Disability Applicant wins insured status from social security despite poor record keeping

Robert Desselle v. Jo Anne Barnhart U.S. Court of Appeals Case No. 04-1241 Western District of Missouri

Hey, self employed people, especially you lawyers, make sure you carefully account for your self employment earnings when filing your taxes. I know its hard to pay the self employment tax when you are too stretched to make ends meet and cannot save the taxes ahead of time. In this case the self-employed handy man caught a break and even though his records were at best recklessly incomplete, he was able to reverse the Social Security Administrations decision to reject his belated tax returns he used to prove he had earnings for 1993. Robert Desselle applied for Title II social security disability benefits; trouble was he could not prove to the Social Security Administration that he had self employment earnings in 1993, a year that he needed to count to have the necessary quarters of coverage before his onset of disability. 42 U.S.C. 423(c)(1)(B)(i); 20 C.F.R. § 404.130(b)(2). Self employed workers need to prove their annual earnings exceed four times a minimum amount to receive credit for 4 quarters of coverage. 20 C.F.R. § 404.143. Mr. Desselle with his attorney-brother’s assistance attempted to reconstruct his 1993 tax return, but the Social Security Judge rejected the amendments as fraudulent under 20 C.F.R. § 404.822, finding Desselle "did not produce satisfactory evidence to warrant amending his earnings record for 1993." See 20 C.F.R. § 404.822(a). Under the Social Security Statutes the Administration may “delete or reduce the amount of any (self employment income) entry which is erroneous as a result of fraud." 42 U.S.C. § 405(c)(5)(E);

According to the regulation however, the Social Security Administration "will correct SSA records to agree with a tax return of ... self employment income" that was "filed before the end of the time limit" in § 405(c)(1)(B) "to the extent that the amount of earnings shown in the return is correct." 20 C.F.R. § 404.822(b)(2)(i) The Act permits the Social Security Administration to change such an entry only when it "is erroneous as a result of fraud." 42 U.S.C.§ 405(c)(5)(E). The regulation, however, allows the agency to refuse to enter into its records self-employment income reported on a tax return even without fraud. See 20 C.F.R. § 404.822. To the extent that the regulation thereby extends the Social Security Administration's discretion beyond the statutory limit, we hold that it is an unreasonable reading of the statute and thus unenforceable.

§ 405(c)(4)(C) and § 405(c)(5)(E) govern this case, and because the ALJ failed to find that Mr. Desselle's second amended 1993 tax return was fraudulent, we vacate the judgment of the district court and remand. The Appeals Court opinion notes that the admin law judge specifically failed to find fraud. But it is not clear from the opinion whether the Appeal s Court ruled that the SSA must count the earnings because it failed to disprove their validity or whether it was sending the case back for re-litigation of this issue.