UNPUBLISHED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.

_________________________________________________________________

Affirmed by unpublished per curiam opinion.

_________________________________________________________________

COUNSEL

ARGUED: Gary Tusten Pope, POPE & HUDGENS, P.A., Newberry,
South Carolina, for Appellants. John Jarrett, Assistant Regional
Counsel, SOCIAL SECURITY ADMINISTRATION, Atlanta, Geor-
gia, 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.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

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 fil-
ing 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 self-
employment, had not been taken into account.

Section 403(b) of the Social Security Act, 42 U.S.C.§ 403(b), pro-
vides that deductions will be taken from the retirement insurance ben-
efits of an individual under age 70 who has "wages and self-
employment income" in excess of the allowable amount. Section
411(a) defines earnings from self-employment, and section 411(a)(3)
allows for certain exclusions:

                    2
          (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 self-
employment. 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, includ-
ing . . . frost." 7 U.S.C. § 1508(a) (1988). Moreover, the insurance
proceeds were calculated on estimated crop yield and expected mar-
ket price. See id.1

The Watsons contend that the insurance proceeds were compensa-
tion for the loss of capital in the production of the peach crop, rather
than compensation for the peach crop itself. They rely on one sen-
tence in Parks v. Federal Crop Ins. Corp., 416 F.2d 833, 838 (7th Cir.
1969), which states that the Federal Crop Insurance Corporation "can
_________________________________________________________________
1 The Commissioner's interpretation is also consistent with the treat-
ment 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.").

                     3
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 produc-
tion 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 invest-
ment 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.
_________________________________________________________________
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.

                    4
