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effective for 1971 and thereafter. Section 1348(b), as so
enacted, defined “earned income” in pertinent part as follows:
SEC. 1348. FIFTY-PERCENT MAXIMUM RATE ON EARNED INCOME.
* * * * * * *
(b) Definitions.--For purposes of this section--
(1) Earned income.--The term “earned income” means
any income which is earned income within the meaning of
section 401(c)(2)(C) or section 911(b), except that
such term does not include any distribution to which
section 72(m)(5), 72(n), 402(a)(2), or 403(a)(2)(A)
applies or any deferred compensation within the meaning
of section 404.
Section 911(b), as then in effect, provided as follows:
SEC. 911. EARNED INCOME FROM SOURCES WITHOUT THE
UNITED STATES
* * * * * * *
(b) Definition of Earned Income.--For purposes of this
section, the term “earned income” means wages, salaries, or
professional fees, and other amounts received as
compensation for personal services actually rendered, but
does not include that part of the compensation derived by
the taxpayer for personal services rendered by him to a
corporation which represents a distribution of earnings or
profits rather than a reasonable allowance as compensation
for the personal services actually rendered. In the case of
a taxpayer engaged in a trade or business in which both
personal services and capital are material income-producing
factors, under regulations prescribed by the Secretary or
his delegate, a reasonable allowance as compensation for the
personal services rendered by the taxpayer, not in excess of
30 percent of his share of the net profits of such trade or
business, shall be considered as earned income.
The Revenue Act of 1971
In 1971, the Congress became concerned that
The increases in the standard deduction * * * have
enhanced the desirability of diverting income * * *
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