TN 13 (08-10)

A. Policy

SSA must be on alert for claims where bona fide reporting is in doubt and should verify the claimant’s allegations when:

• the taxpayer may not be actually carrying on a trade or business; or

• the taxpayer may be engaged in an activity which is not covered; or

• there is reason to question the accuracy of the amounts of earnings reported.

B. Procedure

Take the following steps to secure evidence of income:

1. SEI

Obtain documentary evidence of SEI verifying the existence of a trade or business. For example:

• licenses

• invoices

• records of sales

• third party statements

2. NESE

Obtain evidence of NESE.

1. If the business is farming, then consider the following as evidence:

   • Sales statements,

   • Invoices,

   • Cotton gin tickets,

   • Grain elevator receipts,

   • Commodity Credit Corporation loan papers, etc.

2. If the business is non-farming, then consider the following as evidence:

   • Cash register receipts,

   • State sales tax report,

   • Records of purchases,

   • Statements from customers, etc.

   • Records maintained by the claimant during the taxable year if their appearance indicates that they are proper records

NOTE: Do not retain complete copies of records submitted. A summary or description of the records or pertinent information is sufficient.

3. Records

Summarize for the record the data reviewed and whether the business appears bona fide. Use Form SSA-5002 (Report of Contact). In Earnings Modernization Item Correction System (ICOR) use EROC (Report of Contact) screen, see MSOM EM 017.006 on use of the EROC screen.

4. Content of records

If records are incomplete, obtain an SSA-795 ( Statement of Claimant or Other Person) explaining how the reported SEI was reconstructed without records.

In ICOR, complete the EROC (Report of Contact) screen, see MSOM EM 017.006 on use of the EROC screen.

For example in farm cases, determine the quantity raised and the sales price per unit (bushel, dozen, bale, etc.) of each commodity from which income was derived.

In non-farm cases determine the volume of sales and cost of merchandise, or in the case of a service business, the frequency of services and the rates of pay.

5. Reported expenses

Examine reported expenses to determine if they appear reasonable and have the claimant explain any apparent understatements, overstatements or omissions.

6. Determination

Prepare a determination with findings and resolutions.

In ICOR, select the Earnings Adjustment Rationale ( EART) screen, see MSOM EM 026.003 for use of the EART screen and enter your determination.