# SSR 66-31c: SSR 66-31c: SECTION 210(j). -- EMPLOYMENT RELATIONSHIP -- WAGES -- VALIDITY OF CORPORATE ENTERPRISE

> Federal · Rulings · In force

URL: https://www.frixlaw.com/law-library/statutes/SSA_SSR_OASI_SSR_66_31c

## Section

- **Citation:** SSR 66-31c
- **Heading:** SSR 66-31c: SECTION 210(j). -- EMPLOYMENT RELATIONSHIP -- WAGES -- VALIDITY OF CORPORATE ENTERPRISE
- **Jurisdiction:** Federal
- **Kind:** Rulings
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** Social Security Rulings / OASI / Definition of Employment/Employee / SSR 66-31c

## Text

20 CFR 404.1004(b), 404.1026

SSR 66-31c

WILLIAMSON v. CELEBREZZE , U.S. D.C., N.D. Ind., So. Bend Div.,
Civil No. 2988 (1963) (CCH U.I.R. Fed. Par. 15,014)

GRANT, District Judge :

This matter is before this Court as an action to review the decision
rendered by the Hearing Examiner of the Office of Hearings and Appeals of
the Social Security Administration, denying Minnie M. Williamson old age
and survivors' insurance benefits. Plaintiff and defendant have each filed
a Motion for Summary Judgment.

The essential facts from the transcript of proceedings relating to the
claim of plaintiff for old-age insurance benefits are as follows:

When plaintiff's husband died in 1949 she inherited a 240 acre farm "to
have and to hold during her natural life". She was to receive therefrom
all the rents, profits and income. Plaintiff operated the farm with
employees for about one year, and thereafter, until February, 1957, she
had tenants on a "share-crop" basis.

On February 21, 1957, a corporation, Evergreen Stock Farms, Inc., was
organized under the laws of Indiana "(T)o operate a general farm and to
raise all farm products, including grains,livestock and other farm
products, and to purchase, sell, lease, mortgage and pledge any product,
equipment or storage facility necessary for the farm operation." (T.115).
The corporation was formed in order to reduce or eliminate family troubles
among the children and grandchildren. One hundred (100) shares of
preferred stock was authorized but not issued. Plaintiff and her son were
each issued ten (10) shares of common stock. The corporation did not pay
dividends during the time in question.
or storage facility necessary for the farm operation." (T.115).
The corporation was formed in order to reduce or eliminate family troubles
among the children and grandchildren. One hundred (100) shares of
preferred stock was authorized but not issued. Plaintiff and her son were
each issued ten (10) shares of common stock. The corporation did not pay
dividends during the time in question.

Plaintiff was named President on January 1, 1958. She described her
duties in regard to the farm as "the same, fundamentally, as before
incorporation -- namely, to negotiate leases with renters, collect
rentals, arrange for and supervise maintenance and see that the terms of
leases are abided by." (T.53). After incorporation, plaintiff's son,
Porter Williamson, an attorney and an officer of the corporation, assumed
an increasing measure of this work. The farm, after incorporation, was
rented to tenants who cultivated the land and at least one tenant paid
rent on the straight cash basis.

As a general practice, according to the testimony of Porter Williamson,
plaintiff received nothing directly from the corporation, but instead he
would draw, from time to time, checks payable to himself and give
plaintiff an amount to cover ordinary personal expenses. These checks were
not submitted in evidence by plaintiff. The exact amount of plaintiff's
wages would not be determined until the end of the year when corporate
income was calculated.

Plaintiff's income tax returns for 1957 and 1958 listed no wages, but
income of $1,200 in 1957 and $4,200 in 1958 was shown under the heading
"Other Income" on Schedule H. The indicated source was Evergreen Stock
Farms, Inc. In 1959, plaintiff's income tax return listed $1,100 in wages
and $2,000 from the corporation as other income.
end of the year when corporate
income was calculated.

Plaintiff's income tax returns for 1957 and 1958 listed no wages, but
income of $1,200 in 1957 and $4,200 in 1958 was shown under the heading
"Other Income" on Schedule H. The indicated source was Evergreen Stock
Farms, Inc. In 1959, plaintiff's income tax return listed $1,100 in wages
and $2,000 from the corporation as other income.

