basic purpose underlying the supplemental security

income program is to assure a minimum level of income for people who

are age 65 or over, or who are blind or disabled and who do not have

sufficient income and resources to maintain a standard of living at

the established Federal minimum income level.

20 CFR 416.110 (emphasis added); see also id. at Sec. 416.1100

(``the amount of income you have is a major factor in deciding

whether you are eligible for SSI benefits''). Thus, a claimant not

engaging in SGA and otherwise eligible for the SSI program will be

denied benefits if he or she has too much income or too many

resources. See 42 U.S.C. 1382(a); generally 20 CFR subpts. K,

Sec. 416.1100 se seq. (income) and L, Sec. 416.1201 et seq.

(resources).

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Against this background, Dotson concedes--as he must--that in at

least some instances illegal activity can be substantial gainful

activity. Dotson continues, however, that the context in which his

thievery occurs precludes its use in determining whether he has been

engaging in SGA. In his own words:

A drastic distinction exists between a person who is engaged in

illegal activity for effectively the equivalent of a legal career

such as being a drug dealer, illegal drug importer or other illegal

activity which has counterparts in lawful activities such as

business managers, business owners and the like, and a thief who

steals merely to feed the cravings of unquenchable drug addiction.

Aplnt's. Br. at 18. Considering Dotson's claim under the scheme set

forth above, we conclude that he forwards a distinction without a

difference.

Admittedly, even a cursory examination of the regulations reveals

that the Secretary envisioned their application within a traditional

employment context. Importantly, however, nothing in the Act or its

regulations specifically requires SGA to be lawful. This silence, we

believe, suggests that illegal activities can constitute SGA. The

inference is strengthened, moreover, when considering that the relevant

considerations noted above apply with almost equal ease irrespective of

the legality of the activities involved. Thus, one can envision a

number of illegal activities that might not rise to the level of

SGA.7 Whether legally or illegally employed, the regulations

direct an ALJ to focus on whether the claimant is performing

significant physical or mental activities, and doing so with the intent

of earning money or making a profit.

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\7\For example, acting as a lookout at a drug house might

constitute a gainful yet insubstantial activity, whereas someone who

chronically engages in acts of vandalism may be substantially, but

not gainfully, occupied.

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Moreover, it must be remembered that an ALJ performs the SGA

analysis as one of five steps used to determine whether a person is

disabled and, consequently, unable to function within our economy. A

claimant who can manage through illegal means is just as undeserving of

benefits as a claimant who can survive without violating the law. For

this reason, there is no difference between the addict who spends all

of his lawfully derived earnings on narcotics and the one who illegally

obtains, and then exhausts, her income. Both are fueled, to quote

Dotson, by the ``cravings of unquenchable drug addiction.'' The only

real distinction between the two--the lawfulness of their income--finds

no cognizance under the Act and its interpretive regulations.8

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\8\Indeed, were we to hold otherwise, the court would be

creating the perverse incentive--although admittedly only at the

margins--for both SSI claimants and recipients to engage in illegal

activity because the income therefrom would be ignored.

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Finally, our conclusion that illegal activity can constitute SGA

derives substantial support from the well-established tax principle

that unlawful earnings come within the meaning of the term ``gross

income'' and are thus taxable. See, e.g., James v. United States, 366

U.S. 213, 218 (1961) (plurality opinion of Warren, C.J.), overruling

Commissioner v. Wilcox, 327 U.S. 404 (1946); United States v. Sullivan,

274 U.S. 259, 263 (1927). Notably, the Act has adopted the tax code's

definition of gross income for purposes of determining whether a SSI

claimant's income is sufficiently high so as to render him or her

ineligible for benefits. 42 U.S.C. 1382(d); see also 20 CFR

416.1110(b).9 Indeed, one of the concerns motivating the plurality

in James, ``to remove the incongruity of having the gains of the honest

laborer taxed and the gains of the dishonest immune,'' 366 U.S. at 218,

provides the crux of our reasoning in this case.

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\9\Again, however, the resources and income analysis implicated

here and discussed at note 6, supra, is different from the ALJ's

responsibility to determine whether a claimant is engaging in SGA.

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C. Sufficiency of the Evidence

Having concluded that illegal activity can constitute SGA, we must

next determine whether the ALJ properly applied the legal standard in

Dotson's case. Our inquiry is a limited one. We will not decide facts

anew, reweigh evidence, or substitute our judgment for the Secretary's.

Schroeter v. Sullivan, 977 F.2d 391, 394 (7th Cir. 1992). Rather, we

look to see whether ``substantial evidence'' supports the ALJ's

findings. See 42 U.S.C. 1383(c)(3) (citing 42 U.S.C. 405(g)).

