PUBLIC LAW 109–135—DEC. 21, 2005
119 STAT. 2613
year and added to the credit allowable under subsection (a) for such taxable year. ‘‘(3) LIMITATION.—No credit may be carried forward under this subsection to any taxable year following the fifth taxable year after the taxable year in which the credit arose. For purposes of the preceding sentence, credits shall be treated as used on a first-in first-out basis.’’. (B)(i) The matter preceding subparagraph (A) of section 24(b)(3) is amended by striking ‘‘The credit’’ and inserting ‘‘In the case of a taxable year to which section 26(a)(2) does not apply, the credit’’. (ii) Paragraph (1) of section 24(d) is amended to read as follows: ‘‘(1) IN GENERAL.—The aggregate credits allowed to a taxpayer under subpart C shall be increased by the lesser of— ‘‘(A) the credit which would be allowed under this section without regard to this subsection and the limitation under section 26(a)(2) or subsection (b)(3), as the case may be, or ‘‘(B) the amount by which the aggregate amount of credits allowed by this subpart (determined without regard to this subsection) would increase if the limitation imposed by section 26(a)(2) or subsection (b)(3), as the case may be, were increased by the excess (if any) of— ‘‘(i) 15 percent of so much of the taxpayer’s earned income (within the meaning of section 32) which is taken into account in computing taxable income for the taxable year as exceeds $10,000, or ‘‘(ii) in the case of a taxpayer with 3 or more qualifying children, the excess (if any) of— ‘‘(I) the taxpayer’s social security taxes for the taxable year, over ‘‘(II) the credit allowed under section for the taxable year. The amount of the credit allowed under this subsection shall not be treated as a credit allowed under this subpart and shall reduce the amount of credit otherwise allowable under subsection (a) without regard to section 26(a)(2) or subsection (b)(3), as the case may be. For purposes of subparagraph (B), any amount excluded from gross income by reason of section 112 shall be treated as earned income which is taken into account in computing taxable income for the taxable year.’’. (C) Subparagraph (C) of section 25(e)(1) is amended to read as follows: ‘‘(C) APPLICABLE TAX LIMIT.—For purposes of this paragraph, the term ‘applicable tax limit’ means— ‘‘(i) in the case of a taxable year to which section 26(a)(2) applies, the limitation imposed by section 26(a)(2) for the taxable year reduced by the sum of the credits allowable under this subpart (other than this section and sections 23, 25D, and 1400C), and ‘‘(ii) in the case of a taxable year to which section 26(a)(2) does not apply, the limitation imposed by section 26(a)(1) for the taxable year reduced by the sum of the credits allowable under this subpart (other than this section and sections 23, 24, 25B, 25D, and 1400C).’’.
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