Sec. 909. RULES RELATING TO DENIAL OF EARNED INCOME CREDIT ON BASIS OF DISQUALIFIED INCOME

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## SEC. 909 RULES RELATING TO DENIAL OF EARNED INCOME CREDIT ON BASIS OF DISQUALIFIED INCOME ###

(a)Reduction in Disqualified Income Threshold ####

(1)In general Paragraph

(1)of section 32(i) of the Internal Revenue Code of 1986 (relating to denial of credit for individuals having excessive investment income) is amended by striking “$2,350” and inserting “$2,200”. ####

(2)Adjustment for inflation Subsection

(j)of section 32 of such Code is amended to read as follows: > > ### “(j) Inflation Adjustments > > > #### “(1) In general > > In the case of any taxable year beginning after 1996, each of the dollar amounts in subsections (b)(2) and (i)(1) shall be increased by an amount equal to— > > > ##### “(A) > > such dollar amount, multiplied by > > > ##### “(B) > > the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘calendar year 1995’ for ‘calendar year 1992’ in subparagraph

(B)thereof. > > > #### “(2) Rounding > > > ##### “(A) In general > > If any dollar amount in subsection (b)(2), after being increased under paragraph (1), is not a multiple of $10, such dollar amount shall be rounded to the nearest multiple of $10. > > > ##### “(B) Disqualified income threshold amount > > If the dollar amount in subsection (i)(1), after being increased under paragraph (1), is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.” > . ####

(3)Conforming amendment Paragraph

(2)of section 32(b) of such Code is amended to read as follows: > > #### “(2) Amounts > > The earned income amount and the phaseout amount shall be determined as follows:” > In the case of an eligible individual with:The earned income amount is:The phaseout amount is:1 qualifying child $6,330 $11,6102 or more qualifying children $8,890 $11,610No qualifying children $4,220 $ 5,280''. ###

(b)Definition of Disqualified Income Paragraph

(2)of section 32(i) of such Code (defining disqualified income) is amended by striking “ and ” at the end of subparagraph (B), by striking the period at the end of subparagraph

(C)and inserting a comma, and by adding at the end the following new subparagraphs: > > ##### “(D) > > the capital gain net income (as defined in section 1222) of the taxpayer for such taxable year, and > > > ##### “(E) > > the excess (if any) of— > > > ###### “(i) > > the aggregate income from all passive activities for the taxable year (determined without regard to any amount included in earned income under subsection (c)(2) or described in a preceding subparagraph), over > > > ###### “(ii) > > the aggregate losses from all passive activities for the taxable year (as so determined). > > For purposes of subparagraph (E), the term ‘**passive activity**’ has the meaning given such term by section 469.” > . ###

(c)Effective Dates ####

(1)In general Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 1995. ####

(2)Advance payment individuals In the case of any individual who on or before June 26, 1996, has in effect an earned income eligibility certificate for the individual's taxable year beginning in 1996, the amendments made by this section shall apply to taxable years beginning after December 31, 1996.