there been no deduction for excess earnings (see example). The remainder of the partial benefit is then paid to other persons eligible to receive benefits in the proportion that the benefit of each such other person bears to the total of the benefits to which all such other persons are entitled (before reduction for the family maximum). Thus, if only two beneficiaries are involved, payment is made to one as if no deduction had been imposed; and the balance of the partial benefit is paid to the other. If three or more beneficiaries are involved, however, reapportionment of the excess of the beneficiary's share of the partial benefit over the amount he would have been paid without the deduction is made in proportion to his original entitlement rate (before reduction for the family maximum). If the excess amount involved at any point totals less than $1, it is not reapportioned; instead, each beneficiary is paid on the basis of the last calculation. Also, if in the final apportionment a beneficiary's share of a partial benefit is not a multiple of 10 cents, it is rounded to the next higher multiple of 10 cents. Example:

Family maximum $200; insured individual's excess earnings of $25 charged to month; remaining $175 prorated as partial payment. § 404.441 Partial monthly benefits; insured individual and a person entitled (or deemed entitled) on his earnings record both have excess earnings.

Where both the insured individual and a person entitled (or deemed entitled) on his earnings record have excess earnings (as described in §§ 404.432 and 404.433), their excess earnings charged, and the partial monthly benefit is apportioned, as follows:

are

Example: M, his wife, and one child are entitled to combined total benefits of $240 based on M's old-age insurance benefit of $120. For the taxable year in question, M's

excess earnings were $1,400 and his wife's excess earnings were $360. M had wages of more than $125 in all months of the year except February, while his wife had wages of more than $125 in all months of the year. After M's excess earnings have been charged to the appropriate months (all months through June except February), there remains a partial benefit payment for July of $40, which is allocated among M, his wife, and child in the ratio that the original benefit of each bears to the sum of all their benefits, $20, $10, and $10. His wife's excess earnings are charged against her full benefit for February ($60), her partial benefit for July ($10), her full benefit for August through November, and from $50 of her December benefit, leaving a $10 benefit payable to her for that month.

§ 404.444 Charging of earnings for taxable years beginning after 1954 and before 1961; and taxable years ending before July 1961.

(a) Taxable years beginning after August 1958 and before 1961, and taxable years ending before July 1961. For taxable years beginning after August 1958 and before 1961, and taxable years ending before July 1961, an individual's earnings (as defined in § 404.429) are charged to a particular month for purposes of deductions described in § 404.415 as follows:

(1) If an individual's earnings for the taxable year are not more than $100 times the number of months in such taxable year, no month in such year shall be charged with any earnings.

(2) If an individual's earnings for the taxable year exceed $100 times the number of months in such year, then the first $80 of such excess (or the whole of the excess, if it is less than $80) is charged to the first month for which the individual is entitled to benefits in the taxable year; the next $80 of the excess, if any (or the whole of the excess, if it is less than $80) is charged to the next succeeding month and so on, until all of the excess is charged or until every month to which a portion of the excess is chargeable has been so charged.

(b) Taxable years beginning after 1954 and before September 1958. For taxable years beginning after 1954 and before September 1958, an individual's excess earnings (see § 404.429) are charged to a particular month for purposes of deductions described in § 404.415 as provided in paragraph (a) of this section except that the excess earnings are charged beginning with the last month for which the individual is en

titled to benefits in the taxable year (rather than the first month of such year), and then to the next preceding month (rather than the next succeeding month), and so on until all of the excess is charged or until every month to which a portion of the excess is chargeable has been so charged.

(c) Months to which earnings cannot be charged. Notwithstanding any of the provisions described in this section, an individual's excess earnings in a taxable year beginning after 1954 and before 1961 and in a taxable year ending before July 1961, may not be charged to any month in which the individual:

(1) Was not entitled to a monthly benefit under Subpart D of this part; or

(2) Was engaged in noncovered remunerative activity outside the United States (see § 404.418) and a deduction was made from his benefit for such month under the provisions described in § 404.417; or

(3) Was entitled to a wife's insurance benefit or a mother's insurance benefit and for which a deduction was made from such benefit because of failure to have a child in her care; or

(4) Was age 72 or over; or

(5) Did not engage in self-employment (see § 404.435 (c) and (e)) and did not render services for wages (see §§ 404.429 and 404.435 (d)) of more than $80, with respect to months in taxable years beginning after 1954 and before September 1958, or of more than $100 with respect to months in taxable years beginning after August 1953.