Again, according to Porter Williamson's testimony, the corporation had
its own bank account. However, bank records, corporate journals, ledger
accounts or payroll records were not submitted in evidence. There were no
deeds, mortgages or any other documents indicating ownership of or
interest in any land or real estate by the corporation. A Note Receivable
listed among the assets was allegedly transferred to the corporation by
plaintiff. The corporation filed no income tax returns, although it did
file an election to be treated as a small business for income tax
purposes.

The corporate balance sheet for 1957 indicates the following: Cash in
Banks: $1,000.00; Notes Receivable, $12,400; Real Estate, $21,000.00;
Personal Property, $1,000.00; No liabilities and Net Worth $35,400.00.

The corporate balance sheet for 1958 indicates the following: Cash in
Banks: $628.05; Notes Receivable, 9,500.00; Real estate $21,000.00;
Personal Property $1,000.00; No liabilities and Net Worth $32,028.85. The
Profit and Loss Statement for that year indicates: Receipts from Farm
Operation $6,569.85; Receipts from Notes Receivable, $3,000.00 and Total
Receipts $9,569.85. Expenses are listed as follows: Labor, $6,779.07;
Depreciation, $1,187.00 and Repairs, Taxes, Insurance, Filing Fees,
Agricultural services Advertising, Box Rent enumerated separately but
totaling $1,387.67. Total expenses were $9,353.74 with a net Profit of
$216.11.
dicates: Receipts from Farm
Operation $6,569.85; Receipts from Notes Receivable, $3,000.00 and Total
Receipts $9,569.85. Expenses are listed as follows: Labor, $6,779.07;
Depreciation, $1,187.00 and Repairs, Taxes, Insurance, Filing Fees,
Agricultural services Advertising, Box Rent enumerated separately but
totaling $1,387.67. Total expenses were $9,353.74 with a net Profit of
$216.11.

The corporate balance sheet for 1959 indicates the following: Cash in
Banks, $132.32; Notes Receivable, $3,000.00; Real Estate, $21,000.00;
Personal Property, $1,000.00; No liabilities and Net Worth $29,536.32. The
profit and loss statement for that year indicates: Receipts from Farm
$3,536.57; Receipts from Notes Receivable $6,400.00 and Total Receipts
$9,936.57. Expenses are listed as follows: Labor $6,406.85; Depreciation,
$1,187.00; and Repairs, taxes, insurance, farm service, box rent
enumerated separately but totalling $1,616.13. Total expenses were
$9,209.98 with a Net Profit of $726.59.

Plaintiff submitted minutes of seven meetings of the Board of Directors
of the Corporation disclosing the following: On March 9, 1957,
subscription agreements were accepted; Articles of Incorporation and the
expenses of incorporation were approved and By-Laws were adopted. On March
23, 1957, a resolution was adopted designating Farmers State Bank of
Mentone, Indiana, as a depository for corporate funds and authorizing the
President and Secretary-Treasurer to borrow money on behalf of the
corporation from said Bank. On March 26, 1957, a resolution was adopted
regarding the rental of a safety deposit box at First Bank & Trust
Company of South Bend, Indiana. On March 28, 1957, a resolution was
adopted designating First Bank & Trust Company of South Bend, Indiana,
a depository for corporate funds and authorizing the President and
Secretary-Treasurer to borrow money on behalf of the corporation from said
Bank
26, 1957, a resolution was adopted
regarding the rental of a safety deposit box at First Bank & Trust
Company of South Bend, Indiana. On March 28, 1957, a resolution was
adopted designating First Bank & Trust Company of South Bend, Indiana,
a depository for corporate funds and authorizing the President and
Secretary-Treasurer to borrow money on behalf of the corporation from said
Bank. On June 21, 1957, the directors discussed the alleged improper use
of plaintiff's name but decided not to bring legal action.

On December 29, 1958 it was indicated that the operation of the farm for
the year 1958 was reviewed and the proposed operation for 1959 was
discussed. A resolution was adopted regarding a farm management lease and
the rental of a house.

On November 27, 1959, it was indicated that the operation of the farm for
the year 1959 was reviewed and the proposed operation for 1960 was
discussed. The lease of a house was approved and plans for 1960 were
outlined.

