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Workers' Compensation Board

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Case # 30700117
Date of Accident: 11/08/2005
District Office: NYC
Employer: Day & Zimmerman NPS
Carrier: Ins Co of State of Penn
Carrier ID No.: W117006
Carrier Case No.: 709434859
Date of Filing of Decision: 10/27/2016
Claimant's Attorney: Pasternack Tilker Ziegler Walsh Stanton & Romano LLP
Panel: Kenneth J. Munnelly

MANDATORY FULL BOARD REVIEW
FULL BOARD MEMORANDUM OF DECISION

The Full Board, at its meeting on September 20, 2016, considered the above captioned case for Mandatory Full Board Review of the Board Panel Memorandum of Decision filed April 13, 2016.

ISSUE

The issue presented for Mandatory Full Board Review is whether the claimant must produce his business records for examination prior to the direction of an award for reduced earnings.

The Workers' Compensation Law Judge (WCLJ) denied the carrier's request to examine the claimant's business records and granted an award of reduced earnings.

The Board Panel majority agreed that the claimant is not required to produce business records, but temporarily rescinded the awards pending further consideration of the claimant's tax returns.

The dissenting Board Panel member agreed that awards should rescinded, but would also require the claimant to produce his business records for the carrier's review.

On April 27, 2016, the carrier filed a request for Mandatory Full Board Review, arguing that the claimant's business is a tax shelter and not a true business venture and requesting the opportunity to review the claimant's business records.

The claimant filed a rebuttal on May 25, 2016.

Upon review, the Full Board votes to adopt the following findings and conclusions.

FACTS

This case is established for occupational asbestosis, asbestos-related pleural disease and chronic obstructive pulmonary disease, with a November 8, 2005, date of disablement. The average weekly wage is set at $2,850.97. The claimant has been classified with a permanent partial disability, and Workers' Compensation Law (WCL) § 15(8)(ee) has been found applicable, but the degree of disability has not been set.

At a June 25, 2013, hearing, the claimant testified that he and his wife have jointly operated a bed and breakfast out of their home since securing certification to do so in 2005. His duties include making breakfast, cleaning and preparing the house and rooms, and limited grounds-keeping (such as operating the riding lawnmower). The business is not incorporated. He has not looked for work elsewhere, despite the fact that the bed and breakfast is not profitable and has losses each year. The claimant identified his tax returns, which were submitted to the Board for consideration. The returns show profit and loss statements for the business.

During cross-examination, the claimant testified that at one point the business may have been audited by the IRS, but that he did not believe that anything had come of the audit. Guests pay by check or cash, and his wife keeps a log. They do not accept credit cards. All of the information in the business receipts are reflected in the tax returns. At the conclusion of the proceedings, the claimant was directed to produce information regarding the outcome of the IRS audit, and the parties were directed to produce memoranda of law.

In a letter dated September 16, 2013, the claimant's counsel advised the WCLJ that the claimant had been mistaken, and that there had not been an IRS audit of his business.

In his reserved decision filed November 4, 2013, the WCLJ found that the claimant's participation in the activities involved in running the bed and breakfast constituted employment as defined by WCL § 2(5), and that the claimant remained entitled to reduced earnings awards. The case was continued for consideration of proper awards. The decision was affirmed by the Board Panel in its decision filed on June 24, 2014, and a request for Full Board Review was denied.

The Board is in receipt of the claimant's business certificate and NYS tax ID number certificate from 2006, which list both the claimant and his wife as the business owners (Doc ID # 197146073). The claimant has also submitted his tax returns, filed jointly with his wife, from 2006 through 2013, as well as the business returns (Doc ID #'s 199615390 and 239803864). The records show that the income from the business has been less than $10,000 each year, and that the income has always been exceeded by the expenses.

At a February 27, 2015, hearing, the claimant testified that he and his wife have continued to run their inn, and that he is the chief cook, bottle-washer, and grounds keeper. To the best of his knowledge, the business has not recognized any profit since the last time the claimant testified.

During cross-examination, the claimant testified that work is being done on the house in an effort to improve the business. He is not personally performing any of the work. His wife does the record-keeping for the business. At the conclusion of the proceedings, the carrier requested a direction for the claimant to produce the financial records and books from the business so that it could have a third party accounting performed. The WCLJ denied the carrier's request, and awarded benefits at the $400 per week reduced earnings rate from January 1, 2012, to January 1, 2014. The period after January 1, 2014, was held in abeyance pending the claimant's production of his most recent tax returns. The findings are contained in the WCLJ decision filed on March 4, 2015.

In its application for administrative review, the carrier argued that the WCLJ erred by denying its request to review the claimant's business records and awarding compensation benefits. The carrier asked that the awards be rescinded.

In rebuttal, the claimant argued that his tax returns show all of the business income, as well as the deductions, and that no additional information need be provided in order to justify the directed award. The claimant asked that the WCLJ decision be affirmed.

LEGAL ANALYSIS

Pursuant to WCL 15(5-a), an injured employee's wage earning capacity is determined by his or her actual earnings. Reduced earnings awards are payable at the rate of two-thirds of the difference between the claimant's actual post-injury earnings and the pre-injury average weekly wage (WCL § 15[5]). No evidence of the ability to earn more or less may be considered (see Matter of Meisner v United Parcel Serv., 243 AD2d 128 [1998], lv dismissed 93 NY2d 848 [1999], lv denied 94 NY2d 757 [1999]; cf. Matter of Smith v Consolidated Edison Co. of N.Y., Inc., 68 AD3d 1299 [2009]).

In calculating self-employment earnings, the Board has adopted the approach set out in Young v Utica Mut. Ins. Co. (107 Misc 2d 417 [1980] [Sup Ct, Allegany County 1980, Horey, J.], affd as mod, 86 AD2d 764 [1982]). The Court, writing in the context of a no-fault case, found that a sole proprietor's earnings consist of "what is left of earnings after deducting all necessary or mandated items of expense incident to the operation of the business, but excluding from such deduction any optional or elective items of expense made for its continuance" (id.). In Matter of Pratt v Long Is. Jewish Med., 81 AD3d 179 (2011), the Appellate Division affirmed the Board's use of this method.

There is nothing in the law or prior Board decisions that requires the Board to direct the claimant to produce business records for the purpose of determining reduced earnings. The Board may direct such records if the facts of a matter support such a direction (see Matter of Imperial Delivery Service, 2011 Wrk Comp 29214980).

Here, the carrier has argued that the claimant's business expense deductions are excessive and suggest that the business is only being run as a tax shelter. However, the carrier has not produced any offer of proof as to why the claimant's tax records are insufficient for the purpose of determining the claimant's business income. In spite of having two opportunities to question the claimant, the carrier has declined to ask him any questions concerning the financial aspects of how the business is run. Absent any offer of proof suggesting that the claimant's tax returns are insufficient evidence of the business income, there is no reason to require the claimant to produce his business records.

The tax documents reflect that the claimant's annual business earnings have been approximately $10,000 or less each year. Even if the claimant had not taken any business deductions, in light of his substantial average weekly wage in this case, he is still entitled to a $400 per week reduced earnings rate.

In light of these facts, the Full Board finds that no further development of the record is necessary regarding the tax returns that have already been considered and that the WCLJ correctly awarded reduced earnings benefits at the rate of $400 per week.

CONCLUSION

ACCORDINGLY, the WCLJ decision filed on March 4, 2015, is AFFIRMED. No further action is planned by the Board at this time.