UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

JERROLD A. WATSON; MARY E.

WATSON,

Plaintiffs-Appellants,

v. No. 96-1428

SHIRLEY S. CHATER, COMMISSIONER OF

SOCIAL SECURITY,

Defendant-Appellee.

Appeal from the United States District Court

for the District of South Carolina, at Charleston.

Patrick Michael Duffy, District Judge.

(CA-93-2404-8-8AJ)

Argued: October 29, 1996

Decided: January 7, 1997

Before MURNAGHAN and MICHAEL, Circuit Judges, and

DOUMAR, Senior United States District Judge

for the Eastern District of Virginia, sitting by designation.

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Affirmed by unpublished per curiam opinion.

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COUNSEL

ARGUED: Gary Tusten Pope, POPE & HUDGENS, P.A., Newberry,

South Carolina, for Appellants. John Jarrett, Assistant Regional

Counsel, SOCIAL SECURITY ADMINISTRATION, Atlanta, Georgia, for Appellee. ON BRIEF: Frank W. Hunger, Assistant Attorney
General, J. Rene Josey, Interim United States Attorney, Mary Ann

Sloan, Acting Chief Counsel, Region IV, Mack A. Davis, Acting

Deputy Chief Counsel, Dennis R. Williams, Supervisory Assistant

Regional Counsel, SOCIAL SECURITY ADMINISTRATION,

Atlanta, Georgia, for Appellee.

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Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c).

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OPINION

PER CURIAM:

Jerrold A. Watson and Mary E. Watson appeal the district court's

judgment affirming the Commissioner's decision that the Watsons

were overpaid $8,447.00 in Social Security benefits. We affirm.

The Watsons, who are peach farmers in Monetta, South Carolina,

began receiving Social Security retirement insurance benefits after filing an application on October 24, 1984. In 1988 a late frost killed the

buds on the Watsons' peach trees, leaving them without a crop that

year. The Watsons received $231,207.00 in crop insurance for this

damage. Although the Watsons reported the insurance recovery as

taxable income on Schedule F of their 1988 income tax return, they

did not report it to the Social Security Administration. In April 1990

the Social Security Administration informed the Watsons that they

had been overpaid $8,447.00 in benefits for 1988 because the federal

crop insurance proceeds, which were net earnings from selfemployment, had not been taken into account.

Section 403(b) of the Social Security Act, 42 U.S.C.§ 403(b), provides that deductions will be taken from the retirement insurance benefits of an individual under age 70 who has "wages and selfemployment income" in excess of the allowable amount. Section

411(a) defines earnings from self-employment, and section 411(a)(3)

allows for certain exclusions:

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(3) There shall be excluded [from such earnings] any gain

or loss . . .

(C) from the sale, exchange, involuntary conversion, or

other disposition of property if such property is[not] . . .

(ii) property held primarily for sale to customers in the

ordinary course of the trade or business.

The regulations, 20 C.F.R. § 404.1084, define"other disposition" to

include "destruction or loss by . . . storm . . . or other casualty." 20

C.F.R. § 404.1084(c)(2).

The Commissioner found that the insurance proceeds paid to the

Watsons were a "gain . . . from the . . . disposition . . . of property

. . . held primarily for sale to customers in the ordinary course of the

trade or business" and therefore counted as earnings from selfemployment. We agree with the Commissioner's interpretation.

Peaches constitute property held for sale in the ordinary course of the

Watsons' business, and the insurance proceeds were compensation for

the destruction of their peach crop. The insurance proceeds were paid

to the Watsons under the Federal Crop Insurance Program, 7 U.S.C.

§ 1508, which indemnifies insured farmers against "loss of the

insured [agricultural] commodity due to unavoidable causes, including . . . frost." 7 U.S.C. § 1508(a) (1988). Moreover, the insurance

proceeds were calculated on estimated crop yield and expected market price. See id.1

The Watsons contend that the insurance proceeds were compensation for the loss of capital in the production of the peach crop, rather

than compensation for the peach crop itself. They rely on one sentence in Parks v. Federal Crop Ins. Corp., 416 F.2d 833, 838 (7th Cir.

1969), which states that the Federal Crop Insurance Corporation "can

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1 The Commissioner's interpretation is also consistent with the treatment of insurance proceeds under Treasury regulations. See 26 C.F.R.

§ 1.61-4(c) ("Proceeds of insurance, such as hail or fire insurance on

growing crops, should be included in gross income to the extent of the

amount received in cash or its equivalent for the crop injured or

destroyed.").

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provide insurance solely to protect a farmer's investment in his crops."2

Parks, however, was simply making the point that a farmer must have

an investment in a crop in order to have an insurable interest. In Parks

the farmers were raising seed corn under contract for sponsors who

furnished the seed, planting supervision, and labor. The issue was

whether the farmers had an insurable interest in production levels for

which bonus payments of $1.25 per bushel would be made. The court

in Parks recognized that the farmers undertook some risk of production and suffered some loss due to drought. According to the court,

if the farmers' loss was based on their investment risk in the crop --

and not based on lost profits -- the farmers had an insurable interest.

Thus, Parks simply dealt with whether the farmers had some investment risk in the crop that qualified as an insurable interest under the

Federal Crop Insurance Act. Parks did not deal with the issue facing

us here, and the case does not detract from our conclusion.

The Watsons' peach crop was lost, and the insurance proceeds

compensated them for this loss. Those proceeds constituted earnings

from self-employment under 42 U.S.C. § 411(a). The judgment of the

district court is therefore

AFFIRMED.

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2 The language in 7 U.S.C. § 1508(a) relied upon by the Parks court in

making this statement was deleted from the act in 1980. See Federal

Crop Insurance Act of 1980, Pub. L. No. 96-365,§ 105(2), 94 Stat. 1312,

1314-15.

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