Plaintiff filed an application for old-age insurance benefits on August
10, 1959, giving her date of birth as January 7, 1884. On February 17,
1960, the Bureau of Old-Age and Survivors Insurance determined that she
was not entitled to old-age insurance benefits because she had none of the
quarters of coverage necessary to attain a fully insured status. (T.113).
On March 6, 1960, the Bureau affirmed its determination, holding that "the
claimant has no creditable wages in 1958 and 1959, is not an employee of
the corporation, and that the income received is rentals from real estate,
and not creditable as self-employment income under the Social Security
Act." (T.111). The Bureau, although recognizing the existence of a
corporate entity under Indiana law, disregarded its existence for Social
Security purposes (T.111).
he
claimant has no creditable wages in 1958 and 1959, is not an employee of
the corporation, and that the income received is rentals from real estate,
and not creditable as self-employment income under the Social Security
Act." (T.111). The Bureau, although recognizing the existence of a
corporate entity under Indiana law, disregarded its existence for Social
Security purposes (T.111).

On October 20, 1960, plaintiff requested a hearing before a Hearing
Examiner of the Social Security Administration. Upon the testimony
presented at the hearing and various documents in the record, the Hearing
Examiner, on April 11, 1961, affirmed the Bureau's action. In his decision
the Hearing Examiner said:

After reviewing the facts as he found them to be, the Hearing Examiner
concluded that:

Plaintiff then requested a review of the Hearing Examiner's decision by
the Appeals Council, which request was denied on November 16, 1961. (T.
2). Under the regulations and practices of the Social Security
Administration, upon the denial by the Appeals Council, the Hearing
Examiner's decision becomes a final decision for the Secretary of Health,
Education and Welfare, subject to judicial review pursuant to the
provisions of Section 405(g), Title 42, United States Code Annotated.

The only question before this Court on the Motions for Summary Judgment
is whether the finding by the Trial Examiner is supported by substantial
evidence. Section 405(g), Title 42, United States Code Annotated, under
which this Court is exercising its authority to review, provides: "The
findings of the Secretary as to any fact, if supported by substantial
evidence, shall be conclusive. . . ." The function of this Court is to
review the record to determine whether it contained substantial evidence
to support the administrative decision. This finality attaches not only to
the findings themselves, but also to the inferences and conclusions drawn
from the facts. Sherrick vs. Ribicoff 300 F.2d 494, 495 (7th Cir
act, if supported by substantial
evidence, shall be conclusive. . . ." The function of this Court is to
review the record to determine whether it contained substantial evidence
to support the administrative decision. This finality attaches not only to
the findings themselves, but also to the inferences and conclusions drawn
from the facts. Sherrick vs. Ribicoff 300 F.2d 494, 495 (7th Cir.
1962); Carqueville vs. Flemming 623 F.2d 875 (7th Cir. 1959); Rosewall vs. Folsom 239 F.2d 724 (7th Cir. 1957).

Even if it could be determined from the facts in this case that the
corporation was organized to enable plaintiff to qualify for Social
Security benefits, such purpose, if it be a fact, would not be improper.
In Enke vs. Ribicoff , 197 F.Sup. 319, 324 (U.S.D.C.S.D. Florida,
Tampa Div. 1961) the Court said:

"Nor does such motivation in organizing a corporation defeat recovery." Brannon vs. Ribicoff , 200 F.Supp. 697, 703 (U.S.D.C. Montana,
Billings Div. 1961). "Congress could have provided that the motivation to
obtain social security by organizing a corporation would defeat the end.
It did not." Stark vs. Flemming , 283 F.2d 410 (9th Cir. 1960).

However, the existence of a legally constituted corporation is not, in
and of itself, enough to merit a finding by this Court that the Trial
Examiner's decision was not based on substantial evidence. It does not
preclude the Secretary from inquiring into the realities of the situation.
He may take a look at the corporation in order to determine if it is a
sham. If he so determines, and if the decision is supported by substantial
evidence the arrangement is vitiated for Social Security purposes, and one
allegedly an employee of such corporation would not qualify for benefits
under the Act by reason of said "employment". Flemming vs.
Lindgren , 275 F.2d 596, 597 (9th Cir. 1960); Stark vs.
Flemming , supra at page 410. The District Courts on numerous occasions
have reviewed this determination. Brannon vs
stantial
evidence the arrangement is vitiated for Social Security purposes, and one
allegedly an employee of such corporation would not qualify for benefits
under the Act by reason of said "employment". Flemming vs.
Lindgren , 275 F.2d 596, 597 (9th Cir. 1960); Stark vs.
Flemming , supra at page 410. The District Courts on numerous occasions
have reviewed this determination. Brannon vs. Ribicoff , supra; Enke vs. Ribicoff , supra; Gancher vs. hobby , 147 F.Supp. 461
(U.S.D.C.D Conn. Civil Div. 1955); Dunn vs. Ribicoff , (U.S.D.C.W.D.
Mo. St. Joseph Div. NO. 1102, decided June 19, 1962); Howatt vs.
Folson , 160 F.Supp. 490 (U.S.D.C.E.D. Penn. 1957) aff'd, 253 F.2d 680; Stark vs. Flemming , 181 F.Supp. 539 (U.S.D.C.N.D. Cal., S.D. 1959)
rev'd 283 F.2d 410.

