John E. Van Kalker Jr. And Carol Van Kalker v. Commissioner of Internal Revenue

FLAUM, Circuit Judge.

This appeal raises the issue of whether the Tax Court correctly found that capital was a material income-producing factor in appellant’s ornamental iron business during the taxable year 1978. For the reasons stated below, we reverse.

I

Under former section 1348 of the Internal Revenue Code, 1 a taxpayer’s personal service income is subject to a maximum marginal tax rate of 50%. Under section 911(b), if both personal services and capital are material income-producing factors, the taxpayer may only treat 30% of his or her personal service income as subject to the maximum tax.…