§ 404.446 Definition of "substantial services."

(a) General. In general, the substantial services test is one of whether, in view of all the services rendered by the individual and the surrounding circumstances, the individual can reasonably be considered retired in the month in question. Even though an individual performs some services in a trade or business in a month, such services are not substantial where the evidence establishes to the satisfaction of the Administration that the individual may reasonably be considered retired in that month. In determining whether an individual has or has not performed substantial services in any month, the following factors are considered:

(1) The amount of time the individual devoted to all trades and businesses;

(2) The nature of the services rendered by the individual;

(3) The extent and nature of the activity performed by the individual before he allegedly retired as compared with that performed thereafter;

(4) The presence or absence of an adequately qualified paid manager, partner, or family member who manages the business;

(5) The type of business establishment involved;

(6) The amount of capital invested in the trade or business; and

(7) The seasonal nature of the trade or business.

(b) Individual engaged in more than one trade or business. When an individual, in any month, performs services in more than one trade or business, his services in all trades or businesses are considered together in determining whether he performed substantial services in self-employment in such month.

(c) Evidentiary requirements. An individual who alleges that he did not render substantial services in any month, or months, shall submit detailed information about the operation of the trades or businesses, including the individual's activities in connection therewith. When requested to do so by the Administration, the individual shall also submit such additional statements, information, and other evidence as the Administration may consider necessary for a proper determination of whether the individual rendered substantial services in self-employment. Failure of the individual to submit the requested statements, information, and other evidence is a sufficient basis for a determination that the individual rendered substantial services in self-employment during the period in question. § 404.447 Evaluation of factors involved

in substantial services test.

In determining whether an individual's services are substantial, consideration is given to the following factors:

(a) Amount of time devoted to trades or businesses. Consideration is first given to the amount of time the self-employed individual devotes to all trades or businesses, the net income or loss of which is includable in computing his earnings as defined in § 404.429. For the purposes of this paragraph, the time devoted to a trade or business includes all the time spent by the individual in any activity, whether physical or mental, at the place

of business or elsewhere in furtherance of such trade or business. This includes the time spent in advising and planning the operation of the business, making business contacts, attending meetings, and preparing and maintaining the facilities and records of the business. All time spent at the place of business which cannot reasonably be considered unrelated to business activities is considered time devoted to the trade or business. In considering the weight to be given to the time devoted to trades or businesses the following rules are applied:

(1) Forty-five hours or less in a month devoted to trade or business. Where the individual establishes that the time devoted to his trades and businesses during a calendar month was not more than 45 hours, the individual's services in that month are not considered substantial unless other factors (see paragraphs (b), (c), and (d) of this section), make such a finding unreasonable. For example, an individual who worked only 15 hours in a month might nevertheless be found to have rendered substantial services if he was managing a sizeable business or engaging in a highly skilled occupation. However, the services of less than 15 hours rendered in all trades and businesses during a calendar month are not substantial.

(2) More than 45 hours in a month devoted to trades and businesses. Where an individual devotes more than 45 hours to all trades and businesses during a calendar month, it will be found that the individual's services are substantial unless it is established that the individual could reasonably be considered retired in the month and, therefore, that such services were not, in fact, substantial.

(b) Nature of services rendered. Consideration is also given to the nature of the services rendered by the individual in any case where a finding that the individual was retired would be unreasonable if based on time alone (see paragraph (a) of this section). The more highly skilled and valuable his services in self-employment are, the more likely the individual rendering such services could not reasonably be considered retired. The performance of services regularly also tends to show that the individual has not retired. Services are considered in relation to the technical and management needs of the business in which they are rendered. Thus, skilled services of a managerial or technical na

ture may be so important to the conduct of a sizable business that such services would be substantial even though the time required to render the services is considerably less than 45 hours.

