The opinion of the court was delivered by: CARTER
John Colby brought this action under section 205(g) of the Social Security Act, as amended (the "Act"), 42 U.S.C. § 405(g), to review a final determination of the Secretary of Health, Education and Welfare ("Secretary") that Colby was overpaid $ 8,982.10 in retirement insurance benefits for the years 1974 through 1976 and that recovery thereof may not be waived. The parties agree that no material questions of fact are in dispute, and that the case is appropriate for a decision on the basis of the administrative record. Colby has moved for summary judgment, and the Secretary for judgment on the pleadings.
Colby was born in 1907 and became eligible for Social Security benefits in April, 1971. During 1974, 1975 and 1976, Colby was employed as a traveling salesman by Fresco-Hudson Sales & Marketing, Inc. ("Fresco"), and also was self-employed as a representative of Waldorf Bakers, Inc. ("Waldorf"). Throughout this period, Colby and his wife collected benefits in amounts determined with reference to reports of annual earnings prepared by Colby and submitted to the Social Security Administration ("SSA").
Colby's employment agreement with Fresco provided for a 50% commission on sales plus $ 40 per week toward expenses. Colby's actual expenses related to his Fresco job were approximately $ 120 per week, but he was not reimbursed for expenses beyond the $ 40 allowance. His commission rate of 50%, however, was somewhat higher than is usual in his line of work, apparently to defray these additional expenses.
Colby calculated his earnings for the SSA reports in the same manner as he arrived at his net income on income tax returns. In each case, he added the commissions he received from Fresco to his gross income from Waldorf and the $ 40 per week expense money from Fresco, and then deducted all of his business expenses to arrive at net taxable income for income tax purposes and earnings for SSA report purposes.
This method of reporting was acceptable to the Internal Revenue Service, but not to the SSA, and in 1977 the latter agency notified Colby that he had been overpaid during the previous three years as a result of an error in his earnings reports involving excessive deductions from gross income. On October 10, 1977, Colby filled out an SSA overpayment recovery questionnaire in which he indicated that repayment would not constitute a hardship, although he did not admit that he had been overpaid. He later repudiated this response in a letter to the SSA Appeals Council, in which he explained that when he said repayment would not be a hardship he was referring only to the alleged overpayment for 1974 and that, in any case, his circumstances were materially altered by his subsequent loss of employment so that any restitution now would constitute a hardship.
Colby pursued available administrative remedies to a final determination of the Secretary, and then brought the matter here for a review of the Secretary's holding.
The nature of the dispute
At issue in this case is the Secretary's interpretation of section 203(f)(5) (A) of the Act, 42 U.S.C. § 403(f)(5)(A), which provides in relevant part: "An individual's earnings for a taxable year shall be (i) the sum of his wages for services rendered in such year and his net earnings from self-employment for such year . . . ."
SSA Regulations No. 4, applying this section, provides:
Amounts paid specifically either as advances or reimbursements for traveling or other bona fide ordinary and necessary expenses incurred or reasonably expected to be incurred in the business of the employer are not wages. Traveling and other reimbursed expenses must be identified either by making a separate payment or by specifically indicating the separate amounts where both wages and expense allowances are combined in a single payment.
20 C.F.R. § 404.1026(a)(8).
Colby claims that this mechanical approach to expenses wage-earners may deduct in calculating their earnings is not authorized by the Act. He argues that the controlling factor in determining whether amounts paid are treated as wages or deductible expenses should be the employer's and employee's intent rather than whether expenses were specifically labeled as such by the employer.
The Secretary responds that the regulation in question is valid, and that his final determination is supported by substantial ...