PWDF has at least 11 cases in which SSA improperly disbursed the attorney’s fees pursuant to 42 U.S.C. § 406, 20 C.F.R. § 404.1725 (SSI), and 20 C.F.R. § 416.1525 (SSDI). Part of the problem is due to SSA’s failure to recognize the requirements that apply to a nonprofit employer, such as PWDF, a § 501(c)(3) entity. The Internal Revenue Code prohibits individual attorneys from retaining any attorney fees – only the nonprofit entity may keep them. Specifically, IRS Revenue Procedures state: Attorney fees must go to the organization not to individual staff attorneys. Staff attorneys and employees must be compensated by a straight salary that does not exceed reasonable amounts and is not established in connection with case fees received for cases handled.[⁵]  Most recently, SSA rescinded an Authorization to Charge and Collect Fee in a case that PWDF has been working on since 2011; this rescission came after two separate approval authorizations in 2015 and 2017, without notice to PWDF, and without giving PWDF an opportunity to object. This illegal action violates PWDF’s due process rights, both substantive and procedural under the Fifth Amendment of the US Constitution,[⁶] and we requested review of this rescission in August 2018. This decision comes well after the 15-day statutory period within which a fee determination can be reviewed.[⁷]  In this case, the rescission came three years after the fee petition was approved by the ALJ. Apparently, it is no longer enough to win the case and get a fee agreement or fee petition approved by the judge hearing the case; SSA continually violates its own rules, regulations, as well as the Internal Revenue Code in processing attorney’s fees, all in an effort to keep disabled individuals who cannot work from getting benefits to which they are entitled.

Other examples of SSA’s improper actions in processing fees include making attorneys wait over a year or more to receive approved fees; ignoring waivers of fees by PWDF’s attorneys and paying the funds directly to claimants instead of to the PWDF attorneys who did not waive fees so the funds can, as required by the IRS, go to PWDF to help other people who cannot afford to pay a lawyer; and splitting the fees between all the attorneys who signed a fee agreement, putting PWDF’s § 501(c)(3) status in jeopardy.  One of the fee issues experienced by PWDF is due to the lack of a provision for attorney’s fees in the context of a non-profit organization in HALLEX.[⁸]  In particular:

• HALLEX I-1-2-3 provides that when a claimant is represented by more than one representative associated in a firm, partnership or legal corporation (as is always the case when PWDF represents a claimant), those representatives must sign a single fee agreement; and
• HALLEX I-1-2-18 requires that the total attorney’s fees are to be split between all representatives who signed the fee agreement.

All of these issues create more work and complications for PWDF and its employees, especially when SSA sends individual attorneys IRS 1099 tax forms based on the fact that SSA paid them as representatives, despite the fact that it also reports the same fees on 1099s to PWDF. This is double-reporting of income to the IRS. In federal court, the SSA stated its rationale for this double-reporting of income is so that a Social Security lawyer’s employer can be informed [again] by the SSA. Yes, this is as bad as it sounds – can you imagine sending an IRS form 1099 both to a contractor who works for you and also report the same income for the company for whom the contractor works!  Thus, not only is SSA causing attorney employees to have to explain to the IRS that the fees reported on the 1099 were not in fact income they received, but SSA is also inserting itself into the employer/employee relationship. The time and resources we spend trying to resolve attorney fee issues with SSA could be dedicated to helping people; instead, we are forced to deal with bureaucrats at multiple levels within SSA.

To date, SSA has failed to pay PWDF fees in the amount of $25,476.65 combined. PWDF, in its efforts to collect the fees due, has sent hundreds of letters to SSA’s various component offices, and filed a lawsuit in federal court alleging these glaring violations of the fee agreement and fee petition processes (PWDF v. Colvin, 3:15-cv-02570-HSG (N.D.Cal. Nov. 14, 2015)). These two processes are the only way to obtain the required SSA approval of fees. PWDF is a small agency with limited resources, and ultimately decided that the attorney fees issues should be pursued by the private bar. PWDF is funded partially by attorney’s fees, and has spent hundreds of hours trying to collect what it is due, usually to no avail.

While PWDF continues to represent individuals who meet its criteria (mental and/or intellectual/developmental disabilities) in their claims for disability benefits, it is understandable that many private practitioners have chosen to leave the field or go out of business completely. The NOSSCR survey results show that law firms practicing Social Security disability law have reduced staff, reduced compensation to both attorneys and staff, terminated more senior staff with higher salaries, and started screening cases much more carefully (rejecting 50% or more, when the previous rejection rate was approximately 10%). Some firms have gone as far as not representing anyone under 50 years of age.[⁹]