SSR 61-62. INCOME FROM BUSINESS OPERATED BY LEGAL GUARDIAN OF INCOMPETENT

S, the son and legal guardian of F, filed application for old-age

insurance benefits on behalf of F in January 1961, when F attained age 65.

Based on his date of birth, F needed 13 quarters of coverage to become

entitled to benefits.

For many years before 1957, F had owned and operated a farm. In 1957, F

was adjudged legally incompetent as the result of a stroke, and S, his

son, was appointed his legal guardian. Since 1957 S has managed and

directed the operation of F's farm, while the physical labor has been done

by another son who lives on the farm with F. F himself has been unable to

render services of any kind in the operation of the farm because of his

mental condition. Since 1957 S has reported the following amounts of net

earnings from self-employment for F: 1957 -- $530; 1958 -- none; 159 --

$670; 1960 -- $720. F also had net earnings from self- employment of $640

in 1955.

The question is whether the amounts reported for F for the years 1957,

1959, and 1960, are his net earnings from self- employment under section

211(a). If these amounts are not F's net earnings from self-employment, he

would have only four quarters of coverage (for the four calendar quarters

of 1955) and would not be entitled to benefits. If these amounts are F's

net earnings from self-employment, he would have 16 quarters of coverage

(for 1955, 1957, 1959, and 1960) and would be entitled to benefits.

Section 211(a) provides, as pertinent here, that "net earnings from

self-employment" means the gross income, as computed under Subtitle A of

the Internal Revenue Code of 1954, derived by an individual from any trade

or business carried on by such individual less the deductions which are

attributable to such trade or business.

In determining what income is includible in net earnings from

self-employment, Regulations No. 4, § 404.1051 provides, in pertinent

part, as follows:

ns the gross income, as computed under Subtitle A of

the Internal Revenue Code of 1954, derived by an individual from any trade

or business carried on by such individual less the deductions which are

attributable to such trade or business.

In determining what income is includible in net earnings from

self-employment, Regulations No. 4, § 404.1051 provides, in pertinent

part, as follows:

In the case of an individual adjudicated incompetent, such adjudication

and the appointment of a guardian of his property does not divest such

individual of title to property owned by him at the time of the

adjudication. The incompetent, therefore, is not in the same position as

the beneficiary of an estate or trust. Instead, the incompetent continues

to be the taxable entity to whom income is chargeable for both income tax

and self- employment tax purposes. Within the meaning of the law and

regulations cited above, the incompetent is considered to be carrying on

the trade or business, and the income (or loss) from the business operated

by his guardian for the benefit of the incompetent is includible in

computing the incompetent's net earnings from self-employment. Therefore,

in the present case, F realized net earnings from self-employment in each

of the years 1957, 1959, and 1960 in amounts sufficient to permit

crediting each quarter of those years as a quarter of coverage.

Accordingly, it is held that F has 16 quarters of coverage (for

the years 1955, 1957, 1959 and 1960) and is entitled to old-age benefits

beginning January 1961.