SSR 70-55c: SECTIONS 211. -- SELF-EMPLOYMENT -- CLAIMANT'S FAILURE TO SUBSTANTIATE CLAIM -- SOCIAL SECURITY ADMINISTRATION OBLIGATION TO SCRUTINIZE SELF-EMPLOYMENT TAX RETURNS

20 CFR 404.701

SSR 70-55c

Hernandez v. Secretary of Health, Education, and Welfare ,

307 F.Supp. 338 (Dist. of Puerto Rico (1969))

FERNANDEZ-BADILLO, District Judge.

Claimant Josefa Hernandez seeks judicial review in this Court pursuant to

42 U.S.C. § 405(g) of the final decision reached by defendant disallowing

her claim for old-age insurance benefits on the ground that she failed to

establish the required eleven quarters of coverage for fully insured

status under the Social Security Act.

The basic facts underlying this case are not in conflict. Plaintiff filed

a prior written application for old-age insurance benefits on September

25, 1963, based on self-employment income derived during the years 1960,

1961 and 1962 from her labor as a seamstress. This 1963 application was

denied and no further administrative action was taken by her. The current

application for old-age insurance benefits is based on net earnings from

self-employment [1] as a

seamstress during the years 1963, 1964, 1965 and 1966. It is undisputed

that she needs eleven quarters of coverage to be a fully insured

individual entitled to old age insurance benefits. A "quarter of coverage"

requires that an individual have been credited with $100 or more of

self-employment income in each quarter of the year. 42 U.S.C. § 413(a)(2).

In order to be credited with self-employment income an individual must

have received net earnings from a trade or business of at least $400.00 in

the taxable year. Kelley v. Celebrezze, 243 F. Supp. 18 (D.N.J., 1965).

The sole issue between the parties is based upon the existence of the

claimed net earnings. [2] The

Hearing Examiner has concluded as follows:

Plaintiff filed income tax returns as a self-employed person for the

years 1963, 1964, 1965 and 1966 and paid self-employment tax on the

amounts reported therein. The returns for these years disclose the

following incomes obtained from her seamstress trade:

sue between the parties is based upon the existence of the

claimed net earnings. [2] The

Hearing Examiner has concluded as follows:

Plaintiff filed income tax returns as a self-employed person for the

years 1963, 1964, 1965 and 1966 and paid self-employment tax on the

amounts reported therein. The returns for these years disclose the

following incomes obtained from her seamstress trade:

She reported no business expenses for any of these years, consequently

the figures for total and net income were exactly the same. Claimant

testified that a Social Security employee instructed her to write down how

much money was received from the various jobs and her expenses "on each

one of these cases."

The expenses, listed in a notebook for the years in issue, were not

business but rather personal expenses such as church donations, food,

medicines and clothing. The Hearing Examiner found that her business

expenses were minimal since her sewing machine was paid for and "rental

expenses attributable to the business could not possibly amount to more

than $100 a year." However, the Examiner determined that her inadequate

records, unsupported by better corroborating evidence, were insufficient

proof of actual receipt of the amounts claimed as net earnings.

Other documentary evidence offered by plaintiff consists of a school

notebook containing entries of her clients from 1963 through 1966 with

their names and addresses and the amounts paid by them each year for her

sewing services.

ed that her inadequate

records, unsupported by better corroborating evidence, were insufficient

proof of actual receipt of the amounts claimed as net earnings.

Other documentary evidence offered by plaintiff consists of a school

notebook containing entries of her clients from 1963 through 1966 with

their names and addresses and the amounts paid by them each year for her

sewing services.

She explained that these entries were made in loose-leaf papers which

were thrown away when transferred to the notebook and that one of the

reasons for preparing the book was "to see if I could get the signatures

of all these people but, as it happened, a lot of times I would go over

and visit the clients and they would not be there." Not one of the thirty

clients included by her in the 1966 listing made in the notebook signed

their names under the amounts set forth therein as collected from them for

services during that period. Attempts made by representatives of the

Social Security Administration to locate as many clients as possible

revealed that many of these had either gone to the United States or moved

elsewhere. [3] Interviews with

those clients who could be contacted established that plaintiff sewed for

them but none of them could give any information with respect to the

amount of money paid to plaintiff for her work.

. . . Ernesta Casilla who appears as one of the clients signing the

notebook indicated in a written statement that she did not recall having

signed a notebook for Josefa Hernandez. She stated that during a period of

approximately two years plaintiff "might have made fifteen dresses * * *

for $1.25 or $2.00 per piece." Plaintiff's notes show only that she

collected $28.00 from this client in 1963 . . . .

silla who appears as one of the clients signing the

notebook indicated in a written statement that she did not recall having

signed a notebook for Josefa Hernandez. She stated that during a period of

approximately two years plaintiff "might have made fifteen dresses * * *

for $1.25 or $2.00 per piece." Plaintiff's notes show only that she

collected $28.00 from this client in 1963 . . . .

