___________ No. 94-4044

___________ Dale F. Petersen, * * Plaintiff - Appellant, * * v. * Appeal from the United States * District Court for the Shirley S. Chater, Commissioner * Southern District of Iowa. of Social Security, * * Defendant - Appellee. *

___________ Submitted: September 13, 1995 Filed: December 28, 1995

___________ Before LOKEN, HANSEN, and MORRIS SHEPPARD ARNOLD, Circuit Judges.

___________ LOKEN, Circuit Judge.

Dale F. Petersen applied for disability benefits under Title II o f the Social Security A ct, 42 U.S.C. § 423(a)(1), claiming disability since March 15, 1991. After an administrative hearing that focused primarily on medical issues, the Commissioner of Social Secur ity denied the application on the ground that Pe tersen is engaged in substantial gainful activity as
a self-employed farm manager. The district court affirmed, and Petersen appeals

. We conclude that the administrative record is inadequate t o support this finding and therefore remand.
Petersen worked twenty-five years as an educational consultant to the University of Iowa. In 1991, the only year for which such informatio n appear s in the record, Petersen earned $37,982 from the University , including sick pay, and his wife earned $32,896 as a

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public school teacher. The Petersens also own a 137-acre farm in Elkader, Iowa, one hundred mil es from their home in Iowa City. From 1974 to 1983, they raised grains, hay, and occasionally livestock on this farm. Fro m 1984 throug h 1986, they rented the farm to a tenant. In 1987, the y enrolled the entire f arm in the United States Department of Agriculture's ten-ye ar Conservation Reserve Program ("CRP"). In 1991, the Petersen s received $11,642 in CRP payments, which USDA describes as "rental payments " in its CRP regulations. See 7 C.F.R. § 704.16.

The issue here is whether Petersen's activities in managing th e rented farm are "substantial gainful activity" that preclude a finding tha t he is dis abled. The question is not whether Petersen made a profi t farming, nor whether he has the physical ability to engage in more vigorou s farming activities. Rather, the Social Security Act requires us to focus on whether Petersen has proved his "inability to engage in any substantial gainful activity by reason of any medically determinable physical or menta l impairment." 42 U.S.C. § 423(d)(1)(A); see generally Callaghan v. Shalala , 992 F.2d 692 (7th Cir. 1993). The parties have not cited, nor have w e found, any case applying the Act to similar facts.
The Commissioner's regulations deal in detail with the broad qu estion of substantial gainful activity. We begin with the basic definitiona l regulation, 20 C.F.R. § 404.1572:

Substa ntial gainful activity is work activity that i s both substantial and gainful: (a) Substantial work activity . Substan tial work activity is wor k activity that involves doing significant physical o r mental activities. Your work may be substantial even if it is done on a part-time basi s or if you do less, get paid less, or have less responsibility than when you worked before. (b) Gainful work activity . Gainful wor k activity is work activity that you do for pay or profit. Work activity i s gainful if it is the kind of work usually

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done for pay or profit, whether or not a profit is realized.

Though most of Petersen's income prior to March 1991 came from hi s contract with the University, we are concerned h ere with his activities as
a self-employed farm landlord. A specific regulation governs whether self

employed persons are engaged in substantial gainful activity:

(a) If you a re a self-employed person. . . . We consider that you have engaged in substantial gainful activity if -- (1) Your work activity in terms of fact ors such as hours, ski lls, energy output, efficiency, duties, an d res ponsibilities, is comparable to that of unimpaire d individuals in your community who are in the same or simila r businesses as their means of livelihood; (2) You r work activity, although not comparable to tha t of unimpaired individuals, is clearly worth the amo unt shown in § 404.1574(b)(2) when considered in terms of its value to the business, or when compared to the salary that an owner woul d pay to an employee to do the work you are doing; or (3) You render services that are significant to th e operation of the business and receive substantial income from the business.

20 C.F.R. § 404.1575(a)(1)-(3). These alternati ve tests were described in great detail, with illustrative examples, in Social Security Ruling ("SSR" ) 83-34, reprinted in West's Social Security Reporting Service, Rulings 1983

- 1991, at 106.

The third test, § 404.1575(a)(3), requires evidence that the self

employed claimant rendered significant services and received substantial income. A farm landlord performs "significant s ervices" if he "materially participates" in the production or the management of the rented farm. 20 C.F.R. §§ 404.1575(b)(2); 404.1082(c). The ALJ found that Petersen engage d in substantial

### See 7 C.F.R. § 704.12 (1995) (obligations of a CR P 1 

### participant); Ottken v. Bowen , No. 88-4291-R, 1990 WL 5729, at *8-9 (D. Kan. Jan. 11, 1990) (farm landlord materially participated). In denying review, the Commissioner's Appeals Council note d 2 

