MEMORANDUM

(Fictitious names substituted for actual names) L-49-667 H-163

November 10, 1949

TO: The Director, Bureau of Retirement Claims

FROM: The Associate General Counsel

SUBJECT: Lewis Smith

I have your memorandum of October 22, 1948, in which you in­ quire as to the circumstances under which Mr. Smith would be entitled to "a new annuity under section 2(a)4 of the Act", The facts upon which your inquiry is based are as follows:

On May 13, 1947 Dir. Smith was awarded an annuity under Sec­ tion 2(a) 4 of the Act, he having been found to be permanently disabled for work in his regular occupation of conductor because of the loss of his left leg. This annuity was effective as of January 1, 1947. On May 16, 1947 Mr. Smith notified the Board that he was engaged in the operation of a retail drugstore, owned by him, in which he worked thir­ teen hours a day, six days a week, and. from the operation of which he had an income of approximately $250.00 a month.

On April 12, 1948, Mr. Smith was informed, that this and other evidence submitted by him showed that he had earned in excess of $75.00 in each month from January, 1947 to June, 1947, inclusive, and that, therefore, he was considered to haver recovered from his disability as of June 30, 1947} and, hence, he had not been entitled to the annuities paid him for the months of July, 1947 through February, 1946, which pay­ ments he was requested to refund.

On July 2, 1948, Mr. Smith informed the Board that the figures as to his income previously given by him to the Board .were mere­ ly estimates and in error, and he gave the following as his "net income" in the year 1947: ‘

January 339.28 July 366.53 February 461,60 . y August * 40.86 March 236.32 ■ September 477.56 April 329.44 October 74.16 Any 249.15 November1 122.54 J June 199.23 December * 369.98 * Loss - 2- Memoranduia to The Director of Retirement Claims -

He gave the following as his "net income" in the first six months of 1948:

January 442.22 April 63.79 February 30.69 May 404.46 March 263.79 June * 26.57

* Loss i. ’ ■

He inquiried: ", . . as I have not earned in excess of #75.00 per month in any consecutive 6 months since June 30, 1947 should not my annuity be restored as of July 1, 1947?, and benefits due me the last six months of 1947 and the first two months of 1948 be applied against my indebtedness to the Board?"

(I note that in another communication to" the Board dated March 18, 1946 Mr. Smith represents that his net income for the year 1947 was only #1,138.28; and that on RRB Form No. RL-50a, dated Decem­ ber 13, 1947 he gave his remuneration for the months June to November 1947, as follows:

June 217 September 235 J^ly 205 October 213 • - August 228 November 227 . .. > . , -• •

•In view of the inconsistencies apparent in these statements, I merely assume, in the discussion below, the correctness of•figures given by Mr. Smith in his letter of July 2, 1946, to show that, even if they are correct, Mr. Smith "would not be entitled to another annuity.) • - • ' . v t I start with the premise, drawn from the express language of the statute, that the cessation of Hr. Smith’s annuity, .as of June 30, 1947, is not to prejudice "his rights to any subsequent annuity to which he may be entitled". The subsequent.annuity would be a new annuity with a new beginning date. Associate General Counsel's Opinion L-48-617, re Washington H. Bridgeforth. Hence, Mr. Sndth's entitlement as of that date would have to be established. While his original disability con­ sisted of the loss of a leg, and his "regular occupation" is that of railroad conductor, so that it may be inferred that he could otherwise establish the existence of disability for work in his regular occupation, the presumption of recovery established by the.earning of more than $75 in each of the preceding six months, xrould, .obviously, continue to operate so long as the claimant continued to earn more than $75 a month.

.Section 2(a)4 speaks of earnings in. each of 6 months (literally not an average), and presents no difficulty.when applied to employment at a fixed rate of pay as in the ordinary case of service "for hire", In many cases, however, particularly in cases of self-employment, it is - 3- Momorandum to The Directo.r of Retirement Claims

highly impracticable to determine the earnings in each of 6 months on other than an average basis, as for example, where the net receipts from a business or enterprise (conducted as a continuing operation) vary greatly from month to month. tfhilc for certain accounting purposes the net income from such a business or enterprise in a month or other special period may be considered as having boon earned in that month or period, realistically speaking, the fruits of the businessnvxn's labor are "earned" when the labor is performed and not when the fruits are rc- ceived. Furthermore, the purpose of the statutory provision here under consideration is to terminate the disability annuity of any individual whose disability is not actually operating to prevent him from perform­ ing services which produce for him a certain amount of money. And although this amount of money is expressed in terms of earnings in each of six consecutive months, the obvious purpose of the statutory provi­ sion would be circumvented by allowing the time of receipt of the money to control when actually the work by which such money is earned con­ tinues over the six-month period, I conclude that in such case, as here, the monthly earnings of the individual are properly to be determined, not on the basis of the actual monthly net income but on the basis of the average monthly net income over such an extended period as will adequately reflect the true monthly earnings. In my opinion, the calendar year, or the twelve-month period for which the annuitant re­ ported earnings on RRB Form No, RL-506, may here as in the ordinary case of a continuing business operation properly be used as such a period. In this case, however, the exact length of the period used for such purpose is not material for, assuming that all the income reported by Mr, Smith was "earned", the amounts thereof are suffi­ ciently large so that it is plain that upon the basis of any period of sufficient duration to provide an adequate test, he "earned" more than v75 in each of the months January, 1947 to June, 1948, inclusive.

Of course, Mr. Smith's income from the operation of his drug store is, however, to some extent attributable to his capital investment in the store. The question, in cases where income is re­ ceived by a disability annuitant from a business owed by him, of the basis to be used for determining that part of such income which is to be regarded as "earned" has, as you know, been submitted by me to the Board in connection with the claim of John Doe In the instant case, however, the fact that Mr, Smith has from his own personal serv­ ices, earned an amount substantially in excess of $75 per month in the period above mentioned is established by his own statement that: "I could not possibly hire any one else to do the work I am doing for less that $250,00 per month," In my opinion, where, as here, the evidence clearly establishes that the "personal" services performed by the individual are worth more than $75, and the business in which he performs such services actually produces a net income substantially in excess of that figure, he is to be deemed as "earning" the statutory maximum even though he has a substantial investment in the business. The rule to be followed by you in cases v/here the value of the personal services of the individual is not clearly established will, of course, be determined in the decision on the Doe case,

David B, Schreiber Associate General Counsel