Rev. Jose Hernandez, claimant's pastor, appeared as a witness on her

behalf and testified that she had a good reputation in the community but

he did not know anything about her sewing business. . . . Although he

recognized the names of several clients listed in the notebook who were

members of his church he couldn't affirm whether any of them had work done

by claimant. . . .

Andrea Diaz, the other witness for plaintiff, declared at the hearing

that the signature appearing under her name in the notebook was her own

but stated she couldn't specify as to the amount of money actually

paid.

A statement obtained from Mario Roldan Cass, plaintiff's landlord, as

part of the field investigation conducted by the Social Security

Administration revealed that she pays him $30.00 of monthly rental. He did

not know if she sewed "for business or not" and could not say "what her

sources of income are" . . . .

In another statement secured in 1964 from Ana Luisa Fernandez, claimant's

niece, as part of the investigation surrounding the 1963

application [4] she certified

having paid her aunt about $100.00 for her services the year before,

meaning in 1963. This person's name does not appear among those listed by

claimant (as client for 1963) or any other year in the notebook offered by

her in evidence as proof of earnings.

in 1964 from Ana Luisa Fernandez, claimant's

niece, as part of the investigation surrounding the 1963

application [4] she certified

having paid her aunt about $100.00 for her services the year before,

meaning in 1963. This person's name does not appear among those listed by

claimant (as client for 1963) or any other year in the notebook offered by

her in evidence as proof of earnings.

A Request for Reconsideration of the denial of her claim was signed by

Josefa Hernandez on February 25, 1967, and it was there indicated that the

following additional evidence would be submitted: "a dozen certifications

from some of the persons for whom I did sewing in 1960, 1961, 1962, 1963,

1964 and 1965. Those were my steadiest customers." Two days later claimant

gave a statement to the Social Security Administration explaining that

this was an error made by the lawyer who filled out the form for her and

adding: "I meant that I have already submitted certifications from the

customers." Claimant was obviously referring to twelve statements

addressed "To Whom It May Concern" whereby several clients certified as to

exact amounts paid to Josefa Hernandez for her services as a seamstress

during the years 1960, 1961 and 1962. These years as noted before are

those pertaining to the prior 1963 application. There are no

certifications of payment for the years 1963 through 1966 covered by the

current application.

welve statements

addressed "To Whom It May Concern" whereby several clients certified as to

exact amounts paid to Josefa Hernandez for her services as a seamstress

during the years 1960, 1961 and 1962. These years as noted before are

those pertaining to the prior 1963 application. There are no

certifications of payment for the years 1963 through 1966 covered by the

current application.

(1) The Court finds that the test of substantiality of the evidence

requires it to uphold the Secretary's determination and the ensuing denial

of benefits. The role of judicial review is restricted by the stringent

limitations of the substantial evidence rule. Reyes Robles v. Finch

(Gardner) 409 F.2d 84 (1st Cir. 1969); Kelley v. Celebrezze, 243 F. Supp.

18 (D.N.J., 1968); Salgado v. Gardner, 265 F. Supp. 894, 895 (D.P.R.,

1967). The Court in reviewing a Social Security claim does not weigh the

evidence to determine whether it would have granted such claim but to

determine whether there is substantial evidence in the record submitted to

support the findings and conclusions reached by defendant. Collins v.

Secretary of Health, Education and Welfare, 286 F. Supp. 81 (W.D. Ark.,

1968). In Cardwell v. Celebrezze, 241 F. Supp. 328 at 330 (E.D. Tenn.,

1965) in which disallowance of old age insurance benefits was based on the

ground that no employer-employee relationship existed between claimant and

her brother-in-law, the court once more recognized the limitation placed

upon its discretion by the substantial evidence standard and affirmed

"even though its own feeling [was] that the intent of the Act and perhaps

its letter were tortured by the decision."

llowance of old age insurance benefits was based on the

ground that no employer-employee relationship existed between claimant and

her brother-in-law, the court once more recognized the limitation placed

upon its discretion by the substantial evidence standard and affirmed

"even though its own feeling [was] that the intent of the Act and perhaps

its letter were tortured by the decision."

(2) An old-age insurance benefits claimant has the burden, like any other

claimant seeking the benefit of the statute, of establishing his claim.

Collins v. Secretary of Health, Education and Welfare, supra ;

Johnson v. Gardner, 401 F.2d 518 (8th Cir., 1968). In our case the burden

falls on plaintiff to prove the amount of income or net earnings upon

which she founds her entitlement to benefits. She must produce evidence of

probative, not speculative, value to prove such earnings.

(3) A careful scrutiny of the record revealed the underlying facts of

this case as earlier discussed. It is unnecessary to pass once more upon

the evidence contained therein. Suffice it to say that claimant offered

her testimony and documentary evidence in the form of income tax returns

and a notebook in which she recorded her business transactions. Said

notebook was in fact a compilation of loose-leaf papers where she

annotated her dealings. These loose-leaf papers were not offered into

evidence since reportedly they were disposed of. She introduced no proof,

by affidavit or otherwise, with respect to amounts paid to her which could

corroborate the figures set forth in the notebook. As a matter of fact,

the weight of the evidence on record is to the effect that clients could

not testify as to amounts paid on any occasion.

s. These loose-leaf papers were not offered into

evidence since reportedly they were disposed of. She introduced no proof,

by affidavit or otherwise, with respect to amounts paid to her which could

corroborate the figures set forth in the notebook. As a matter of fact,

the weight of the evidence on record is to the effect that clients could

not testify as to amounts paid on any occasion.