Substantial evidence is ``such relevant evidence as a reasonable mind

might accept as adequate to support a conclusion.'' Richardson v.

Perales, 402 U.S. 389, 402 (1977).

Dotson first contends that the ALJ had before him no evidence of

specific illegal acts which could support a finding of SGA. Secondly,

he believes the ALJ erroneously assumed that he paid full street-value

for the narcotics he used and, thus, overestimated the amount of income

needed to support his drug habit. We address each claim in

order.10

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\1\0Dotson also argues that the ALJ erred by underestimating the

amount of money he earned through panhandling. As we discussed at

note 2, supra, the ALJ's decision to discount Dotson's panhandling

income--because of the poor area in which he begs--is supported by

substantial evidence.

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Dotson's first claim, that the record lacks any evidence of illegal

activities, is belied by his own testimony and by the reasonable

inferences drawn therefrom by the ALJ. For example, when the ALJ asked

Dotson to describe what types of items he had stolen in the month

during which the administrative hearing was held, Dotson replied: ``I

try to concentrate on saws. * * * You know, the chainsaws, the little

bitty chainsaws.'' Dotson then went on to explain, in some detail, how

he would sell the stolen items. Additionally, the ALJ made at least one

specific inquiry into the substantiality of Dotson's activities, asking

him how long it takes him to find a place to steal.

We grant to Dotson his point that the record contains no evidence

concerning any specific act of thievery. Also, we agree with him that

the ALJ could have more fully developed the record as to the nature of

his criminal undertakings. Nevertheless, we cannot say that the record

before us contains less than substantial evidence that Dotson's

thievery required the significant use of his physical and mental

skills, and that those skills were applied within a context designed to

produce pay or profit. See 20 CFR 416.972 (a), (b). In short, Dotson's

testimony allowed the ALJ to reasonably conclude that the effort

required to steal the chainsaws with regularity constituted SGA, and we

therefore uphold this aspect of the ALJ's decision. A more exacting

inquiry, while desirable, was not required.

Dotson's second argument, that the ALJ overestimated the cost of

the narcotics, is also unpersuasive. As an initial matter, this claim

suffers from the same weakness that proved fatal to his first argument,

that is, Dotson testified without contradiction to using $200 to $300

worth of heroin and cocaine daily.11 If Dotson actually paid less

for his narcotics, one would have expected him to testify accordingly.

Furthermore, this case is unlike Curtis v. Sullivan, 764 F. Supp. 119

(N.D. Ill. 1991), where the ALJ simply imputed to the claimant an

income sufficient to satisfy his addiction. In that case, the ALJ

concluded, in the absence of evidence as to legal or illegal

employment, that the claimant had to be engaging in SGA in order to

support his expensive drug habit. Here, on the other hand, Dotson's

testimony as to his thievery filled the gap. From this, the ALJ was

justified in finding that Dotson's earnings surpassed $500 per month,

thereby rendering him presumptively ineligible for SSI benefits. See 20

CFR 416.974(b)(2)(vii).

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\1\1Moreover, this is not an instance where the claimant's

testimony was of such dubious veracity that the ALJ should have

discredited it. Dotson's claim to spending $200 to $300 per day on

heroin and cocaine, while on the high side, is certainly within the

realm of possibility. See, e.g., Hart v. Sullivan, ______ F. Supp.

______, No. C-92-1172 SBA, 1992 WL 496646 (N.D. Cal. Dec. 30, 1992)

(claimant ``presently consumes seven or eight twenty-dollar bags of

heroin daily * * *, uses crack every night * * *, and drinks

approximately eight half-pints of hard liquor daily'').

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We agree with the court in Curtis that simply because a claimant

has a severe and expensive drug habit does not mean that the person is

engaging in SGA to support it. 764 F. Supp. at 120-21. The record must

contain substantial evidence, of the type outlined in Section II(B),

supra, that the claimant is engaging in legal or illegal activities

that are substantial and gainful. Because we have held that the ALJ's

decision in this case comports with those requirements, we reject

Dotson's challenge to the evidence supporting the Secretary's decision.

D. Narcotics as an Impairment-Related Work Expense

Dotson next raises the interesting yet ultimately unavailing

argument that, if illegal activities undertaken to maintain a drug

habit can constitute SGA, then the cost of the narcotics must be

deducted from income as an impairment-related work expense (``IRWE'')

under 42 U.S.C. 1382a(b)(4)(B)(ii) and its interpretive regulations, 20

CFR 416.976. As we discuss below, Dotson misapprehends the nature of

IRWEs.

42 U.S.C. 1382a(b)(4)(B)(ii), enacted as part of the Social

Security Disability Amendments of 1980, Public Law No. 96-265, 94 Stat.

