Rev. Rul. 98-56, 1998-47 I.R.B. 5.

                       Internal Revenue Service
                                 Revenue Ruling

                   EARNED INCOME CREDIT; DISQUALIFIED INCOME

                          Published: November 23, 1998

Section 32. - Earned Income, 26 CFR: 1.32-2: Earned income credit for taxable years beginning after December 31, 1978.

  Earned income credit; disqualified income. Gain that is treated as long-term capital gain under section 1231(a)(1) of the Code is not disqualified income for purposes of the earned income credit.

Section 1231. - Property Used in a Trade or Business and Involuntary Conversions, 26 CFR 1.1231-1: Gains and losses from the sale or exchange of certain property used in the trade or business.

  Is gain that is treated as long-term capital gain under § 1231(a)(1) of the Code disqualified income for purposes of the earned income credit.

  Section 32 of the Internal Revenue Code allows an earned income credit to eligible individuals whose income does not exceed certain limits. Section 32(i) denies the earned income credit to an otherwise eligible individual if the individual's "disqualified income" exceeds a specified level for the taxable year for which the credit is claimed. Disqualified income is income specified in § 32(i)(2). Gain that is treated as long-term capital gain under § 1231(a)(1) is not disqualified income for purposes of § 32(i).

DRAFTING INFORMATION

  The principal author of this revenue ruling is Christie J. Jacobs of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling contact Ms. Jacobs on (202) 622-4930 (not a toll-free call).

Rev. Rul. 98-56, 1998-47 I.R.B. 5.