SSR 64-9: SECTION 211(c). -- TRADE OR BUSINESS -- PARTNERSHIP SELLING LOTS
SSR 64-9
- Where a partnership was engaged in buying tracts of land, making improvements thereon, subdividing the tracts into lots, and selling the lots, held, such activity constitutes engagement in a trade or business, and the distributive share of each partner constitutes earnings from self-employment.
R, born March 26, 1892, filed an application for old-age insurance benefits in April 1960. Based on her date of birth R needed at least six quarters of coverage to be entitled to benefits. Her social security earnings record shows no wages or self-employment income. However, she alleged that she had been self-employed in 1958 and 1959 as a partner in a realty business and that she had derived net earnings from self-employment of at least $400 in each of these years. The establishment of this income would give her eight quarters of coverage and make her eligible for benefits.
R and her son, in partnership, trading as "R and R Realty Company," purchased two tracts of land, which they subsequently subdivided into lots. R arranged to have the land surveyed and to have power furnished by the power company. Over a period of years, she further improved the land by laying out roads and having them built. She sold the lots through real estate men, handling all of the details of the sales herself. She did no advertising in connection with the sales. She and her son, the sole members of an organization properly classified as a partnership for Federal tax purposes, considered themselves as partners in the operation of a realty business. She paid all bills and made all bank deposits for the partnership, devoted most of her time to the operation of the business, and stated that her son was a "silent partner." They filed U.S. Partnership Return of Income for 1958 and 1959. These indicated that R and her son each had a net profit of $8,133.70 for 1958 and $2,837.42 for 1959.
The issue to be decided in this case is whether R had self-employment income of at least $400 in 1958 and 1959. This issue is dependent upon whether the partnership's activities in buying and selling lots constitute a "trade or business" within the meaning of section 211(c) of the Social Security Act.
Section 211(a) of the Social Security Act provides that the term "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 allowed under that subtitle which are attributable to such trade or business, plus his distributive share of income or loss for any trade or business carried on by a partnership of which he is a member.
Section 211(c) of the Act provides in pertinent part:
- The term "trade or business," when used in reference to self-employment income or net earnings from self-employment, shall have the same meaning as when used in section 162 of the Internal Revenue Code of 1954, * * *.
Neither the Social Security Act nor the Internal Revenue Code of 1954 defines the term "trade or business." However, factors which are considered in determining the existence or nonexistence of a trade or business include: (1) whether the activity was initiated and performed with a profit motive; (2) whether it was regular and continuous; (3) whether it was engaged in as a regular occupation or calling; and (4) whether the individual held himself out to others as being engaged in the selling of goods or services.
In this case, R and her son, operating as a partnership, were engaged in the business of buying tracts of land, making improvements thereon, and selling parts of the tracts as lots through licensed brokers for the purpose of making a profit. The activities of the partnership, of which R was a member, were regular and continuous for a number of years and were engaged in as a regular occupation. The partnership held itself out to others as the operator of a realty business and was considered by others to be such.
The distributive shares of the partnership income are not excluded from net earnings from self-employment under section 211(a)(3) of the Act, which provides that income from the transfer of property in the nature of a capital asset shall be excluded from coverage. In this case, the facts which indicate the existence of a trade or business also show that the partnership's income was not derived from the sale or exchange of property in the nature of capital assets.
Accordingly, it is held that in 1958 and 1958 the partnership was engaged in the operation of a trade or business within the meaning of section 211(c) of the Act, and R's distributive share of the partnership income for 1958 and 1959 is includible in computing her net earnings from self-employment. Since such distributive share was at least $400 in 1958 and 1959, she accordingly had eight quarters of coverage, and is entitled to the old-age insurance benefits for which she filed application.