An individual, M, purchased a bulldozer in 1959 and leased it to construction company, X. Under the terms of the contract, M paid for insurance and repairs on the bulldozer, and X paid the ordinary operating expenses.

In 1961, M purchased two additional bulldozers and leased them to X on similar terms.

In March, 1961, M applied for social security retirement benefits. Because he was born in 1889, he needed six quarters of coverage to become eligible for benefits.

The question was whether M’s profits from renting the bulldozer were net earnings from self-employment for social security purposes. This, in turn, depended on whether he was carrying on a trade or business pursuant to section 162 of the Internal Revenue Code.

That section provides a four-pronged test for determining whether an activity is carried on as a trade or business: 1) whether there was a profit motive; 2) whether it was regular and continuous; 3) whether it was engaged in as a regular occupation or calling; 4) whether the individual held himself out to others as being engaged in the selling of goods or services. No one factor is controlling; rather, each case is determined factually on its own merits.

It was held that M was engaged in a trade or business. Though arguably his purchase of just one bulldozer initially might be seen as a sporadic or one time investment, the fact that he purchased additional equipment in subsequent years lent credence to his claim that he intended from the beginning to make the leasing of construction equipment a business. Therefore, his profits were net earnings from self-employment and he had earned enough quarters of credit to qualify for social security retirement benefits.

See Social Security Ruling (SSR) 61-4.

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.