his repair business, were kept and since there is no reason to doubt the validity of these records, this Court should recognize the crediting of his repair work to his contribution to the partnership as self-employment income. Woodworth notes that in Enke v. Ribicoff, 197 F. Supp. 319 (S.D. Fla. 1961), the issuance of notes by an insolvent corporation was considered payment. Thus, Woodworth asks this Court to hold that the crediting of monies toward investment in the partnership should be considered payment to him individually as self-employment income.
Section 211(a) of the Act, 42 U.S.C. § 411(a), defines income from self-employment as that income computed "under subtitle A of Title 26 [the Internal Revenue Code], derived by an individual from any trade or business carried on by such individual. . . ." The Secretary found that Woodworth did not receive self-employment income; however, not only is there no substantial evidence in the record to support this conclusion, but, in fact, the evidence in the record is overwhelmingly to the contrary. Particularly notable are the accurate records the partnership kept of Woodworth's maintenance activities and the deduction of his earnings from the $ 200.00 monthly repair fund contribution each partner was required to make.
Also, the Secretary found that Woodworth himself determined how much he was to be paid out of the partnership monies and that this was evidence that he did not receive self-employment income. This Court finds nothing in the record to support this conclusion. Woodworth was a member of a partnership and it is inconceivable that he alone determined his salary without the consent of his partner. In addition, assuming arguendo that he was a non-affiliated third party, Woodworth by hiring himself out to the partnership as a handyman could still have independently determined his salary; however, in order for him to be hired the partnership would still have to accept his salary demand. Thus, he could not possibly have determined by himself what he would be paid, because both partners under the partnership agreement would have to agree to the salary demand before the plaintiff could undertake his duties. Even if he did, this Court has found nothing that would disqualify him from consideration as an individual receiving self-employment income under the Act, as a result.
In addition, the ALJ reasoned that Woodworth did not receive self-employment income because his receipt of payment was merely a paper transaction since no cash ever changed hands. As stated previously, 20 C.F.R. §§ 404.1041(c) and 404.1041(d) provide that wages can be in any form and the way in which one is paid is unimportant. "Wages may be paid on the basis of piecework or a percentage of the profits. . . [or] on an hourly, daily, weekly, monthly, or yearly basis." 20 C.F.R. § 404.1041(c). In this instance, Woodworth never received a check for the amount of money he earned, however, the record shows that accurate records were kept and that Woodworth's earnings were deducted from the amount he owed to the repair fund and also credited to his share in the equity of the partnership. This practice is perfectly legitimate and this Court will consider Woodworth's method of receiving his earnings as self-employment income within the meaning of the Act.
3. Self-employment Income v. Investment (Rental) Income.
The final step in the analysis is to determine whether Woodworth's maintenance income should be separated from his rental income. With respect to this factor, Woodworth argues that, as a general rule, when an individual contributes his labor to an enterprise the money that he earns is considered either wages or self-employment income as opposed to investment income. Woodworth cites to cases which have held that it is the contribution of substantial labor and income that form the criteria by which a self-employment claimant's eligibility for benefits is determined. Woodworth avers that his maintenance work went well beyond the insubstantial services listed in 20 C.F.R. § 404.1082(d)(2)(ii) and therefore constituted self-employment income. He also argues that section 404.1082(e) suggests that a claimant may distinguish between the income derived from the rental of apartments and the income derived through performance of repairs.
Section 211(a) of the Act, 42 U.S.C. § 411(a), states that "the term 'net earnings from self-employment' means the gross income. . . derived by an individual from any trade or business carried on by such individual. . . except that in computing such gross income . . . (1) There shall be excluded rentals from real estate. . . ." Section 404.1082(d)(2)(ii) states:
We consider services to be provided to the occupant if they are primarily for the occupants convenience and are other than those usually provided in connection with the rental of rooms or other space for occupancy only. . . . However, we do not consider the furnishing of heat and light, the cleaning of public entrances, exits, stairways and lobbies and the collection of trash, as services provided to the occupant.
20 C.F.R. § 404.1082(d)(2)(ii). Furthermore, section 404.1082(e) provides: "If an individual or a partnership is engaged in a trade or business other than real estate, and part of the income is rentals from real estate, only that part of the income which is not rentals and the expenses attributable to that portion are included in determining net earnings from self-employment." 20 C.F.R. § 404.1082(e).
In Delno v. Celebrezze, 347 F.2d 159 (9th Cir. 1965), the Ninth Circuit found that labor identified as substantial services was the deciding factor in differentiating between rental income and self-employment income. Any service not clearly required to maintain the property in condition for occupancy will be considered work performed for the tenant and not for the conservation of capital investment. Additionally, the Third Circuit in Maloney v. Celebrezze, 337 F.2d 231 (3d Cir. 1964), held that certain additional services were clearly of the type usually and customarily furnished in connection with the efficient operation of a modern office building.
"These services were not such as to change the essential character of the appellant's income as 'rentals from real estate'" within section 211(a)(1) of the Act, which excludes from the term "net earnings from self-employment" rentals from real estate. Maloney, 337 F.2d at 233.
I find that the income Woodworth derived from his maintenance services is not to be considered rental income, which would be excluded from being considered as "self-employment" income and therefore would not be applied against the establishment of any quarter of coverage under the Act. Woodworth's situation can be reconciled with the above cases for several reasons.
First, Woodworth kept separate records of the rental income derived on behalf of the partnership and the maintenance income he himself earned. Unlike the claimants in the cases cited above, the claimant here is not seeking to distinguish the amount of money he received for the performance of services from that received through rentals. These two types of income have been kept separate from day one of the agreement and this Court believes they should remain separate.
Second, I agree that it would be unfair to deem Woodworth's earnings "rental income." If the partnership had hired a third-party, independent contractor, the contractor's earnings would not be considered as rental income. Consequently, this Court cannot deny Woodworth his status as a self-employed individual receiving self-employment income solely because he also happened to own an interest in the partnership that employed him. To do so would be to discriminate against him due to his status as partner.
Third, Woodworth's services were substantial and far exceeded the list of services that are considered a basic requirement of a landlord when earning rental income. Woodworth replaced stairs, installed smoke alarms, and did electrical, plumbing and carpentry jobs. These services, if not undertaken by the him, would had to have been performed by a third party, and the partnership would have had to pay the bill. Thus, Woodworth's services cannot be characterized as basic services provided by a landlord when earning rental income. Also, Woodworth contributed his labor to the enterprise, and as pointed out in Delno, supra, labor is an important factor when determining self-employment income, especially when the services provided were not clearly required to maintain the premises in condition for occupancy.
In addition, while Woodworth profited directly from these services, his partner received no additional income therefrom. These services, then, cannot be classified as part of the rental income since one partner did not share in additional income from these services, and as the partnership itself covered the cost of these services and these costs were not included in the rent. Also, the record reveals that the partnership profits were to be divided equally; therefore, including the maintenance income in Woodworth's share of the rental income but not to the other partner's share would not be in accordance with the partnership agreement, and this Court is loath to interfere with the corporate relationship.
Based on the foregoing, I find that the Secretary's decision is not supported by substantial evidence. Accordingly, the Secretary's decision shall be reversed, the quarters of coverage previously excluded shall be reinstated, and benefits shall be awarded to Woodworth retroactively. The Court will enter an order consistent with this Opinion.
Dated: August 10, 1987 Trenton, New Jersey