Yvadne J. Anderson v. Robert Finch, Secretary of the Department of Health, Education and Welfare

WINTER, Circuit Judge:

This appeal presents the question whether an extension of Social Security Act coverage to self-employed physicians “with respect to taxable years ending-on or after December 31, 1965” operates to effect coverage of a self-employed physician who died during 1965. The district court held that it did not. We reverse and remand for entry of judgment for the plaintiff.

In order to be eligible for Social Security benefits, one must have received “covered” income during a certain number of quarter-yearly periods. 42 U.S. C.A. § 414(a). Dr. Anderson, plaintiff’s deceased husband, needed 14 quarters of coverage at the time of his death to entitle his survivors to benefits. He had accumulated 13 of these at private and military employment in 1947-50.

Before 1965, the practice of medicine was expressly excluded from the definition of “trade or business” in connection with self-employment income. In 1965, the Act was amended to eliminate this exclusion “with respect to taxable years ending on or after December 31, 1965.” ¹ Dr. Anderson was employed as a private physican during 1965, and earned in excess of $28,000. Pursuant to the amended Act, he paid self-employment tax on his earnings for the first three quarters of the year.² On November 9, 1965, Dr. Anderson died, and his wife applied for survivor’s benefits for herself and their minor children, claiming that her husband’s 1965 earnings had been covered. The hearing examiner denied the application, holding that Dr. Anderson had not been covered during 1965, since his taxable year ended on the day of his death rather than on or after December 31 as required by the amendment. The Secretary refused to review the case, the district court affirmed the Secretary’s decision, and Dr. Anderson’s widow appealed.

The Secretary reasoned that the amendment’s applicability to “taxable years ending on or after December 31, 1965” must be interpreted by reference . to a preexisting section of the Act — § 211 (e), 42 U.S.C.A. § 411(e) — which defines “taxable year” to have “the same meaning as when used in chapter 1 of Title 26, Internal Revenue Code * * *; and the taxable year of any individual shall be a calendar year unless he has a different taxable year for the purposes of chapter 1 of Title 26, * * * in which case his taxable year for the purposes of this subehapter shall be the same as his taxable year under chapter 1 of Title 26 * * Sections 441(b) and 443(a) are the relevant portions of chapter 1 of Title 26, and their texts are set forth below.³ Since, under these provisions, “taxable year” is defined as “the period for which the return is made, if a return is made for a period of less than 12 months,” and since the estate of the deceased was required to file an income tax return for something less than the full calendar year, the Secretary concluded that his taxable year for 1965 ended on November 9, 1965, the date of his death. Hence, the deceased’s taxable year did not end on or after December 31, 1965, and, therefore, expanded coverage under the Act was not applicable to him.

The statutes do not need to be read so narrowly and we believe that the intent of Congress was that they should not.

The deceased, when he was alive, was reporting his income on a calendar basis. For 1965, until the date of his death, his taxable year was the calendar year ending on December 31, 1965. True, because he died on November 9, his estate was required to file a return for less than the full calendar year (§ 443(a) (2)), and for this purpose the period January 1, 1965, to November 9, 1965, is also defined as his taxable year (§ 441(b) (3)). But although the definitions of “taxable year” are in the disjunctive, nothing contained therein prevents “taxable year” from having more than one meaning.⁴ At the beginning of 1965 the deceased’s taxable year was the calendar year, anticipated to end December 31, 1965 (§ 441 (b) (1)), and § 441 is sufficiently ambiguous to allow that to continue to be the case after his death for purposes of the Social Security provision. Sections 441(b) (1) and (3) seem to provide a choice of definitions, one effecting coverage and the other excluding coverage. The intention of Congress becomes crucial in these circumstances.⁵

