AR 86-20(6): Grigg v. Finch , 418 F.2d 661 (6th Cir. 1969) Correction of an individual's earnings record to reflect self-employment income for years in which the individual did not timely file an income tax return.

AR 86-20(6)

Federal

Register Vol. 52, No. 152 (August 7, 1987), page 29443

EFFECTIVE DATE: 5/23/86

ISSUE:

Whether, after the statutory time limitation for correcting an earnings

record has expired, the absence of an entry of self-employment income for

a year in which no timely tax return of self-employment income was filed

is conclusive evidence that no self-employment income was derived by the

worker in that year.

STATUTE/REGULATION/RULING/CITATION:

Section 205(c)(40(C) and 205(c)(5)(F) of the Social Security Act (42

U.S.C. 405(c)(4)(C) and 405(c)(5)(F)); 20 C.F.R. 404.803(c)(3),

404.822(b)(2); SSR

82-20c

CIRCUIT:

SIXTH (MICHIGAN, OHIO, TENNESSEE, KENTUCKY)

Grigg v. Finch, 418 F.2d 661 (6th Cir. 1969)

APPLICABILITY OF RULING:

DESCRIPTION OF CASE:

Mr. Grigg filed a claim for disability benefits which required a certain

number of quarters of Social Security coverage. In order to meet this

requirement, Mr. Grigg attempted to establish additional quarters of

coverage for the years 1956 and 1957 based upon IRS Forms 1099 (i.e.,

Information Returns about certain kinds of payments made to a taxpayer)

filed by the Detroit Conservatory of Music with IRS reflecting payments

made to Mr. Grigg in those years. He had filed no income tax returns for

1956 and 1957 and the statutory time limitation for correcting his

earnings record had run with respect to those years. In reliance upon

section 205(c)(4)(C) of the Social Security Act, 42 U.S.C. 405(c)(4)(C),

which provides that

o a taxpayer)

filed by the Detroit Conservatory of Music with IRS reflecting payments

made to Mr. Grigg in those years. He had filed no income tax returns for

1956 and 1957 and the statutory time limitation for correcting his

earnings record had run with respect to those years. In reliance upon

section 205(c)(4)(C) of the Social Security Act, 42 U.S.C. 405(c)(4)(C),

which provides that

the Secretary refused to credit Mr. Grigg with self- employment income

for 1956 and 1957. As a result, the Secretary found that Mr. Grigg had

only 18 quarters of coverage (which was less than the amount required for

entitlement to benefits) in the relevant 40 quarter period and denied his

claim for disability insurance benefits due to the lack of insured status.

Mr. Grigg sought review of the Secretary's decision by the United States

District Court for the Eastern District of Michigan. The district court

reversed the decision of the Secretary finding that the information

returns (Forms 1099) filed by the Detroit Conservatory of Music were

sufficient, applying section 205(c)(5)(F) of the

Act, [1] to permit crediting

self-employment income for the hears in question. The Secretary then

appealed the district court's judgment to the Court of Appeals for the

Sixth District.

HOLDING:

The United States Court of Appeals for the Sixth Circuit agreed with the

district court's view that Mr. Grigg should be credited with quarters of

coverage for self-employment income derived in 1956 and 1957. The court

held that notwithstanding section 205(c)(4)(C) of the Social Security Act

(42 U.S.C. 405(c)(4)(C)), the information returns (Forms 1099) concerning

payments made to Mr. Grigg which were timely filed by the Detroit

Conservatory of Music were sufficient to give the Secretary actual or

constructive knowledge under section 205(c)(5)(F) of the Act (42 U.S.C.

405(c)(5)(F)) that Mr

The court

held that notwithstanding section 205(c)(4)(C) of the Social Security Act

(42 U.S.C. 405(c)(4)(C)), the information returns (Forms 1099) concerning

payments made to Mr. Grigg which were timely filed by the Detroit

Conservatory of Music were sufficient to give the Secretary actual or

constructive knowledge under section 205(c)(5)(F) of the Act (42 U.S.C.

