Department of Health and Human Services
Departmental Appeals Board
AFDC QUALITY CONTROL REVIEW PANEL
SUBJECT: Missouri Department
of Social Services
Docket No. 91-119
Date: October 11, 1991
DECISION
The Missouri Department of Social Services (State)
appealed the
determination of the Regional Administrator
of the Administration for
Children and Families (Agency)
dated July 8, 1991 that J.C. 1/
was eligible to
participate in the Aid to Families with Dependent
Children-Unemployed Parent (AFDC-UP) program. 2/
For the reasons discussed below, we conclude that J.C.
was ineligible to
participate in the AFDC-UP program and,
accordingly, we reverse the Agency's
determination.
Statutory and Regulatory Background
Established in 1961, the AFDC-UP program provides
assistance to families
in which a child is deprived
because one of the parents in the household is
unemployed. The program covers families in which both
parents are
living in the household and the principal
earner, whether the father or the
mother, is unemployed.
Implementation of the program was optional for
states
prior to 1988. The Family Support Act of 1988, effective
October 1, 1990, made the program mandatory for at least
six months a
year in states not already operating an
AFDC-UP program.
In order to be eligible for the AFDC-UP program, families
must meet all
of the regular eligibility requirements for
AFDC, 3/ and the
deprivation of the child must be based
on the unemployment of the parent who
is the principal
earner. The principal earner is whichever parent
earned
the greater amount of income in the 24-month period
immediately
preceding application for aid. Before a
family can receive aid, the
principal earner must have
been unemployed for at least 30 days. A
person who works
less than 100 hours a month is considered to be
unemployed. The principal earner must demonstrate a
recent
connection to the work force by (a) having six or
more quarters of work in
any 13-calendar-quarter period
ending within one year prior to application
for aid, 4/
or (b) having received (or qualified for)
unemployment
compensation within one year prior to application for
aid. The principal earner cannot refuse, without good
cause, a
bona fide offer of employment or training for
employment. See section
407 of the Social Security Act
and 45 C.F.R. 233.100.
Section 407(d)(1) of the Social Security Act states, in
relevant
part:
For purposes of this section --
(1) the term "quarter of work" with respect to any
individual means a calendar quarter (A) in which
such individual
received earned income of not less
than $50 . . . .
Section 233.100(a)(3)(iv) of 45 C.F.R. (1990) states:
A "quarter of work" with respect to any individual
means a period
(of 3 consecutive calendar months
ending on March 31, June 30, September 30,
or
December 31) in which he or she received earned
income of not less
than $50 (or which is a "quarter
of coverage" as defined in section
213(a)(2) of the
Act), or in which he or she participated in a
community
work experience program under section 409
of the Act or the work incentive
program established
under title IV-C of the Act.
Arguments
The State requested a reconsideration of the Agency's
finding in the case
of J.C. State Quality Control found
this case totally ineligible as of
the December 1, 1990
review date on the ground that the payments R.C.
(J.C.'s
husband and the principal earner) received while an
inmate in
prison did not count toward the required six
quarters of work to qualify for
the AFDC-UP program. 5/
However, the Agency maintained
that J.C. was eligible to
participate in the AFDC-UP program "based on
Federal
policy allowing the use of inmate earnings to establish a
Primary Earner's recent connection to the workforce."
Regional
Administrator's decision, p. 1. The Agency also
stated that section
407(d)(1) of the Social Security Act
and 45 C.F.R. 233.100(a)(3)(iv) both
define a quarter of
work expansively for the purpose of the AFDC-UP program.
The Agency concluded that neither the statute nor the
regulation
excludes wages earned while in prison. Id.,
p. 2.
Before this Panel, the State asserted that legislative
history of section
407 supported its position. The State
noted that the House Ways and
Means Committee, in House
Report No. 544 (1967), in describing the purpose
of the
quarters of work requirement, stated that "it is the
intent of
[the] committee to exclude from the program
those fathers who have not been
in the labor force, or
whose attachment to the labor force has been
casual."
The State asserted that R.C.'s attachment to the
workforce had been casual, and that this factor supported
the State's
determination of total ineligibility due to
inadequate work quarters.
Further, the State asserted
that the Illinois Department of Corrections
verified that
R.C. was assigned to work in Food Service for a flat
monthly amount which was paid to all inmates given this
assignment, and
that R.C. had no choice in the assignment
and could not resign or be
dismissed for unsatisfactory
job performance. Finally, the State
argued that the Food
Service Supervisor verified that an inmate given this
assignment who refuses to work is regarded as having
committed an
infraction of the institution's rules and is
disciplined by being confined
to quarters, and that the
institution does not consider these inmates to be
employees of the prison. State's appeal request,
pp. 1-2.
The Agency did not contest any of the State's
assertions regarding the
circumstances under which R.C.
was paid. The State concluded that no
employer-employee
relationship existed between R.C. and the Illinois
Department of Corrections while he was incarcerated and
that
consequently, R.C. did not have six quarters of work
to meet the AFDC-UP
program requirements.
Discussion
The determinative issue in this case is whether the
payments received by
R.C. while an inmate in prison
constitute "earned income" within the meaning
of the
statute and regulation defining a "quarter of work," thus
making
J.C. eligible to participate in the AFDC-UP
program. Based on the
record in this case 6/ and the
following analysis, we find that
the State's position
that R.C.'s payments were not "earned income" and,
therefore, R.C.'s work quarters while an inmate did not
qualify as
"quarter[s] of work" within the meaning of the
statute and regulation is a
reasonable one. Further, we
find no evidence that the State had prior
notice of the
Agency's contrary interpretation. Therefore, we uphold
the State's finding that J.C. was ineligible to
participate in the
AFDC-UP program.