The legislative history of the amendment leads to the conclusion of coverage. Section 311(c) of P.L. 89-97 originated as H.R. 6675. As passed by the House, the bill would have extended coverage to self-employed doctors for taxable years “ending after December 31, 1965.” The bill was amended in the Senate, and subsequently enacted, to extend coverage “to taxable years ending on or after December 31, 1965.” (emphasis supplied.) The purpose of the amendment, as stated in the report of the Senate Finance Committee, was to make it possible “for most self-employed physicians to obtain social security protection 1 year earlier than under the House bill— for calendar year 1965.” ⁶ But the Secretary’s interpretation would frustrate this purpose with respect to survivor’s benefits. Under the House bill, every deceased doctor would be required to survive until January 1, 1966 (and have reported his 1965 income on a calendar basis) to be covered. If he survived he would be covered during all of 1966, or such part of 1966 as he lived. Under the adopted amendment as interpreted by • the Secretary, every deceased doctor would be required to survive until December 31, 1965 (and have reported his income on a calendar basis) to be cóvered. The “1 year earlier” intended by Congress manifestly meant during 1965, not solely on the last day of 1965. Of course, even under the Secretary’s interpretation, doctors would be eligible “1 year earlier * * * — for calendar year 1965” for benefits other than survivor’s benefits. But since the Committee referred to “social security protection” rather than “partial protection” as being available a year earlier, the committee report seems to support the view that Congress intended the term “taxable year” to be defined, for purposes of the amendment, without regard to the death of the taxpayer. We think that the phrasing “most [but not oZi] physicians,” on which the Secretary placed heavy reliance at argument, was employed only in recognition of the fact that some physicians report on the basis of a fiscal year and some of them might die in 1965 before the end of their 1965 fiscal year.

Even aside from the legislative history of the amendment, the interpretation of § 441 as effecting coverage is more consistent with a fair and symmetrical administration of the Social Security system. If the Secretary’s interpretation were adopted, Dr. Anderson and others in his position would have been required to pay up to three quarters of social security tax beyond the statutory test for coverage contained in 42 U.S.C.A. § 414(a) before becoming entitled to full benefits. Moreover, during 1965 they would have been in the anomalous position of being “fully insured individuals” within the meaning of the Act for some purposes but not others: for disability payments, for example, but not survivor’s benefits. Indeed, logically it would seem that even disability benefits accruing to a person in Dr. Anderson’s position during 1965 would have to be withheld until January, against the possibility that he might die before the calendar year ended. It is impossible to believe that Congress intended these unfairnesses and anomalies without saying so explicitly.

Reversed and remanded.

1 . P.L. 89-97, 79 Stat. 381, amending § 211(c) (5) of the Act, 42 U.S.C.A. § 411 (c) (5).

2 . The Secretary, in denying benefits to the widow and minor children on the ground that the Act was not applicable to the deceased, advised the widow to seek a refund of the tax from the taxing authorities. Rev.Rul. 68.458, C.B. 1968-2, p. 388 supports this advice. The revenue ruling, however, rests upon 26 U.S.C.A. § 7701(a) (23), which is not pertinent to the present problem. See n. 4, infra.

3 . § 441. Period for compilation of tamable income

* * ' :¡í * *

(b) Tamable year. — For purposes of this subtitle, the tern “taxable year” means—

(1) the taxpayer’s annual accounting period, if it is a calendar year or a fiscal year;

(2) the calendar year, if subsection (g) applies; or

(3) the period for which the return is made, if a return is made for a period of less than 12 months.

§ 443. Returns for a period of less than 12 months

(a) Returns for short period. — A return for a period of less than 12 months (referred to in this section as “short period”) shall be made under any of the following circumstances:

* • * * * *

(2) Taxpayer not in existence for entire taxable year. — When the taxpayer is in existence during only part of what would otherwise be his taxable year.

* * * # *

4 . By contrast 26 U.S.C.A. § 7701(a) (23), which is not part of chapter 1 of Title 26 and hence is inapplicable to the present problem by the terms of § 311(c) of P.L. 89-97, repeats most of the definitions contained in § 441(b) but specifically limits the meaning of “taxable year,” where a return is made for a fractional part of a year, to that period for which the return is made.

5 . This is especially so because § 211(e) is a preexisting section of the Social Security Act. We have grave reservations that Congress had the preexisting definition of taxable year in mind when it amended and enacted H.R. 6675. Certainly the fact that the definition was not included or reenacted in H.R. 6675 gives greater leeway in statutory construction so as to effectuate the intention of Congress to expand coverage “for calendar year 1965.”

6 . The committee’s bill would cover the self-employment income of the approximately 170,000 self-employed doctors of medicine on the same basis as the self-employment income of other professional groups. The committee amended the provision in the I-Iouse bill so as to make social security coverage for self-employed doctors of medicine effective for taxable years ending on or after December 31, 1965. Under the House bill, coverage could be effective for taxable years ending after December 31, 1965. This change would make it possible for most self-employed physicians to obtain social security protection 1 year earlier than under the House bill — for calendar year 1965. (emphasis supplied.) S.Rep. 404, 1965 U.S.Code Cong. & Adm. News, pp. 2051-2052.