MEMORANDUM OPINION AND ORDER
SHIRLEY WOHL KRAM, U.S.D.J.
This is an action to review a decision of the Secretary of Health and Human Services (the "Secretary") denying plaintiff's claim that the money he received from panhandling be excluded in calculating the amount of his disability benefits. Both parties moved for judgment on the pleadings and, on February 8, 1993, the matter was referred to Magistrate Judge Kathleen A. Roberts for Report and Recommendation.
On August 13, 1993, Magistrate Judge Roberts issued a Report and Recommendation (the "Report"), advising that plaintiff's panhandling income was "unearned," and recommending that plaintiff's motion for judgment on the pleadings be denied and defendant's motion be granted. Subsequently, on August 23, 1993, the Court received plaintiff's Objections to the Magistrate Judge's Report and Recommendation (the "Objections"). On September 15, 1993, the Court also received defendant's letter to the Court responding to plaintiff's Objections. In accordance with Rule 72(b) of the Federal Rules of Civil Procedure and 28 U.S.C. § 636(b)(1)(C), the Court has reviewed de novo those portions of the Report to which the plaintiff has objected. Upon consideration, the Court holds that plaintiff's panhandling income is "earned income," and therefore is to be excluded in calculating his disability benefits. Accordingly, plaintiff's motion for judgment on the pleadings is granted and defendant's motion is denied.
Plaintiff Kevin Barry ("Barry") is a disabled individual who suffers from paralysis of his dominant right arm, a personality disorder and organic brain syndrome resulting from a history of drug abuse. In March 1990, Barry applied for Supplemental Security Income ("SSI") based on disability. From the time of his application and through August 1990, Barry supported himself by walking down a line of cars stopped at a traffic light at Triangle Park in the Bowery on a daily basis and asking people for money. As a result of these panhandling activities, Barry earned $ 250 per month.
Although his application for disability benefits initially was denied, upon reconsideration the Secretary determined that Barry had been disabled since March 1, 1990, and granted his application for benefits. In calculating the amount of plaintiff's retroactive SSI benefits, however, the Secretary treated plaintiff's income from panhandling as "unearned" income, and therefore reduced the amount of monthly benefits by $ 230 dollars, reflecting plaintiff's monthly panhandling income minus the $ 20 general income disregard set forth in the Social Security Act (the "Act") and Regulations. See 42 U.S.C. § 1382a (b)(2)(A). This calculation was affirmed on reconsideration on January 18, 1991. Subsequently, on September 10, 1992, the Administrative Law Judge ("ALJ") upheld the Secretary's calculation, finding that the money plaintiff collected from panhandling was unearned income.
This decision became the final decision of the Secretary on August 13, 1992, when the Appeals Council denied plaintiff's request for review.
I. Standard of Review
The Report accurately sets forth the standard of review of the Secretary's decision. See Report at 8. Section 205(g) of the Social Security Act provides that: "The findings of the Secretary as to any fact, if supported by substantial evidence, shall be conclusive." 42 U.S.C. § 405(g).
"This deferential standard of review is inapplicable, however, to the Secretary's conclusions of law. 'Where an error of law has been made that might have affected the disposition of the case, this Court cannot fulfill its statutory and constitutional duty to review the decision of the administrative agency by simply deferring to the factual findings of the ALJ.'" Townley v. Heckler, 748 F.2d 109, 112 (2d Cir. 1984) (quoting Wiggins v. Schweiker, 679 F.2d 1387, 1389 n.3 (11th Cir. 1982)).
II. The Social Security Act and 1972 Amendments
The Social Security Amendments of 1972 (the "Amendments")
provide payments to disabled persons whose income and resources do not exceed specified amounts. 20 C.F.R. § 416.110(a). The purpose of the Amendments is to provide
1. An income source for the aged, blind, and disabled whose income and resources are below a specified level; 2. Incentives and opportunities for those able to work or to be rehabilitated that will enable them to escape from their dependent situations; and 3. An efficient and economical method of providing this assistance.
H.R. Rep. No. 231, 92d Cong., 2d Sess., reprinted in 1972 U.S.C.C.A.N. 4989, 5133. The amount of benefits provided to eligible individuals is determined on the basis of the individual's current income, and is calculated by subtracting the individual's nonexcludable income from a statutory benefit level. 42 U.S.C. § 1382(b).
In order to determine whether an individual's income is excludable, income is separated into two categories under the Act: earned and unearned. Earned income is defined as, among other things, "net earnings from self-employment." 42 U.S.C. § 1382a(a)(1)(B). "Net earnings from self-employment" is defined further as "the gross income, as computed under subtitle A of the Internal Revenue Code of 1954 derived by an individual from any trade or business." 42 U.S.C. § 411(a). Unearned income is defined as "all other income, including . . . gifts." 42 U.S.C. § 1382a(a)(2). A gift is "something you receive which is not repayment to you for goods or services you provided and which is not given to you because of a legal obligation on the giver's part." 20 C.F.R. § 416.1121(g).
In calculating the SSI benefit amount, the first $ 20 of monthly income, whether earned or unearned is excluded. 42 U.S.C. § 1382a(b)(2)(A). For those individuals under age 65 who are disabled but not blind, the balance of any earned income is subject to an additional exclusion of $ 65.00, and then a final exclusion of one-half of the remainder thereof. 42 U.S.C. § 1382(b)(4)(B). As these additional exclusions do not apply to unearned income, however, plaintiff's SSI benefits are greater if his panhandling income is treated as earned, rather than unearned income.
III. The Report
In her Report, Magistrate Judge Roberts determined that, as the money plaintiff received from panhandling is a gift rather than self-employment income derived-from a trade or business, the money constitutes unearned income pursuant to section 1382a(a)(2) of the Act. Magistrate Judge Roberts initially considered and dismissed plaintiff's contention that the money he received from panhandling is not a gift because he provided certain "services" to the individuals who gave him money. The Magistrate Judge found that there was no evidence that plaintiff provided any such services to these individuals. Accordingly, she concluded that:
Because the evidence presented by plaintiff, as well as the lack of evidence, supports the Secretary's conclusion that plaintiff provided no goods or services, and that the persons who gave him money were under no moral or legal obligation to do so, plaintiff's panhandling income falls squarely within the definition of gift contained in the regulations, 20 C.F.R. § 416.1121(g) . . . .