R was a partner with P in a business venture in which they owned and operated a motel. R applied for social security retirement benefits in May 1961.

In that same month he allegedly leased his business interest to his son, S. S did not manage or operate the business, however, and he maintained a full-time job apart from the business. In September 1961 S enrolled in dental school.

P continued to consult with R about business matters. R continued to spend a significant amount of time at the motel. He spent 8 hours at the motel every other day of the week. By contrast, P did not consult with S about the business. When S came home for the summer, he went back to his full-time job and took no part in running the motel.

Under social security regulations, in determining whether a self-employed person’s services were substantial for purposes of imposing work deductions against their benefits, some of the factors to be considered were: 1) the amount of time the person spent in the trade or business; 2) the nature of the services performed by the person; 3) the nature of the person’s activities before drawing benefits versus after; 4) the presence or absence of a paid manager, partner or family member to manage the business; 5) the type of business that is involved; and 6) the amount of capital invested in the trade or business.

It is not illegal or improper to terminate a business or to rearrange one’s business affairs in order to qualify for benefits. But such transactions or arrangements must be bona fide, and social security may look beyond the form to the substance or the transaction.

In the instant case it appeared R was still performing substantial services for the partnership and his distributive share was counted for imposing work deductions, since he was under age 72.

See Social Security Ruling (SSR) 65-6.

This material should not be construed as legal advice for any particular fact situation, but is intended for general informational purposes only. For advice specific to any individual situation, an experienced attorney should be contacted