Partipilo v. Commissioner of Social Security

Filing 54

MEMORANDUM Opinion and Order Signed by the Honorable M. David Weisman on 3/7/2018. Mailed notice (ao,)

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
FRANCESCO PARTIPILO,

)
)
)
)
)
)
)
)
)
)

Plaintiff,
v.
NANCY A. BERRYHILL, Acting
Commissioner of Social Security,1
Defendant.

No. 16 C 9739
Magistrate Judge M. David Weisman

MEMORANDUM OPINION AND ORDER
Francesco Partipilo brings this action pursuant to 42 U.S.C. § 405(g) for judicial review
of the Social Security Administration Commissioner’s decision that his self-employment
earnings for the years 1993 and 1994 should not be included in his earnings record and that his
benefits are subject to the windfall elimination provision. For the reasons set forth below, the
Court reverses the Commissioner’s decision.

Background
Plaintiff was born in Italy in 1936 and worked there until 1990. (R. 257-58.) During his
time working in Italy, plaintiff contributed to the Italian social security system, the Instituto
National Prevadanza Sociale (“INPS”). (R. 260.) Plaintiff’s last contribution to the INPS was
made in June 1990, and he began receiving monthly payments from INPS in July 2001. (R. 26061.)

1

On January 23, 2017, Nancy A. Berryhill became Acting Commissioner of Social Security. See
https://www.ssa.gov/agency/commissioner.html (last visited Nov. 10, 2017). Accordingly, the Court substitutes
Berryhill for Carolyn Colvin pursuant to Federal Rule of Civil Procedure 25(d).

In 1993, plaintiff moved to the United States. In 1993 and 1994, he was self-employed
and had adjusted gross income of $2,904.00 and $3,949.00, respectively. (See R. 145-49, 15357.) “An individual who is self-employed must file a personal income tax return Form 1040
with a Schedule SE (self-employment) and a Schedule C (business profits and loss statement),
and pay his own social security taxes” to establish self-employment income for Social Security
purposes. Chapman v. Apfel, 236 F.3d 480, 482 (9th Cir. 2000); see Social Security Program
Operations Manual System (“POMS”) RS 01801.011 (“IRS transmits SEI [self-employment
income] earnings information to SSA on magnetic media for crediting/posting to SSA’s earnings
records (E/Rs).”), available at, https://secure.ssa.gov/apps10/poms.nsf/lnx/0301801011 (last
visited Nov. 27, 2017); POMS RS 01804.150 (“Credit cannot be given for unposted SEI [selfemployment income] for a prelag year [“lag” is the year of application filing and the preceding
year]

unless

a

tax

return

.

.

.

was

‘timely

filed.’”),

available

at,

https://secure.ssa.gov/apps10/poms.nsf/lnx/0301804150 (last visited Nov. 27, 2017). The time
limit for filing those tax returns is three years, three months and fifteen days after the year in
which the income was earned. 42 U.S.C. § 405(c)(1)(B); 20 C.F.R. § 404.802; POMS RS
01801.010 (“A SE [self employment] tax return is ‘timely filed’ for SSA purposes if it is filed
within SSA’s statute of limitations; i.e., 3 years, 3 months and 15 days after the close of the
taxable year in which the SEI [self-employment income] is derived.”), available at,
https://secure.ssa.gov/apps10/poms.nsf/lnx/0301801010 (last visited Nov. 27, 2017).

If a

claimant does not file a self-employment tax return within the statutory period, that omission is,
with certain exceptions not applicable here, “conclusive evidence that [the claimant] did not
receive self-employment income in that year.” 20 C.F.R. §§ 404.803(c)(3).

