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(2) Disqualified income.-–For purposes of paragraph
(1), the term “disqualified income” means-–
****** *
(C) * * *
(i) * * * [net] income from rents * * * not
derived in the ordinary course of a trade or
business * * *. [Emphasis supplied.]
In arguing that section 32(i) does not apply, petitioner
focused his argument on whether his real estate rental property
activity constituted a trade or business. We believe, however,
that the inquiry is broader and that the correct focus should be
on the phrase “not derived in the ordinary course of a trade or
business”. In considering the effect of this language we assume,
but do not decide, that petitioner’s real estate rental property
activity constituted a trade or business.
The relevant part of section 32(i) was added by section 4(a)
of Act of April 11, 1995, Pub. L. 104-7, 109 Stat. 93, 95. The
legislative history of section 32(i) states that “The Committee
believes that the EITC should be targeted to families with the
greatest need. Therefore, the Committee believes that it is
inappropriate to allow an EITC to taxpayers with significant
unearned income.” S. Rept. 104-16, at 21 (1995). In using the
phrase “not derived in the ordinary course of a trade or
business”, the congressional focus, therefore, was on whether the
taxpayer had unearned income that exceeded the threshold amount.
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