In a recent opinion this Court stated that "the Social Security

Administration is not only privileged, but, in questionable cases, it is

obligated to investigate behind the form of self-employment tax returns

which an individual has filed. Furthermore the Regulations provide that

claimant shall submit proper and complete evidence in order to

substantiate the amount of self-employment income reported, which records

are subject to such verification as is deemed necessary to insure their

accuracy ." (emphasis supplied) Picon v. Gardner, Civil No. 405-67,

Memorandum of Opinion dated January 26, 1968. It is the actual receipt of

self-employment income, not the reporting or payment of taxes thereon,

which is the crucial test for establishing a realistic claim. Bender v.

Celebrezze, 332 F.2d 113 (7th Cir., 1964).

Corroborating evidence plays an important role in achieving this. The

Court understands that the Administration by way of the investigation

conducted and the Hearing Examiner through the testimonial evidence

adduced from the plaintiff and other witnesses discharged their duty of

eliciting all the evidence available which would result in a fair

determination of plaintiff's claim. However, efforts to verify and

substantiate the records presented by claimant were essentially fruitless.

Claimant in turn has failed to introduce sufficient evidence of probative

value to support the amounts claimed by her. The task of proving actual

receipt of income remained unfulfilled. Though her good faith is not

questioned plaintiff did not come forward to meet the burden upon her

However, efforts to verify and

substantiate the records presented by claimant were essentially fruitless.

Claimant in turn has failed to introduce sufficient evidence of probative

value to support the amounts claimed by her. The task of proving actual

receipt of income remained unfulfilled. Though her good faith is not

questioned plaintiff did not come forward to meet the burden upon her. An

examination of the evidence supplied by her reveals this.

The Court is of the view that there is substantial evidence on the record

to support the Secretary's determination which resulted in denial of

old-age insurance benefits. Therefore, it is ordered, adjudged and decreed

that the decision of the Secretary of Health, Education and Welfare be

affirmed and the complaint is hereby dismissed.

[1] Under 42 U.S.C. § 411(a) the

term "net earnings from self-employment" is defined as "the gross income,

as computed under chapter 1 of Title 26, derived by an individual from any

trade or business carried on by such individual, less the deductions

allowed under such chapter which are attributable to such trade or

business, plus his distributive share (whether or not distributed) of the

ordinary net income or loss, as computed under Section 183 of Title 26,

from any trade or business carried on by a partnership of which he is a

member * * *" Section 411, subsection (b), in its pertinent part provides

that "self-employment income means the net earnings from self-employment

derived by an individual during any taxable year beginning after 1950."

or not distributed) of the

ordinary net income or loss, as computed under Section 183 of Title 26,

from any trade or business carried on by a partnership of which he is a

member * * *" Section 411, subsection (b), in its pertinent part provides

that "self-employment income means the net earnings from self-employment

derived by an individual during any taxable year beginning after 1950."

[2] The decision of the Hearing

Examiner indicates that "if she did in fact have net earnings in the

amount she claims she had from 1963 through 1966, she would have acquired

11 quarters of coverage and would be fully insured." . . . Further on in

his decision the Examiner plainly sets forth the issue saying: "It is not

disputed that the claimant is in fact a seamstress, that she has a sewing

machine, and that she does do sewing for others. The only question is how

much she made during the years 1963 through 1966." . . .

[3] See: also, the Report of

Contact dated September 11, 1967, where the interviewer states:

"* * * The fact that most of the clients have moved from the area, some

before the dates shown on the notebook submitted as proof of payments made

to her, makes us conclude that the notebook is not a reliable record and

that figures shown there have been exaggerated. Our opinion is that the

applicant has failed to produce reliable evidence to establish the figures

shown in the returns and that through circumstantial evidence it has not

been possible to establish her correct income from the

self-employment."

proof of payments made

to her, makes us conclude that the notebook is not a reliable record and

that figures shown there have been exaggerated. Our opinion is that the

applicant has failed to produce reliable evidence to establish the figures

shown in the returns and that through circumstantial evidence it has not

been possible to establish her correct income from the

self-employment."

[4] The statement of Ana Luisa

Fernandez is a part of Exhibit 21 on record which related only to the 1963

application of plaintiff claiming old-age insurance benefits based on net

earnings obtained in 1960, 1961 and 1962. Said application as mentioned

earlier was denied and is final and binding. This statement is now

considered only because the year 1963, during which Ana Luisa Fernandez

allegedly paid her claimant aunt $100.00 is one of the years in issue

concerning the pending application for old-age benefits.