The decisions of the District Courts indicate that the test to be applied
in determining whether the trial examiner's decisions are supported by
substantial evidence is: Was there proper adherence to normal corporate
routines? The answer to this question depends upon the consideration of
various factors. Initially, it should be noted that the corporate entity
must not be summarily disregarded. Corporate arrangements would have to be
respected by others and must be respected by the Secretary as well. Brannon vs. Ribicoff , supra at page 702; Stark vs. Flemming ,
supra at page 410. With this in mind, it is proper to consider the
following: (1) Has there been a transfer of property, (realty and
personalty) to the corporation? (2) Were corporate directors and tax
returns regularly filed? [sic] (4) Did the corporation maintain
accounting records, books and journals? (5) Is there evidence that
business was transacted with others and/or in behalf of the corporation?
. With this in mind, it is proper to consider the
following: (1) Has there been a transfer of property, (realty and
personalty) to the corporation? (2) Were corporate directors and tax
returns regularly filed? [sic] (4) Did the corporation maintain
accounting records, books and journals? (5) Is there evidence that
business was transacted with others and/or in behalf of the corporation?
(6) Was business transacted in the corporate name?

In the case at bar there is no evidence indicating that plaintiff
conveyed her interest in the farm to the corporation, nor is the evidence
indicating that the Note Receivable was transferred to the corporation.
Corporate balance sheets indicate that the farm and the Note were
considered assets of the corporation by plaintiff and her son, but that
evidence, standing alone, is insufficient to substantiate transfer of
those assets. Without the farm and the Note Receivable, there remains as
assets of the corporation, according to the balance sheets, a small amount
of cash and personal property worth $1,000.00. Again, there was no
evidence, except the balance sheet, to indicate that these items were
actually owned by the corporation. It was the opinion of the trial
examiner that the corporation was "a hollow shell, with no legal claim to
any assets upon which a business operation could be established." This
Court agrees with that opinion.

The notice of hearing before the trial examiner requested plaintiff to
bring, inter alia, bank account books, corporate journals, ledgers,
accounts and payroll records and Note Receivable owned by the corporation.
However, plaintiff did not produce these items, nor did she explain why
they could not be produced. The minutes of the directors' meetings
indicate that the officers were authorized to establish bank accounts in
two banks. Bank records should have been produced to indicate that these
accounts are established in the name of the corporation and that money was
deposited and withdrawn
ion.
However, plaintiff did not produce these items, nor did she explain why
they could not be produced. The minutes of the directors' meetings
indicate that the officers were authorized to establish bank accounts in
two banks. Bank records should have been produced to indicate that these
accounts are established in the name of the corporation and that money was
deposited and withdrawn. The bank records would have tended to establish
the transaction of business by the corporation.

The evidence does not establish that the corporation entered into any
business transactions. There is lacking in this case, as distinguished
from cases heretofore cited, evidence that the existence of the
corporation was known to any one other than plaintiff and her son. It
might be well to note at this point that a Complaint was filed in the
state court on behalf of the corporation in November, 1960, but this was
done after the Bureau's reconsideration determination of August 10, 1960.
The testimony of independent witnesses, e.g. tenants, could have been
submitted to establish that the corporation transacted business. Executed
leases would also have indicated this fact. However, no such evidence was
submitted.

It is clear to this Court that plaintiff's allegation regarding the
substantiality of the corporation remain unsupported by independent
evidence. Plaintiff had the burden of proof before the trial examiner to
establish that the required conditions for eligibility had been met. Carqueville vs. Flemming , supra at page 877. She failed to sustain
this burden.

It is the finding of this Court that the trial examiner's decision is
supported by substantial evidence.

IT IS ORDERED, ADJUDGED AND DECREED that plaintiff's Motion for Summary
Judgment be, and the same is, hereby, denied; and that defendant's Motion
for Summary Judgment be, and the same is, hereby, granted.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/SSA_SSR_OASI_SSR_66_31c. Check the current official text before relying on it. Not legal advice.