UNEARNED INCOME OF TAXPAYERS WHO ARE DEPENDENTS OF OTHER TAXPAYERS.

SEC. 301. UNEARNED INCOME OF TAXPAYERS WHO ARE DEPENDENTS OF OTHER TAXPAYERS. (a) Limitation of Standard Deduction—Section 141 (relating to the standard deduction) is amended by adding at the end thereof the following new subsection: “(e) Limitations in Case of Certain Dependent Taxpayers—In the case of a taxpayer with respect to whom a deduction under section 151(e) is allowable to another taxpayer for the taxable year— “(1) the percentage standard deduction shall be computed only with reference to so much of his adjusted gross income as is attributable to his earned income (as defined in section 911(b)), and “(2) the low-income allowance shall not exceed his earned income for the taxable year.” (b) Optional Tax—Section 4(d) (relating to tax payers ineligible for optional tax) is amended— (1) by striking out “or” at the end of paragraph (3); (2) by striking out the period at the end of paragraph (4) and inserting in lieu thereof “; or”; and (3) by adding at the end thereof the following new paragraph: “(5) an individual if the amount of the standard deduction otherwise allowable to such individual is reduced under section 141(e).” (c) Election of Standard Deduction—Section 144(a) (relating to election of standard deduction) is amended by adding at the end thereof the following new paragraph: “(4) If the adjusted gross income shown on the return is less than $10,000, and if the taxpayer cannot elect to pay the tax imposed by section 3 by reason of section 4(d) (5), the standard 85 Stat. 521deduction (after the application of section 141(e)) shall be allowed, notwithstanding paragraph (2), if the taxpayer so elects in his return.” (d) Effective Date—The amendments made by this section shall apply to taxable years beginning after December 31, 1971.