SEC. 4. DENIAL OF EARNED INCOME

CREDIT FOR INDIVIDUALS HAVING EXCESSIVE INVESTMENT INCOME.

(a) In General. —Section 32 of the Internal Revenue Code of 1986 is amended by redesignating subsections (i) and (j) as subsections (j) and (k), respectively, and by inserting after subsection (h) the following new subsection:

‘‘(i) Denial of Credit for Individuals Having Excessive Investment Income. ‘‘(1) In general. —No credit shall be allowed under subsection (a) for the taxable year if the aggregate amount of disqualified income of the taxpayer for the taxable year exceeds $2,350.

326 1995–2 C.B.

‘‘(2) Disqualified income. —For purposes of paragraph (1), the term ‘disqualified income’ means—

‘‘(A) interest or dividends to the extent includible in gross income for the taxable year,

‘‘(B) interest received or accrued during the taxable year which is exempt from tax imposed by this chapter, and

‘‘(C) the excess (if any) of— ‘‘(i) gross income from rents or royalties not derived in the ordinary course of a trade or business, over

‘‘(ii) the sum of— ‘‘(I) the deductions (other than interest) which are clearly and directly allocable to such gross income, plus

‘‘(II) interest deductions properly allocable to such gross income.’’

(b) Effective Date. —The amendments made by this section shall apply to taxable years beginning after December 31, 1995.