405(c)(5)(F)) that Mr. Grigg had sufficient self-employment income in the

years 1956 and 1957 to be credited with quarters of coverage for those

years. The court interpreted the phrase "absence of an entry in the

Secretary's records" in section 205(c)(4)(C) of the Social Security Act to

mean an "absence" which persists even after inclusions in the Secretary's

records allowed by section 205(c)(5)(F) and reasoned that the Forms 1099

filed by the Detroit Conservatory of Music satisfied the requirements for

inclusion via the latter section as "tax returns or portions thereof

(including information returns and other written statements) filed with

the Commissioner of Internal Revenue." The court remanded the case for an

adjudication of disability and instructed the Secretary to amend Mr.

Grigg's earnings record to reflect self-employment income for 1956 and

1957, thus allowing Mr. Grigg to attain insured status.

STATEMENT AS TO HOW GRIGG DIFFERS FROM SOCIAL SECURITY

POLICY:

Where the time limit for the correction of an earnings record for a year

has expired and the worker had not timely filed a tax return of

self-employment income for that year, The Secretary treats the absence of

an entry of self-employment income in the worker's earnings record that

year as conclusive evidence that no such income was earned during

that year. Section 205(c)(4)(C), 20 C.F.R. 404.803(c)(3), 404.822(b)(2).

Section 205(c)(5)(F) (42 U.S.C

r a year

has expired and the worker had not timely filed a tax return of

self-employment income for that year, The Secretary treats the absence of

an entry of self-employment income in the worker's earnings record that

year as conclusive evidence that no such income was earned during

that year. Section 205(c)(4)(C), 20 C.F.R. 404.803(c)(3), 404.822(b)(2).

Section 205(c)(5)(F) (42 U.S.C. 405(c)(5)(F)) is not considered applicable

in the instant case since an information return (Form 1099) filed by a

third party, although timely filed is not considered a filing of a tax

return by the individual for purposes of correcting his or her earnings

record. Accordingly, no amendment of the earnings record to include self-

employment income for that year is permitted. In Grigg , however,

the court applied section 205(c)(5)(F) and required the Secretary to

credit the worker with self-employment income for such a year,

notwithstanding his failure to file an income tax return for that year,

where a disinterested third party had timely filed a form 1099 reflecting

payments to the worker in the year in question thereby giving the

Secretary actual and construction notice of Mr. Grigg's self-employment

income.

EXPLANATION OF HOW SSA WILL APPLY GRIGG WITHIN THE SIXTH

CIRCUIT:

This ruling applies only where the claimant resides in Michigan, Ohio,

Kentucky, or Tennessee at the time of the determination or decision at any

level of administrative review, i.e., initial, reconsideration,

administrative law judge hearing or Appeals Council review.

uction notice of Mr. Grigg's self-employment

income.

EXPLANATION OF HOW SSA WILL APPLY GRIGG WITHIN THE SIXTH

CIRCUIT:

This ruling applies only where the claimant resides in Michigan, Ohio,

Kentucky, or Tennessee at the time of the determination or decision at any

level of administrative review, i.e., initial, reconsideration,

administrative law judge hearing or Appeals Council review.

When evaluating a request by a worker for an amendment of his or her

earnings record to reflect alleged self-employment income for a year in

which the worker did not file an income tax return reflecting

self-employment income and for which the statutory time limitation for

filing an income tax return and for correcting the earnings record has un,

SSA will credit the worker with the appropriate self-employment income for

that year only where all of the following conditions are met: (1) the

worker's receipt of self-employment income is documented by Internal

Revenue Service Forms 1099 (2) timely filed by disinterested third parties

(3) reflecting the payment of self-employment income to the worker in the

period alleged. [2]

EFFECTIVE DATE:

Date of Publication

[1] Section 205(c)(50(F) (42

U.S.C. 405(c)(5)(F)) provides that the Secretary may change, delete or

include an entry in an earnings record to conform the records to tax

returns or portions thereof (including information returns) filed with the

Commissioner of Internal Revenue timely.

[2] It is significant to note

that the Form 1099 will reflect only the gross amount of money paid to the

worker. In order to determine the amount of self-employment income

to be credited to the worker's earnings record, it will be necessary to

determine the net earnings from the self-employment (i.e., the amount

received as reflected in the Form 1099 should be reduced by the amount of

the worker's deductible expenses).