Nebraska: Department Clarifies Guidance on Section 965 Income

In December 2018, the Nebraska Department of Revenue issued a General Information Letter (GIL) addressing the state’s treatment of IRC section 965 income. At the time, the Department’s position was that the net section 965 inclusion amount was not eligible for a subtraction modification as a foreign dividend. Any taxpayer deducting any part of the net section 965 income as a foreign dividend was required to provide a legal analysis concluding that the net section 965 income was treated as a foreign dividend under the IRC and related Treasury Regulations.

In a revised GIL dated September 13, 2019, the Department, after noting that Nebraska allows a deduction for foreign dividends, states that the net IRC section 965 inclusion amount (965(a) amount minus the 965(c) deduction) is not a foreign dividend or a deemed dividend. As such, any dividend deduction claimed for the net IRC section 965(a) income will be disallowed. The GIL also addresses how taxpayers should apportion 965 income and states that a taxpayer should file an amended return if it improperly reported its IRC section 965(a) income or improperly computed its sales factor on a previously-filed return. If an amended return is filed by December 31, 2019, the Department will waive or abate any penalties or interest resulting from the entity’s incorrect treatment of its IRC section 965(a) income on its 2017 Nebraska income tax return. Please contact Brandon Boetel at 612-305-5474 with questions.