Edward Falls Tramble-Bey - Page 6




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          wages, salaries, tips, and other employee compensation.  See sec.           
          32(c)(2)(A)(i).  However, earned income does not include any                
          amount received for services provided by an individual while the            
          individual is an inmate at a penal institution.  See sec.                   
          32(c)(2)(B)(iv).                                                            
               Respondent contends that section 32(c)(2)(B)(iv) is                    
          dispositive of the issue before us.  Petitioner contends that               
          section 32(c)(2)(B)(iv) does not apply because his wages were               
          paid by a private-sector company for services rendered outside of           
          the Ozark Correctional Center.  We agree with respondent and                
          disagree with petitioner.                                                   
               Petitioner misconstrues section 32(c)(2)(B)(iv).  Under that           
          section, the status of the payor (i.e., public or private entity)           
          is irrelevant; likewise, the situs where the services are                   
          performed (i.e., inside or outside the prison walls) is                     
          irrelevant.  Rather, what is relevant is whether a taxpayer                 
          provides services while the taxpayer is incarcerated.  See Taylor           
          v. Commissioner, T.C. Memo. 1998-401; cf. Lucas v. Commissioner,            
          T.C. Memo. 1999-321.  A taxpayer is incarcerated even when the              
          taxpayer is outside the prison walls pursuant to a work-release             
          program.  In other words, a taxpayer is incarcerated for the                
          entire period of the taxpayer’s prison sentence or until paroled.           
               The legislative history of section 32(c)(2)(B)(iv) reveals             
          that (1) Congress designed the earned income credit to alleviate            





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