TN 5 (12-92)

RS 02201.018 Conforming SSA Records to SE Tax Returns

Citations:

Social Security Act - Section 205(c)(4) and Section 205(c)(5);

A. Policy - Revision of SEI

1. Revision of SEI After Expiration of Time Limitation

If there is no entry of SEI on SSA's records it is conclusive evidence that the individual did not derive any SEI in that year unless:

  • An SE tax return was timely filed; or

  • An exception in RS 02201.008 applies; (see RS 02201.019) or

  • An amended tax return filed at any time in accordance with IRS regulation revises SEI downward; or

  • A timely filed original or amended SE tax return included the entire amount of income and expenses although incorrectly designated.

2. “Timely - Filed” Requirements

All of the following must be met in order to establish a “timely-filed” SE tax return.

  • A Form 1040 (Income Tax Return) has been filed within the time limitation (see RS 02201.001B.); and

  • The Form 1040 itself, or an attached schedule or other written statement, includes enough information about total receipts, costs, and allowable expenses of the business to determine the amount of SEI even though the included amounts may be incorrectly computed or designated; and

  • The Form 1040 and/or attachment(s) contain information from which SSA can reasonably conclude that the individual is in a covered trade or business, even though the business may have been erroneously described as a noncovered activity.

B. Policy - Establishing SEI

1. How Business Activity May Be Shown

Business activity may be shown as:

  1. An entry of SE tax due, which constitutes an assessment of net earnings from SE from a covered activity;

  2. Receipts, costs and allowable expenses of the activity so that a covered trade or business from which the individual derived a determinable amount of SEI may be found.

2. Other Types of SE Tax Returns Which May Establish SEI

Other types of SE tax returns which may establish SEI are:

  1. An agreement signed by a self-employed individual to a proposed adjustment or assessment of SE taxes filed with IRS within SSA's time limitation;

  2. A claim filed under IRS rules for a credit or refund of SE tax.

NOTE: SSA may make a determination or establish SEI regardless of whether an SE schedule was or was not completed or if the SE tax was or was not paid.

C. Procedure

When it is established that the SE return has been “timely filed,” revise the SEI.

D. References

E. Examples

1. Example 1

Mary Jones showed her occupation as “farmer” on a timely filed Form 1040 for 1980 but did not complete Schedules C, F, or SE. She completed Schedule G, Income from Rents and Royalties, but did not show anywhere on the Form 1040 or any other schedule or attachment that an SE tax was due or that she materially participated. The Form 1040, accompanying written statements and/or other schedules contain no information which made questionable the description of her earnings as “rental income.”

2. Example 2

Form 1040 for 1979 shows Larry Martin's business as “Rents from Real Estate.” He did not complete a Schedule C or SE or pay the SE tax. However, under the schedule on the Form 1040 entitled “Income from Rents and Royalties” he set out information showing items of income, cost, and expenses. Expenses shown are maid service, linens, laundry, etc. Since the Form 1040, from the nature of the expenses listed, indicates activity and the information shown in the schedule is sufficient to determine the SEI, the Form 1040 constitutes an SE tax return even though the business has been erroneously described as a noncovered activity. If it is established that the Form 1040 was timely filed, the SEI may be established.