441 (1980), provides:

In determining the income of an individual (and his eligible

spouse) there shall be excluded * * * if such individual (or such

spouse) is disabled but not blind (and has not attained age 65, or

received benefits under this subchapter (or aid under a State plan

approved under section 1352 or 1382 of this title) for the month

before the month in which he attained age 65) * * * such additional

amounts of earned income of such individual, if such individual's

disability is sufficiently severe to result in a functional

limitation requiring assistance in order for him to work, as may be

necessary to pay the costs (to such individual) of attendant care

services, medical devices, equipment, prostheses, and similar items

and services (not including routine drugs or routine medical

services unless such drugs or services are necessary for the control

of the disabling condition) which are necessary (as determined by

the Secretary in regulations) for that purpose, whether or not such

assistance is also needed to enable him to carry out his normal

daily functions, except that the amounts to be excluded shall be

subject to such reasonable limits as the Secretary may prescribe.

See also 42 U.S.C. 1382c(a)(3)(D) (restating same). In 1983, the

Department of Health and Human Services promulgated 20 CFR 416.976. See

48 FR 21940 (1983). These regulations established a five-part test for

determining the deductibility of an IRWE:

We will deduct impairment-related work expenses if--

(1) You are otherwise disabled * * *;

(2) The severity of your impairment(s) requires you to purchase

(or rent) certain items and services in order to work;

(3) You pay the cost of the item or service * * *;

(4) You pay for the item or service in accordance with paragraph

(d) of this section; and

(5) Your payment is in cash (including checks and other forms of

money). Payment in kind is not deductible.

20 CFR 416.976(b). With respect to the deductibility of drugs as an

IRWE, the regulations provide:

If you must use drugs * * * to control your impairment(s), the

payments you make for them may be deducted. The drugs or services

must be prescribed (or utilized) to reduce or eliminate the symptoms

of your impairment(s) or to slow down its progression.

* * * * *

Examples of deductible drugs * * * are anticonvulsant drugs to

control epilepsy * * *; antidepressant medication for mental

disorders; medication used to allay the side effects of certain

treatments;* * * and immunosuppressive medications that kidney

transplant patients regularly take to protect against graft

rejection.

20 CFR 416.976(c)(5)(i), (ii). Consistent with the Act's objective, use

of the drugs must be necessary to allow the person to perform work. See

Soc. Sec. R. 84-26 at 18 (1984) (``Routine drugs * * * are `needed'

when they are required to control the disabling condition, thereby

enabling the individual to function at work.'').

Dotson argues that, due to the severity of his drug addiction, he

needs the cocaine and heroin in order for him to steal and panhandle.

(Of course, he steals and panhandles so that he can purchase more

cocaine and heroin, so that he can continue to steal and panhandle--and

thus the cycle of addiction continues.) Because he needs the narcotics

in order to engage in SGA, Dotson continues, he believes that the cost

of the cocaine and heroin should be deducted from his earnings as an

IRWE.

Sadly, we have no reason to disbelieve Dotson's self-

characterization. Unfortunately for him, however, the regulations

comprehend more than mere addiction to a substance before the cost of

that substance will be considered an IRWE. As the statute and

regulations reveal, a number of obstacles lie in the path of Dotson's

argument. We content ourselves, however, to focus upon the requirement

that in order to be an IRWE a drug must ``reduce or eliminate'' the

symptoms of a claimant's impairment, or ``slow down its progression.''

20 CFR 416.976(c)(5)(i). In the face of Dotson's claim that his

disability stems from drug abuse, he cannot hope to maintain the

argument that his continued use of heroin and cocaine reduces or

eliminates the symptoms of his impairment. Rather, Dotson's use of

drugs serves as the basis of his alleged disability. And far from

slowing Dotson's dependency upon narcotics, his continued use of heroin

and cocaine only exacerbates his disability. With these considerations

in mind, we must reject Dotson's claim for an IRWE.

E. The Constitutional Claims

Dotson lastly argues that using illegal activity to constitute SGA

violates his rights to due process and equal protection of the laws

under the United States Constitution, although he has encountered some

difficulty in articulating the precise nature of his constitutional

complaints. It would seem that his due process argument--one which

might be more properly construed as an administrative challenge to the

regulations--reduces to the theory that the ALJ's decision in this case

attempts to override Congress' intent to provide SSI benefits to

substance abusers and, therefore, is void for want of a rational basis.

His equal protection claim, on the other hand, appears based on the

assertion that, under the Secretary's position, rich drug addicts will

be treated preferentially to the disadvantage of poor ones. We briefly

address each of his arguments.

