316 Neb. Admin. Code, ch. 24, § 235

Current through September 17, 2024

Section 316-24-235 - NEBRASKA ADJUSTMENTS TO FEDERAL TAXABLE INCOME

235.01 The income of a business entity begins with federal taxable income. Federal taxable income is adjusted as provided in this regulation, prior to any apportionment if applicable.

235.02Adjustments Subtracted from Federal Taxable Income.

235.02A Interest and dividends from federal obligations.

235.02A(1) Any interest and dividends received on U.S. obligations cannot be taxed by any state under U.S. law. Federal corporations that are performing a federal function are instrumentalities of the U.S. government, and interest from their obligations cannot be taxed by any state under U.S. law.

235.02A(1)(i) Interest from repurchase agreements involving federal securities is not exempt and is subject to Nebraska income tax.

235.02A(1)(ii) Gains and losses from the sale or other disposition of federal securities, as distinguished from interest income, are taxable for state income tax purposes.

235.02A(2) Some or all of the income from regulated investment companies (for example, mutual funds') investing directly in U.S. government or federal instrumentality obligations is subtracted. The amount subtracted is the percent of the income which represents exempt U.S. government or federal instrumentality obligations.

235.02A(3) Interest from U.S. obligations described in 235.02A(1) and part of the interest earned from regulated investment companies described in 235.02A(2) must be subtracted to the extent it is included in federal taxable income.

235.02A(3)(a) The amount subtracted must be reduced by any:

(a) interest on indebtedness incurred to carry the obligations described above; and

(b) expenses incurred in the production of the interest or dividend income derived from the obligations, to the extent that the expenses are deductible in determining federal taxable income.

235.02A(3)(b) Interest on indebtedness is determined by (a) dividing the taxpayer's average investment in exempt securities by the taxpayer's average total assets, and multiplying this ratio by the taxpayer's total interest on indebtedness and (b) subtracting any interest disallowed under IRC SS 265 and 291.

235.02A(4) The Tax Commissioner may permit or require the use of amounts from interim balance sheets to compute the ratio of investment in exempt securities to total assets whenever it is necessary to properly reflect the ratio.

235.02A(5) When determining the computation in Reg-24-235.02A(3)(3), the business entity may use, in lieu of tax basis, the amounts from a balance sheet included with the federal return or as required to be reported to federal or state regulatory agencies if (a) the amounts are not materially different from tax basis, (b) the amounts are prepared consistently from year to year, and (c) absent a change in circumstances, the amounts are consistently used by the taxpayer from year to year. The Tax Commissioner may require a taxpayer to use these alternative amounts when necessary to maintain consistency and may also require the taxpayer to show that the amounts used do not materially differ from the tax basis.

235.02A(6) As used in this regulation, unless the context requires otherwise:

235.02A(6)(a) Exempt securities means the obligations that earn income exempt from taxation under Reg-24-235.02A or under IRC § 103;

235.02A(6)(b) Average investment in exempt securities means the average of the aggregate tax bases in exempt securities at the beginning and at the end of the tax year;

235.02A(6)(c) Average total assets means the average of the aggregate tax bases in total assets at the beginning and at the end of the tax year; and

235.02A(6)(d) Total interest on indebtedness means the total interest expense allowed as a deduction in computing federal taxable income phis any interest disallowed under IRC §§ 265 and 291.

235.02B Dividends Received from a Corporation not Subject to the IRC. Any dividend which was received or deemed received from a corporation which was not subject to the IRC is subtracted.

235.02C Excess Foreign Tax Rate. If a portion of the federal taxable income earned by a corporation subject to the IRC is actually taxed by a foreign country or one of its political subdivisions at a rate in excess of the maximum federal tax rate for corporations, the corporation may subtract a portion of the income on which foreign taxes were paid, including foreign taxes deemed paid by the corporation. The taxpayer may make the computation for each foreign country or for groups of foreign countries if each foreign country in the group meets the requirements of Neb. Rev. Stat. § 77-2716(6). The portion of the income that may be deducted is computed in the following manner:

235.02C(1) The amount of federal taxable income from operations within a foreign taxing jurisdiction is reduced by the amount of taxes actually paid to the foreign jurisdiction that are not deductible solely because the foreign tax credit was elected on the federal income tax return;

235.02C(2) The amount calculated in Reg-24-235.02C(1)(1) is divided by one minus the maximum tax rate for corporations in the IRC; and

235.02C(3) The result of the calculation in Reg-24-235.02C(2)(2) is subtracted from the federal taxable income from operations within a foreign taxing jurisdiction used in Reg-24-235.02C(1)(1). The result, if greater than zero, is subtracted.

235.02C(4) The amount subtracted under this subdivision cannot include any amount related to a dividend subtracted under Reg-24-235.02B because it was received from a corporation not subject to the IRC.

235.02D Nebraska Educational Savings Plan Trust (TRUST). Contributions by a participant in the TRUST are subtracted to the extent not deducted for federal tax purposes. The account owner, or beginning January 1,2014, the custodian of the account who is a participant as defined in Neb. Rev. Stat. $ 85-1802 may claim the subtraction.