2

Plaintiff did not file his 1993 and 1994 tax returns until 2001, years after the statutory
time limit had passed, and he does not contend that an exception to the conclusive evidence rule
applies. (See R. 145-49, 153-57.) Nonetheless, in November 2002, the Commissioner credited
plaintiff’s earnings record with the self-employment income he belatedly reported for 1993 and
1994. (See R. 108.)
In June 2007, plaintiff applied for retirement/old age Social Security benefits. (R. 95-98.)
In October 2007, the Commissioner awarded plaintiff monthly benefits of $416.00. (R. 158-60.)
Plaintiff appealed the award, arguing that the calculations of earnings and benefits were wrong,
the deductions from monthly benefits were wrong, and monthly benefits should have begun three
years earlier. (R. 161.)
In February 2009, the Commissioner denied plaintiff’s appeal saying, among other
things, that there was “a substantial question as to whether there was any proper basis for giving
[him] credit for 1993 and 1994 self-employment,” and the earnings would be deleted if plaintiff
could not establish that they had been validly reported. (R. 164.)
In September 2009, the Commissioner told plaintiff that “self-employment income
previously erroneously put on your record of earnings covered by U.S. Social Security for 1993
and 1994 has been removed.” (R. 167.)
In October 2009, plaintiff appealed arguing, among other things, that self-employment
income had been reported to the IRS for 1993 and 1994. (R. 56.)
In February 2011, an Administrative Law Judge (“ALJ”) held a hearing on plaintiff’s
appeal and issued a decision finding that the 1993 and 1994 self-employment income should
have been included in plaintiff’s earnings record. (R. 248-49.)

3

On April 21, 2011, the Commissioner’s Reconsideration Review Section sent a letter to
the Office of Appeals Operations directing it to vacate the ALJ’s decision as there was no
evidence that plaintiff had “filed any U.S. tax return for 1993 or 1994 within the respective
statutes of limitations for those two years.” (R. 33.)
On November 9, 2011, the Appeals Council found that plaintiff’s 1993 and 1994 selfemployment income had been erroneously added to his earnings record in 2002. (R. 69-71.)
Plaintiff appealed that decision to this Court, which remanded it to the agency for further
proceedings pursuant to the parties’ stipulation.

(R. 427.)

The Appeals Council, in turn,

remanded the case to the ALJ, directing him to:
. . . [M]ake findings and decide the date [plaintiff] became entitled to
retirement insurance benefits and whether [plaintiff’s] self-employment earnings
for 1993-1994 are creditable to his earnings record. The [ALJ] will also make
findings and decide whether the Administration has correctly reduced [plaintiff’s]
. . . benefits on account of his separate pension based on non-covered earnings.
To that end, the [ALJ] will provide [plaintiff] with a thorough explanation of the
formula used to compute his . . . benefits and how the Agency has calculated the
primary insurance amount with and without the application of the windfall
elimination provision and/or any totalization agreement. . . .
(R. 330.)
The ALJ held a hearing on April 29, 2015 (R. 683-721), and on May 2015, he issued a
decision finding that the 1993 and 1994 self-employment income should not be included in
plaintiff’s earnings record and that the windfall elimination provision (“WEP”) was applicable to
his benefit determination. (R. 291-96.) The Appeals Council denied plaintiff’s request for
review of that decision (R. 267-70), leaving the ALJ’s 2015 decision as the final decision of the
Commissioner, reviewable by this Court pursuant to 42 U.S.C. § 405(g). Villano v. Astrue, 556
F.3d 558, 561-62 (7th Cir. 2009).

4

Discussion
The Court reviews an ALJ’s decision deferentially, affirming if it is supported by
“substantial evidence in the record,” i.e., “‘such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion.’” White v. Sullivan, 965 F.2d 133, 136 (7th Cir.
1992) (quoting Richardson v. Perales, 402 U.S. 389, 401 (1971)). “Although this standard is
generous, it is not entirely uncritical,” and the case must be remanded if the “decision lacks
evidentiary support.” Steele v. Barnhart, 290 F.3d 936, 940 (7th Cir. 2002).
The Commissioner has three years, three months and fifteen days (“the time limit”) to
change a wage earner’s earnings record for any year. 42 U.S.C. § 405(c)(5)(C); 20 C.F.R. §
404.803(c). After the time limit expires, the Commissioner can change an earnings record only
if the “SSA records are incorrect” and, as relevant here, the “[e]rror is apparent on [the] face of
[the] records,” i.e., “[it] can be identified and corrected without going beyond any of the
pertinent SSA records.” 42 U.S.C. § 405(c)(5)(C); 20 C.F.R. § 404.822(a), (e)(2).

