316 Neb. Admin. Code, ch. 23, § 004 - TAXATION OF RESIDENT AND NONRESIDENT ESTATES AND TRUSTS

004.01 Resident trusts and estates

The Nebraska income tax is imposed for each taxable year on the adjusted federal taxable income of the fiduciary. The tax is a percentage of the taxpayer's adjusted federal taxable income for the taxable year plus a percentage of the federal alternative minimum tax and the federal tax on premature or lump-sum distributions from qualified retirement plans.

004.02 Nonresident trusts and estates

The Nebraska income tax is imposed for each taxable year on the income of every nonresident trust or estate which is derived from sources within Nebraska. The tax is a percentage of the tax owed by a resident estate or trust with the same adjusted federal taxable income. The percentage is determined by dividing Nebraska source income as determined in paragraph 004.04 by adjusted federal taxable income after the adjustments provided in paragraph 004.03.

004.03 Determining adjusted federal taxable income

Adjusted federal taxable income is the amount of federal taxable income of the fiduciary after the adjustments provided in paragraphs 004.03A through 004.03G.

004.03A Income from federal obligations. There shall be subtracted any interest and dividends received on United States obligations to the extent such interest and dividends are included in federal taxable income but exempt from state income taxes under the laws of the United States. The amount subtracted on account of such interest and dividends must be reduced by any interest on indebtedness incurred to carry such obligations and by any expense incurred in the production of such income to the extent such expense or interest was deducted in determining federal taxable income.

004.03A(1) United States obligations which are exempt include the following:

004.03A(1)(a) Series E, F, G, and H savings bonds;

004.03A(1)(b) United States Treasury bills;

004.03A(1)(c) U.S. Government notes;

004.03A(1)(d) U.S. Government bonds;

004.03A(1)(e) U.S. Government certificates;

004.03A(1)(f) Interest on debentures issued to mortgages of mortgagees foreclosed under provisions of the National Housing Act if insured after February 3, 1938;

004.03A(1)(g) Retirement bond as provided by I.R.C. § 409;

004.03A(1)(h) Federal Farm Credit Bank Consolidated System wide bonds;

004.03A(1)(i) Federal Land Banks and Associations;

004.03A(1)(j) Federal Intermediate Credit Bank;

004.03A(1)(k) Commodity Credit Corporation;

004.03A(1)(l) Federal Farm Mortgage Corporation;

004.03A(1)(m) Federal Home Loan Banks;

004.03A(1)(n) Reconstruction Finance Corporation;

004.03A(1)(o) General Services Administration Participation Certificates;

004.03A(1)(p) Central Bank for Cooperatives (interest only);

004.03A(1)(q) Federal Reserve Banks;

004.03A(1)(r) Federal Savings and Loan Insurance Corporation;

004.03A(1)(s) Production Credit Association (interest only);

004.03A(1)(t) Tennessee Valley Authority Bonds;

004.03A(1)(u) Postal Service Bonds;

004.03A(1)(v) Federal Deposit Insurance Corporation (interest only); and

004.03A(1)(w) Student Loan Marketing Association (interest only).

004.03A(2) Income from Regulated Investment Companies investing directly in U.S. Government obligations is subtracted to the extent it represents income from U.S. Government obligations.

004.03A(3) Interest income from repurchase agreements involving U.S. Government obligations shall not be subtracted.

004.03B Income from State and Local Obligations. There shall be added any interest and dividends received from state and local obligations, other than obligations issued by the state of Nebraska or its political subdivisions, to the extent such interest and dividends are excluded from federal gross income. The amount added on account of such interest and dividends may be reduced by any interest on indebtedness incurred to carry such obligations and by any expense incurred in the production of such income to the extent such expense or interest was not deducted in determining federal taxable income.

004.03B(1) Dividends and income received from Regulated Investment Companies which are attributable to obligations described in paragraph 004.03B shall be added.

004.03C Income and Losses from S Corporations and Limited Liability Companies (LLC's). Income and losses from S Corporations and LLC's shall be treated in the following manner.

004.03C(1) There shall be subtracted any income from S Corporations and LLC's which was not connected with or derived from Nebraska sources.

004.03C(2) There shall be added any loss from S Corporations and LLC's which was not connected with or derived from Nebraska sources.

004.03D Dividends Received from a Corporation not Subject to the Internal Revenue Code (IRC). There shall be subtracted any dividend which was received from a corporation which was not subject to the IRC.

004.03E Special Capital Gains. There shall be subtracted capital gains for which an election has been exercised under Reg-22-020.

004.03F Nebraska Net Operating Losses. A net operating loss carry back or carryover shall be subtracted as provided in Reg-23-013.

004.03G Federal Net Operating Loss Deduction. A federal net operating loss carry back or carry forward used to compute federal taxable income shall be added.

004.04 Income attributable to Nebraska Sources-Nonresident Trusts and Estates

The income attributable to Nebraska sources includes those items directly associated with:

004.04A Real or tangible personal property located within the state,

004.04B A business, trade, profession, or occupation carried on within the state,

004.04C Services performed within the state,

004.04D Intangible personal property, including annuities, dividends, interest, and gains from the sale or exchange of intangible personal property, to the extent that such income is from property employed in a business, trade, profession, or occupation carried on within the state.

004.05 IRC Section 443

The annualization of tax for short period returns is not required for computing regular tax liability.

004.05A The method used for computing federal alternative minimum tax, including annualization as provided under IRC Section 443, must also be used to recompute the federal tax for Nebraska purposes.

Notes

316 Neb. Admin. Code, ch. 23, § 004

Sections 77-2717, 77-2724, and 77-2725, R.R.S. 1996. Nebraska Department of Revenue v. John Loewenstein, 513 U.S. 123 (1994). November 11, 1998.