235.02D(1) For tax years beginning on or after January 1, 2000, and before January 1, 2007, the deduction cannot be more than $1,000.

235.02D(2) For tax years beginning on or after January 1, 2007, and before January 1, 2014, the deduction cannot be more than $5,000.

235.02D(3) Beginning January 1, 2014, the deduction cannot be more than $ 10.000.

235.02D(4) Any interest or dividends earned from a TRUST account within the tax year, are subtracted to the extent not deducted for federal income tax purposes.

235.02D(5) Any interest earnings, or state contributions received in a rollover from another state's educational savings plan which is qualified under IRC § 529, are subtracted to the extent not deducted for federal income tax purposes. If the account is a custodial account, the deduction is limited to contributions made in the other state's educational savings plan after January 1, 2014, and any interest or dividends that were earned on those contributions.

235.02D(6) Any gifts, grants, or donations made to the TRUST before July 1, 2010, for deposit in the endowment fund of the TRUST, are subtracted to the extent not deducted for federal income tax purposes.

235.02E Bonus Depreciation Subtraction. A portion of the amount of bonus depreciation required to be added back for assets placed in service between September 10, 2001, and December 31, 2005, is subtracted in the following years.

235.02E(1) Twenty percent of the total amount of bonus depreciation added back for tax years beginning or deemed to begin before January 1, 2003, is subtracted in the first tax year beginning or deemed to begin on or after January 1, 2005, under the IRC, and 20% in each of the next four tax years.

235.02E(2) Twenty percent of the total amount of bonus depreciation added back for tax years beginning or deemed to begin on or after January 1, 2003, is subtracted in the first tax year beginning or deemed to begin on or after January 1, 2006, under the IRC, as amended, and 20% in each of the next four tax years.

235.02F Enhanced IRC § 179 Subtraction. Twenty percent of the amount required to be added back for capital investment expensed under IRC § 179 in excess of $25,000 for tax years beginning or deemed to begin on or after January 1, 2003, and before January 1, 2006, is subtracted for tax years beginning or deemed to begin on or after January 1, 2006, and 20% in each of the next four tax years.

235.02G Federally-Taxable Build America Bonds Issued by Nebraska Governmental Units. Income from federally-taxable bonds established under the America Recovery and Revitalization Act of 2009 issued by Nebraska governmental units is exempt under Nebraska law. The amount subtracted must be reduced by any interest or expense incurred to carry the obligations that was deducted in determining federal taxable income.

235.02H Nonapportionable Income. Nonapportionable income of a business entity or unitary group that is allocated to another state is subtracted ( Reg-24-301, Apportionable and Nonapportionable Income).

235.02I Income from Pass-Through Entities. Income directly received by the taxpayer from an S corporation, or a limited liability company (LLP, that is not derived from Nebraska sources is subtracted.

235.03Adjustments Added to Federal Taxable Income. The Nebraska adjustments which must be added to federal taxable income are contained in the following subsections.

235.03A Income from State and Local Obligations. Any interest and dividends received from state and local obligations, other than obligations issued by Nebraska or its political subdivisions, must be added to federal taxable income to the extent the interest and dividends are excluded from federal gross income. The amount added must be reduced by any interest or expense incurred to carry the obligations that was not deducted in determining federal taxable income.

235.03B Income from Regulated Investment Companies. Some or all of the dividends and income received from regulated investment companies which are attributable to obligations described in 235.03A must be added to federal taxable income. The amount added is the percent of the income which represents income from state and local obligations, other than obligations issued by Nebraska or its political subdivisions.

235.03C Federal Net Operating Losses. A federal net operating loss that is carried forward or back must be added to federal taxable income to the extent it was used to reduce federal taxable income.

235.03D Federal Capital Losses. A federal capital loss that is carried forward or back must be added back to federal taxable income to the extent it was used to reduce federal taxable income.

235.03E Nebraska Educational Savings Plan Trust. Any nonqualified withdrawals from the TRUST or any amounts withdrawn because of cancellation of a participation agreement including a withdrawal for the purpose of a rollover to an IRC § 529 plan in another state, must be added to federal taxable income, to the extent not included in federal taxable income.

235.03F Bonus Depreciation. For tax years beginning or deemed to begin before January 1, 2006, 85% of the amount of any federal bonus depreciation received under IRC §§ 168(10 or 1400L, for assets placed in service after September 10, 2001, and before December 31, 2005, must be added to federal taxable income.

235.03G IRC § 179 Expense in Excess of $25,000. For tax years beginning or deemed to begin on or after January 1, 2003, and before January 1, 2006, the amount of any capital investment that is expensed under IRC 5 179 and allowed under the Jobs and Growth Tax Act of 2003, that is in excess of $25,000 must be added to federal taxable income.

235.03H Expenses Relating to Nonapportionable Income. Any expenses related to nonapportionable income must be added to federal taxable income. Related expenses include both direct and indirect expenses attributable to the activities producing the nonapportionable income.

235.03I Nonapportionable Losses. Any losses that are nonapportionable and any expense related to the nonapportionable losses must be added to federal taxable income.

316 Neb. Admin. Code, ch. 24, § 235

Adopted effective 7/5/2020