Plaintiff

contends that the Commissioner’s removal of his 1993 and 1994 earnings from his earnings
record, which occurred after the time limit, does not fall into the “apparent error” exception
because: (1) there was no error; and (2) even if there were an error, it was not apparent on the
face of the agency’s records.
Plaintiff’s first argument is premised on the notion that there is an “error” in an earnings
record only if the earnings were, in fact, not earned. (See Pl.’s Mem. Mot. Summ. J., ECF 35 at
10.) Plaintiff does not, however, cite any authority for this proposition, and the Court declines to
adopt it.
In support of his second argument, plaintiff cites Adorno Ortiz v. Secretary of Health &
Human Services, No. CIV 87-983 (JP), 1989 WL 57153 (D.P.R. May 16, 1989). In that case, the

5

agency credited plaintiff for his 1976 earnings, though plaintiff’s tax return for that year had
been filed seven days after the time limit expired. 1989 WL 57153, at *1. When plaintiff filed
for benefits, the agency determined that the 1976 earnings would be excluded pursuant to the
apparent exception because “the income [had been] erroneously credited” to his earnings record.
Id. The court reversed the agency’s decision:
The statute requires, however, that the error be apparent on the face of the records
being corrected. An error is not apparent on the face of a record if it is only
apparent when another document must be consulted to find it. The Secretary's
own regulations recognize this in 20 C.F.R. § 404.822(e)(2), which interprets the
statute to mean “We may correct an earnings record to correct errors, such as
mechanical or clerical errors, which can be identified and corrected without going
beyond any of the pertinent SSA records.” A tax return is not “the pertinent SSA
records,” and is not the “such records” upon the face of which the statute requires
the error to be apparent, see White v. Celebrezze, 226 F. Supp. 584, 587 (E.D. Va.
1963), and the Secretary's “correcting” his earlier error of including the 1976
income by calling it an error apparent on the face of the record only serves to
commit another error.
Id.
The Adorno Ortiz court did not, however, explain why tax returns, which a claimant must
file with the agency to establish income from self-employment, Chapman, 236 F.3d at 482;
POMS RS 01804.150 (“Credit cannot be given for unposted SEI for a prelag year [all years other
than the one in which the application was filed and the year preceding it] unless a tax return . . .
was ‘timely filed.’”), available at, https://secure.ssa.gov/apps10/poms.nsf/lnx/0301804150 (last
visited Nov. 27, 2017), are not agency records, and at least one other court, albeit without much
analysis, has said that they are. See Collins v. Astrue, No. 4:12-cv-00071-TWP-DML, 2013 WL
4051033, at *4 (S.D. Ind. Aug. 8, 2013). Moreover, the agency’s internal guidance strongly
suggests that tax returns are agency records. See POMS RS 01804.50 (“Whenever development
of SEI is required, pertinent portions of the claimant’s tax returns are required. . . . The
claimant’s copy of the tax return is acceptable evidence of SEI and should be filed in the claims
6

folder.”), available at, https://secure.ssa.gov/apps10/poms.nsf/lnx/0301804050 (last visited Nov.
27, 2017); POMS RS 02201.001 (“In proceedings before the Secretary or any court SSA records
are evidence of: a. the amounts of wages and SEI; b. the periods when the wages were paid and
the SEI was derived; and c. the fact that the amounts reported are wages or SEI under the Act.”),
available at, https://secure.ssa.gov/apps10/poms.nsf/lnx/0302201001 (last visited Nov. 27,
2017); POMS RS 02201.012 (“An E/R [earnings record] may be corrected at any time if . . .
[e]vidence of record, anywhere in SSA, clearly shows that the posting is erroneous.”), available
at, https://secure.ssa.gov/apps10/poms.nsf/lnx/0302201012 (last visited Nov. 27, 2017). Given
the abundance of evidence in POMS that tax returns constitute records of the SSA, and absent
binding or persuasive authority to the contrary, the Court holds that tax returns are SSA records.2
Thus, the ALJ did not err in concluding that there was an error in plaintiff’s earnings record, the
improper crediting of his 1993 and 1994 self-employment income, which was apparent from the
face of the agency’s records.
Plaintiff also contends that the WEP was improperly applied to him, an argument for
which some background is required. The agency determines the amount of retirement benefits a
worker receives by calculating their primary insurance amount, which is based on a percentage
of the worker’s average indexed monthly earnings (“AIME”). See 42 U.S.C. § 415. The agency
determines the AIME by adding the worker’s highest 35 years of covered income (income taxed
for U.S. Social Security) earned between the ages of 22 and 62 and dividing the total by 420. 42
U.S.C. § 415(b); 20 C.F.R. § 404.211(e). After the AIME is calculated, it is separated into three
brackets at what are called bend points, and the worker receives a percentage of the AIME that