(c) Comparison of services rendered before and after retirement. Where consideration of the amount of time devoted to a trade or business (see paragraph (a) of this section) and the nature of services rendered (see paragraph (b) of this section) is not sufficient to establish whether an individual's services were substantial, consideration is given to the extent and nature of the services rendered by the individual before his "retirement," as compared with the services performed during the period in question. A significant reduction in the amount or importance of services rendered in the business tends to show that the individual is retired; absence of such reduction tends to show that the individual is not retired.

(d) Setting in which services performed. Where consideration of the factors described in paragraphs (a), (b), and (c) of this section is not sufficient to establish that an individual's services in self-employment were or were not substantial, all other factors are considered. The presence or absence of a capable manager, the kind and size of the business, the amount of capital invested and whether the business is seasonal, as well as any other pertinent factors, are considered in determining whether the individual's services are such that he can reasonably be considered retired. § 404.450 Required reports of work outside the United States or failure to have care of a child.

(a) Beneficiary engages in noncovered remunerative activity; report by beneficiary. Any individual entitled to a benefit which is subject to a deduction in that month because the individual engaged in noncovered remunerative activity outside the United States on 7 or more calendar days (see § 404.417) shall report the occurrence of such event to the Administration before the receipt and acceptance of a benefit for the second month following the month in which such event occurred.

(b) Beneficiary receiving wife's or mother's insurance benefits does not have a child in her care; report by beneficiary. Any person receiving wife's or mother's insurance benefits which are subject to a deduction (as described in § 404.421)

because she did not have a child in her care, shall report the occurrence of such event to the Administration before the receipt and acceptance of a benefit for the second month following the month in which the deduction event occurred.

(c) Report required by person receiving benefits on behalf of another. Where a person is receiving benefits on behalf of a beneficiary (see Subpart Q of this part) it is his duty to make the report to the Administration required by paragraph (a) or (b) of this section, on behalf of the beneficiary.

(d) Report; content and form. A report required under the provisions of this section shall be filed with the Social Security Administration. (See § 404.608 for procedures concerning place of filing and date of receipt of such a report.) The report should be made on a form prescribed by the Administration and in accordance with instructions, printed threon or attached thereto, as prescribed by the Administration. Prescribed forms may be obtained at any office of the Administration. If the prescribed form is not used, the report should be properly identified (e.g., show the name and social security claim number of the beneficiary about whom the report is made), describe the events being reported, tell when the events occurred, furnish any other pertinent data (e.g., who has care of the children), and be properly authenticated (e.g., bear the signature and address of the beneficiary making the report or the person reporting on his behalf). The report should contain all the information needed for a proper determination of whether a deduction applies and, if it does, the period for which such deductions should be made.

§ 404.451 Penalty deductions for failure

to report within prescribed time limit noncovered remunerative activity outside the United States or not having care of a child.

(a) Penalty for failure to report. If an individual (or the person receiving benefits on his behalf) fails to comply with the reporting obligations of § 404.450 within the time specified in § 404.450, a penalty deduction is made from the individual's benefits in addition to the deduction described in § 404.417 (relating to noncovered remunerative activity outside the United States) or § 404.421 (relating to failure to have care of a child).

(b) Amount of penalty deduction. The amount of the penalty deduction re

quired under paragraph (a) of this section for each failure to make a timely report is equal to the amount of the deduction from the individual's benefit made under the applicable provisions described in § 404.417 or § 404.421. However, the amount of the first penalty deduction imposed against any individual is equal to the deduction imposed for the first month in which the unreported deduction event occurred, even though the failure to report within the specified time is with respect to a period of more than one month.

(c) Determining whether failure to report is first or subsequent failure(1) No prior failure. Where no penalty deduction under paragraph (b) of this section has previously been imposed against the beneficiary for failure to report noncovered remunerative activity outside the United States or for failure to report not having care of a child, all months (and this may include 2 or more months) for which a report is overdue as of the date on which the first delinquent report is made are included in the first failure period. The earliest of the months for which "good cause" (see § 404.454) for failure to make the required report is not found is considered the first failure.

(2) Second ΟΤ subsequent failure. After one penalty deduction under paragraph (b) of this section has been imposed against an individual, each month for which a timely report is not made (and the count commences with reports which become overdue after the date on which the first delinquent report described in subparagraph (1) of this paragraph was made) and for which "good cause" for failure to make the required report is not found, is considered separately in determining whether a penalty applies and, if so, the amount of the penalty.