1. Due Process

To establish a due process violation, Dotson faces the well-settled

and formidable burden of proving that the Secretary's regulations, as

we have interpreted them, lack a rational basis. See, e.g., Weinberger

v. Salfi, 422 U.S. 749, 768 (1975) (``the Due Process Clause can be

thought to interpose a bar only if the statute [or, as here, a

regulation] manifests a patently arbitrary classification, utterly

lacking in rational justification [citation omitted]''). Moreover, that

rational basis need not be expressed explicitly by Congress or the

administrative agency; ``any state of facts reasonably may be conceived

to justify it.'' Dandridge v. Williams, 397 U.S. 471, 485 (1970)

(citation omitted).

Initially, we note that interpreting the Secretary's regulations as

allowing illegal activity to constitute SGA does not interfere with

Congress' intent, assuming there is one, to provide disability benefits

to substance abusers.12 Rather, such an interpretation prevents

only those substance abusers who are engaging in SGA, whether legally

or illegally employed, from receiving SSI benefits reserved for

disabled persons who are also poor. See Bowen v. Yuckert, 482 U.S. 137,

140 (1987) (``Title XVI of the Act provides for the payment of

disability benefits to indigent persons * * *.'' [Emphasis added.])

Thus, the Secretary's regulations coincide with the SSI program's

underlying purpose.

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\1\2We are inclined to agree with Dotson that Congress has

envisioned the application of the Act to substance abusers. See,

e.g., 42 U.S.C. 1382(e)(3)(A) (requiring SSI recipients who are

alcoholics or drug addicts to undergo treatment as a condition of

receiving disability benefits); 42 U.S.C. 1383(a)(2)(A)(ii)

(providing for payment of SSI benefits to alcoholics and drug

addicts through representative payees).

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Moving to the next level, Dotson's myopic view of Congress' intent

in the statutory context serves to highlight the flaw in his

constitutional argument. Simply put, we cannot say that regulations

which preclude the disbursement of federal disability benefits to

persons who are engaging in substantial and gainful activity,

regardless of the activity's legality, constitutes a ``patently

arbitrary classification'' warranting judicial intervention. To the

contrary, working within a system where the limited supply of federal

funds will never satisfy the deserving demand, we are hard pressed to

think of a better dividing line than the one drawn by the Secretary.

Having said this much, we must reject Dotson's due process claim.

2. Equal Protection

Dotson faces an equally difficult burden when arguing to this court

that the Secretary's regulations violate the equal protection component

of the Fifth Amendment. Because a statute's or regulation's

differential impact upon the poor versus the wealthy, by itself, does

not subject that distinction to strict judicial scrutiny, see, e.g.,

Kadrmas v. Dickinson Public Schools, 487 U.S. 450, 458 (1988), Dotson

must prove that the classification drawn by the Secretary's regulations

fails to rationally further a legitimate interest, Zobel v. Williams,

457 U.S. 55, 60 (1982). Under such a standard, Dotson's constitutional

claim again must fail.

Dotson argues that the Secretary's position, if implemented, will

hurt only poor drug abusers because rich ones, who presumably will have

paid into the Social Security system, will be eligible to receive OASDI

benefits under Title II of the Act. This argument misses the mark for

the simple reason that OASDI claimants, just like SSI claimants, must

navigate the same five-step administrative process, the first of which

requires that the claimant not be engaging in SGA. Compare 42 U.S.C.

423(d)(1)(A) and 20 CFR Sec. 404.1520(a) (Title II) with 42 U.S.C.

1382c(a)(3)(A) and 20 CFR Sec. 416.920(a) (title XVI).13 Even if

Dotson could maintain such an argument, we would be inclined to reject

it because the Secretary's classification seems rationally to further

the legitimate interest of rewarding those persons with a prior

attachment to the work force who have contributed to the Social

Security system.

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\1\3Dotson's argument would become relevant in two situations,

the first of which is beyond the court's powers generally and the

second of which is not implicated in this appeal. The first scenario

involves a wealthy addict who is able to satisfy his or her

addiction without resort to the welfare system. Such a person, of

course, is better off than Dotson, but this disparity yields him no

cause of action. In the second scenario, a wealthy addict who is not

engaging in SGA, but who has paid into the Social Security system,

applies for and receives OASDI benefits. This person, again

undoubtedly better off than Dotson, presumably would be ineligible

for SSI benefits due to an excess of resources and income. See

generally note 6, supra. Importantly, however, Dotson is not in a

position to make this argument because the ALJ below did not deny

him benefits based on his income or resources, but rather based on

the fact that Dotson was engaging in SGA.

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The judgment of the district court is affirmed.

[FR Doc. 94-657 Filed 1-11-94; 8:45 am]

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