### that Petersen's "material participation in the operation of th e farm. . . would be expected to result in substantial income i f performed for an employer." That, too, is not the analysi s prescribed in 20 C.F.R. § 404.1575(a)(3).
-4- gainfu l activity -- the ultimate question -- because he "materiall y participated in manag ement of his farm operation." That is an inadequate analysis. While the record supports a finding that Petersen "materially participated" in the management of his farm because he performed many of the tasks necessary to fulfill his CRP obligations, the ALJ made n o 1 fi nding that Petersen received "substantial income." Therefore, th e ultima te finding that he engaged in substantial gainful activity i s unsound. 2
The ALJ's analytical oversight raises the question whether the record
wou ld support the necessary substantial income finding. To answer tha t question, we turn to the regulation defining "substantial income." This time, we encounter two alternative tests. First, income after 1989 i s deemed substantial if it averaged more than $500 per month. See 20 C.F.R. § 404.1575(c)(1), whi ch cross references 20 C.F.R. § 404.1574(b)(2)(vii). Peter sen had virtually no farm income in 1991 other than CRP payments

. While those payments of $11,642 easily surpassed the $500 per mont h threshold, § 404.1575(c) expressly excludes from the substantial incom e equation "any soil bank payments that were included as farm income." As explained in SSR 83-3 4 § A(2)(b)(1), this exclusion was created for farms which placed only some land in the soil bank conservation program:

[S]ince these activities are quite limited as compared wit h regu lar farming operations, soil bank payments will not b e indicative of the extent of the management function involved in the total enterprise.

### See Pub. L. No. 89-321, § 601, 79 Stat. 1187, 1206 (1965) ; 3 

### the Food Security Act of 1985, Pub. L. No. 99-198, § 1231, 9 9 Stat. 1354, 1509 (1985).
-5- The soil bank program ended in 1965; CRP was enacted in 1985. The 3 programs have obvious similarities -- indeed, CRP has been called "Son of Soil Bank." See 134 Cong. Rec. 17115 (1988). But we deal with regulation s promulgated prior to 1985 that refer only to "soil bank payments." Whethe r CRP pa yments should also be excluded from the substantial incom e determination, and if so, whether CRP payments are excluded even if th e farm had no other income, are questions that must be addressed in the firs t instance by the agency. Thus, we may not affirm on this ground.
The Commissioner urges us to affirm under the second alternativ e test for determining substantial income. Under that test, income is substantia l if

the livelihood which you get from the business is eithe r comparable to what it was before you became severely impaired or is comparable to that of unimpaired self-employe d persons in your community who are in the same or similar busin ess as their means of livelihood.

20 C.F.R. § 404.1575(c)(2). The Commissioner argues that Petersen's incom e from the farm is subs tantial "because it is comparable to that he derived from the farm prior to his alleged onset of disa bility." On this record, we disagree. There is no evidence in the record of the CRP payments Peterse n received before March 1991. The Commissioner urges us to assume that his CRP payments have been constant since 1987. We decline to make a critical fact assumption on an important issue that the ALJ overlooked. Moreover,
even if Petersen's CRP payments were constant, additional fact questions remain. Section 404.1575(c)(2) is concerned with the "livelihood which yo u get from the business" before and after the alleged disability. The

### Likewise, the record is inadequate to determine whethe r 4 

### Peter sen's farm work activity satisfies the remaining self

employment test, found in § 40 4.1575(a)(2). Under this test, work activity is substantial gainful activity if it is worth more than $500 per month "when compared to the salary that an owner wo uld pay to an employee to do the work you are doing." Given the net farm loss of $1,015 the Petersens r eported on their 1991 federal income tax return, it seems doubtful that a third party landowner woul d have p aid Petersen an additional $6,000 to manage that venture

. But ta x losses are not always what they seem, so this is anothe r fact-intensive question that we leave open on remand.
-6- Petersens reported a net farm loss of $1,015 on their federal income tax return in 1991. In other words, the CRP payment s, while substantial, only covered their farm expenses; Petersen's after tax income came from hi s Univer sity position. In these circumstances, were the CRP payment s Petersen's "livelihood," and was the 137-acre farm his "business" ? Particularly given the total absence of relevant case law, these again are questions that should be decided in the first in stance by the agency on an adequate fact record. Alternatively, the Commissioner argu es that Petersen's work activity
as a farm manager is substantial gainful activity because it is "comparabl e to that of unimpaired individuals in the community who are in the same or simila r businesses as their means of livelihood." 20 C.F.R

. § 404.1575(a)(1). However, there is no evidence in the record as to (i) whether there is anyone in the Elkader, Iowa, community whose livelihood consists entirely of CRP payments from a farm of comparable size, and (ii) if there is such an unimpaired person, how his or her activities i n managing such a business would compare to Peters en's work activities. The record does contain a letter from the local ASCS Executive Directo r advising that there a re 47,000 acres of Clayton County, Iowa, enrolled in the CRP. But without more findings and analysis, the ALJ's decision canno t be affirmed under § 404.1575(a)(1). 4
Focusing almost exclusively on Petersen's medical problems, th e parties and the ALJ assembled an administrative record that

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does not permit meaningful review of the novel substantial gainful activit y issue raised by Petersen's farm activities. Therefore, we remand to the district court with directions to remand to the Commissioner for further proceedings consisten t with this opinion. See Payton v. Shalala , 25 F.3d 684, 686 (8th Cir. 1994).

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.