As noted previously, the Agency argued that federal
policy mandates the
result reached by federal quality
control in this case. However, the
Agency did not
provide any evidence to show that any official written
policy regarding the use of inmate earnings to establish
a connection to
the workforce existed. 7/
The Agency also argued that the statute and regulation
define a quarter
of work expansively for the purposes of
the AFDC-UP program. We agree
that the definitions are
broadly worded and thus do not clearly preclude an
interpretation of "earned income" which includes payments
received by a
prison inmate under the circumstances in
this case. Nevertheless,
certain aspects of the
regulatory language at least suggest the
interpretation
argued for by the State. In particular, the references
to social security "quarters of coverage" suggest that
generally if
there are no withholdings for social
security, there would be no eligibility
for a quarter of
coverage. Apparently no taxes or social security were
withheld from the payments made to R.C. See Panel's
Confirmation
of Telephone Conversations, dated September
18, 1991. Additionally,
the regulation refers to two
instances, participation in a community work
experience
program or work incentive program, where an individual
may
receive a special form of wages. Since the
regulation does not
specifically refer to prison
programs, which are arguably also in a special
class, it
could reasonably be inferred that such programs are not
covered by the regulation.
Further, the State's view that the payments to R.C. were
not "earned
income" is consistent with Internal Revenue
Service rulings on the related
question of whether the
earnings of federal prison inmates are
taxable. IRS
Revenue Ruling 75-325, states, in relevant part:
Withholding on earnings of federal prisons inmates.
Prison
inmates who perform services for Federal
Prison Industries, Inc. are not
employees for
purposes of income tax withholding.
* * *
A policy statement issued by the Federal Bureau of
Prisons, which
has charge of the management and
regulation of all Federal penal and
correctional
institutions . . . lists a number of prohibited acts
in
Federal penal and correctional institutions.
Among these are refusing
to work, encouraging others
to refuse to work, malingering, and failing to
perform work as instructed by a supervisor. An
inmate guilty of
any of the prohibited acts is
subject to disciplinary sanctions, which may
include
segregation, reprimand, and restrictions.
* * *
In this case, the relationship between the inmates
and Federal
Prison Industries, Inc. arises from the
incarceration of the inmates on one
hand and from
the legal duty of the Corporation to provide
rehabilitative labor on the other. It is not the
legal
relationship of employer and employee.
While the record indicates that the Food Service in which
R.C. worked was
not a part of Federal Prison Industries,
Inc., the same rationale
articulated in the IRS ruling
could be applied here. This is not a
conclusion that the
treatment of the payment in question for tax purposes
requires the result reached by the State: there may well
be
considerations which justify a different rule in the
AFDC-UP program.
However, the IRS ruling further
supports the reasonableness of the State's
interpretation. See also IRS Revenue Ruling 87-41.
Since the State's interpretation of section 407(d)(1) and
the
implementing regulation is reasonable and the State
had no prior notice of a
contrary interpretation by the
Agency, it would be unfair to hold the State
to the
Agency's interpretation in this instance. 8/
Accordingly, we conclude that the State properly
determined that the
payments received by R.C. for work in
the prison Food Service did not
constitute "earned
income" for purposes of determining J.C.'s eligibility
for AFDC-UP program benefits.
Conclusion
Based on the foregoing analysis, we reverse the Agency's
determination
that J.C. was eligible for an AFDC-UP
payment for the month in question.
Peggy McFadden Elmore
Carolyn Reines-Graubard
Leslie A. Weyn
* * * Footnotes * * *
1. We identify the
individuals by their initials in
order to protect their privacy. The
State quality control number
for this case is
47966.
2. The AFDC
program was previously administered by the
Family Support Administration,
which was one of several agencies
combined into the Administration for
Children and Families
effective April 15,
1991.
3. A family must
have a dependent child who is under
age 18, deprived of parental support,
living in the home of a
parent or other close relative as specified by
statute or
regulation, a resident of the state, a U.S. citizen or alien
permanently and lawfully residing in the
U.S.
4. A principal
earner may establish quarters of work in
several ways. Of significance
in this case is the establishment
of quarters of work by receiving $50.00 or
more of earned income
in a calendar quarter.
5. An overpayment was
also found by the State and the
Agency. However, this is not at issue
here.
6. The record in
this case consists of the State's
appeal request, the Regional
Administrator's decision with
attachment, and the State's response to
questions by this Panel.
The Agency declined to file a response in
this case.
7. The
Regional Administrator's decision included as an
attachment a copy of a
document from the Associate Commissioner
for Family Assistance to the
Regional Administrator, dated
January 26, 1984. This document was
entitled "Response to
Regional Inquiry - Quarters of Work Requirement AFDC
Unemployed
Parent (AFDC-UP) Program (Your Memorandum Dated August 4, 1983)."
It is not clear from the Regional Administrator's decision why
this document was included. However, we find that it is not an
indication of any federal policy on the issue involved in this
case. The document addressed the issue of whether the statute
and
regulation provided for more than one definition of the
quarters of work
test and whether a state could limit the
definition of quarters of work to a
quarter of coverage under
social security when the work is performed
overseas.
8. Nothing
in this decision precludes the Agency from
now issuing a regulation or
appropriate guideline which would
specify the Agency's policy and its basis
nor does the decision
preclude those states who wish to do so from treating
payments to
prison inmates as "earned income" consistent with the
interpretation advanced by the Agency here.
(..continued)