Example: M became entitled in January 1964 to mother's benefits; these benefits are not payable for any month in which the mother does not have a child in her care. M accepted benefits for each month from January 1964 through June 1965. In July 1965 she reported that she had not had a child in her care in January 1965. As she was not eligible to a benefit for any month she did not have a child in her care, M's July 1965 benefit was withheld to recover the overpayment she had received for January 1965, and the next payment she received was for August 1965. No penalty was imposed for her failure to make a timely report of the deduction event that occurred in January

1965 because it was determined that good cause existed.

In March 1966 M reported that she had not had a child in her care in September or October 1965; however, she had accepted benefit payments for each month from August 1965 through February 1966. Her benefits for March and April 1966 were withheld to recover the overpayment for September and October 1965. Also, it was determined that good cause was not present for M's failure to make a timely report of the deduction event that had occurred in September 1965. A penalty equal to her benefit for September 1965 was deducted from M's May 1966 payment since this was her "first failure" to report not having a child in her care. Payments to her then were continued.

On November 4, 1966, it was learned that M had not had a child in her care in November 1965 or in June, July, or August 1966 although she had accepted benefits for June through October 1966. Consequently, M's benefits for November 1966 through February 1967 were withheld to recover the 4 months' overpayment she received for months in which she did not have a child in her care. In addition, it was determined that good cause was not present for M's failure to report the deduction events, and penalties were imposed equal to M's benefits for June, July, and August 1966. The penalty was on a month-for-month basis as this was M's "second failure" to report not having a child in her care. No further penalty applied for November 1965 because that month was included in M's "first-violation" period.

(3) Penalty deductions imposed under 404.453 not considered. A failure to make a timely report of earnings as required by § 404.452, for which a penalty deduction is imposed under § 404.453, is not counted as a failure to report in determining the first or subsequent failure to report noncovered remunerative activity outside the United States or not having care of a child.

§ 404.452 Reports to Administration of earnings; wages; net earnings from self-employment.

(a) Conditions under which a report of earnings, wages, and net earnings from self-employment is required. An individual who, during a taxable year, is entitled to a monthly benefit (except if in each month of his taxable year he was entitled only to a disability insurance benefit) is required to report to the Administration the total amount of his earnings (as defined in $ 404.429) for each such taxable year under the following provisions.

(1) Taxable years ending after 1965. A report is required when the individual's total earnings or wages (as defined

in § 404.429) for any taxable year ending after 1965 exceed the product of $125 multiplied by the number of months in his taxable year, except that the report is not required for a taxable year if:

(i) The individual attained the age of 72 in or before the first month of his entitlement to benefits in his taxable year,

or

(ii) The individual's benefit payments were suspended under the provisions described in § 404.456 for all months in a taxable year in which he was entitled to benefits and was under age 72.

(2) Taxable years beginning after 1954 and ending before 1966. For taxable years beginning after 1954 and ending before 1966, a report is required when an individual's total earnings or wages (as defined in § 404.429) for a taxable year exceed the product of $100 multiplied by the number of months in the taxable year, except that a report is not required if:

(1) The individual attained the age of 72 in or before the first month of his entitlement to benefits in his taxable year, or

(ii) For taxable years beginning after August 1958, the individual's benefit payments were suspended under the provisions described in § 404.456 for all months in a taxable year in which he was entitled to benefits and was under age 72.

(b) Time within which report must be filed. The report for any taxable year beginning after 1954 shall be filed with the Social Security Administration on or before the 15th day of the fourth month following the close of the taxable year; for example, April 15 when the beneficiary's taxable year is a calendar year. (See 404.3 (c) where the last day for filing the report falls on a Saturday, Sunday, or legal holiday, or any other day all or part of which is declared to be a nonwork day for Federal employees by statute or Executive order.) The filing of an income tax return with the Internal Revenue Service is not such a report as is required to be filed under the provisions of this section even where the income tax return shows the same wages and net earnings from self-employment that must be reported to the Administration under this section.

(c) Report required by person receiving benefits on behalf of another. Where a person is receiving benefits on behalf of a beneficiary (see Subpart Q of this part), it is his duty to make the report