2

Unlike plaintiff, the Court does not see a conflict between these provisions of POMS and the regulation defining
“record” as “SSA’s records of the amounts of wages paid to you and the amounts of self-employment income you
received, the periods in which the wages were paid and the self-employment income was received, and the quarters
of coverage which you earned based on these earnings.” 20 C.F.R. § 404.802.
7

falls into each of the brackets: 90% of the AIME that falls into the first bracket, 32% of that
which falls into the second bracket, and 15% of that which falls into the third. See 42 U.S.C. §
415(a)(1)(A). The bend points are designed so that “the percentage of career average earnings
paid to lower-paid workers is greater than [that paid to] higher-paid workers.” SSA, Windfall
Elimination Provision, available at, https://www.ssa.gov/pubs/EN-05-10045.pdf (last visited
Nov. 27, 2017).
The WEP “seeks to preserve the progressive nature of the Social Security system by
ensuring that the formula the agency uses to calculate benefits does not advantage high-income
workers who split their careers between covered and non-covered employment over those who
paid Social Security taxes for their entire careers.” Hawrelak v. Colvin, 667 F. App’x 161, 162
(7th Cir. 2016), cert. denied sub nom. Hawrelak v. Berryhill, 137 S. Ct. 2194 (2017), reh’g
denied, No. 16-8614, 2017 WL 3342982 (U.S. Aug. 7, 2017). The WEP does this by “reduc[ing]
the benefits received by certain individuals who also receive pensions for work that did not
require them to pay social security taxes,” including those “who receive benefits from a foreign
government based on their work.” Id. The WEP applies to a worker who “attains age 62 after
1985 . . . and who first becomes eligible after 1985 for a monthly periodic payment . . . which is
based in whole or in part upon his or her [non-covered] earnings.” 42 U.S.C. § 415(a)(7)(A).
The record shows that plaintiff turned 62 in 1998 and began receiving his Italian pension, based
on earnings in that country, in 2001. (R. 257, 260-61.) Thus, it was not error for the ALJ to
apply the WEP to plaintiff’s benefit calculation.
Plaintiff also challenges the method the ALJ used to apply the WEP to plaintiff’s benefit
amount. (See Pl.’s Mem. Supp. Mot. Summ. J., ECF 35 at 13-15.) Though the Appeals Council
directed the ALJ to “provide [plaintiff] with a thorough explanation of the formula used to

8

compute his . . . benefits and how the Agency . . . calculated the primary insurance amount with
and without the application of the windfall elimination provision” (R. 330), the ALJ failed to do
so. (See R. 291-96.) Absent that explanation, the Court cannot determine whether the ALJ
properly calculated plaintiff’s benefit amount. Accordingly, the case must be remanded for the
ALJ to provide the required benefit computations.

Villano, 556 F.3d at 562 (“If the

Commissioner’s decision lacks adequate discussion of the issues, it will be remanded.”)

Conclusion
For the reasons set forth above, the Court grants plaintiff’s motion for summary judgment
[34], denies the Commissioner’s motion for summary judgment [47], and remands this case for
further proceedings consistent with this Memorandum Opinion and Order.
SO ORDERED.

ENTERED: March 7, 2018

_________________________________
M. David Weisman
United States Magistrate Judge

9