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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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