2023 Nebraska Revised Statutes › Chapter 77 - Revenue and Taxation › 77-2734.01 - Small business corporation shareholders; limited liability company members; determination of income; credit; Tax Commissioner; powers; return; when required; election to file return at entity level; how treated.

77-2734.01.
Small business corporation shareholders; limited liability company members; determination of income; credit; Tax Commissioner; powers; return; when required; election to file return at entity level; how treated.
(1) Residents of Nebraska who are shareholders of a small business corporation having an election in effect under subchapter S of the Internal Revenue Code or who are members of a limited liability company organized pursuant to the Nebraska Uniform Limited Liability Company Act shall include in their Nebraska taxable income, to the extent includable in federal gross income, their proportionate share of such corporation's or limited liability company's federal income adjusted pursuant to this section. Income or loss from such corporation or limited liability company conducting a business, trade, profession, or occupation shall be included in the Nebraska taxable income of a shareholder or member who is a resident of this state to the extent of such shareholder's or member's proportionate share of the net income or loss from the conduct of such business, trade, profession, or occupation within this state, determined under subsection (2) of this section. A resident of Nebraska shall include in Nebraska taxable income fair compensation for services rendered to such corporation or limited liability company. Compensation actually paid shall be presumed to be fair unless it is apparent to the Tax Commissioner that such compensation is materially different from fair value for the services rendered or has been manipulated for tax avoidance purposes.
(2) The income of any small business corporation having an election in effect under subchapter S of the Internal Revenue Code or limited liability company organized pursuant to the Nebraska Uniform Limited Liability Company Act that is derived from or connected with Nebraska sources shall be determined in the following manner:
(a) If the small business corporation is a member of a unitary group, the small business corporation shall be deemed to be doing business within this state if any part of its income is derived from transactions with other members of the unitary group doing business within this state, and such corporation shall apportion its income by using the apportionment factor determined for the entire unitary group, including the small business corporation, under sections 77-2734.05 to 77-2734.15;
(b) If the small business corporation or limited liability company is not a member of a unitary group and is subject to tax in another state, it shall apportion its income under sections 77-2734.05 to 77-2734.15; and
(c) If the small business corporation or limited liability company is not subject to tax in another state, all of its income is derived from or connected with Nebraska sources.
(3) Nonresidents of Nebraska who are shareholders of such corporations or members of such limited liability companies shall file a Nebraska income tax return and shall include in Nebraska adjusted gross income their proportionate share of the corporation's or limited liability company's Nebraska income as determined under subsection (2) of this section.
(4) The nonresident shareholder or member shall execute and forward to the corporation or limited liability company before the filing of the corporation's or limited liability company's return an agreement which states he or she will file a Nebraska income tax return and pay the tax on the income derived from or connected with sources in this state, and such agreement shall be attached to the corporation's or limited liability company's Nebraska return for such taxable year.
(5) For taxable years beginning or deemed to begin before January 1, 2013, in the absence of the nonresident shareholder's or member's executed agreement being attached to the Nebraska return, the corporation or limited liability company shall remit with the return an amount equal to the highest individual income tax rate determined under section 77-2715.02 multiplied by the nonresident shareholder's or member's share of the corporation's or limited liability company's income which was derived from or attributable to this state. For taxable years beginning or deemed to begin on or after January 1, 2013, in the absence of the nonresident shareholder's or member's executed agreement being attached to the Nebraska return, the corporation or limited liability company shall remit with the return an amount equal to the highest individual income tax rate determined under section 77-2715.03 multiplied by the nonresident shareholder's or member's share of the corporation's or limited liability company's income which was derived from or attributable to this state. The amount remitted shall be allowed as a credit against the Nebraska income tax liability of the shareholder or member.
(6) The Tax Commissioner may allow a nonresident individual shareholder or member to not file a Nebraska income tax return if the nonresident individual shareholder's or member's only source of Nebraska income was his or her share of the small business corporation's or limited liability company's income which was derived from or attributable to sources within this state, the nonresident did not file an agreement to file a Nebraska income tax return, and the small business corporation or limited liability company has remitted the amount required by subsection (5) of this section on behalf of such nonresident individual shareholder or member. The amount remitted shall be retained in satisfaction of the Nebraska income tax liability of the nonresident individual shareholder or member.
(7) A small business corporation or limited liability company return shall be filed if the small business corporation or limited liability company has income derived from Nebraska sources.
(8) Notwithstanding any provision of this section to the contrary:
(a) For tax years beginning or deemed to begin on or after January 1, 2018, a small business corporation may annually make an irrevocable election to pay the taxes, interest, or penalties levied by the Nebraska Revenue Act of 1967 at the entity level for the taxable period covered by such return. For tax years beginning on or after January 1, 2023, such election must be made on or before the due date for filing the applicable income tax return, including any extensions that have been granted;
(b) An electing small business corporation with respect to a taxable period shall pay an income tax equivalent to the highest individual income tax rate provided in section 77-2715.03 multiplied by the electing small business corporation's net income as apportioned or allocated to this state in accordance with the Nebraska Revenue Act of 1967, for such taxable period;
(c) An electing small business corporation shall be treated as a corporation with respect to the requirements of section 77-2769 for payments of estimated tax. The requirement for payment of estimated tax under section 77-2769 shall not apply for tax years beginning prior to January 1, 2024. Payments of estimated tax made by an eligible small business corporation that does not make an election under this subsection shall be treated as income tax withholding on behalf of the shareholders;
(d) Except as provided in subdivision (e) of this subsection, the shareholders of an electing small business corporation must file a Nebraska return to report their pro rata or distributive share of the income of the electing small business corporation in accordance with the Nebraska Revenue Act of 1967, as applicable. In determining the sum of its pro rata or distributive share and computing the tax under this subsection, an electing small business corporation shall add back any amount of Nebraska tax imposed under the Nebraska Revenue Act of 1967 and deducted by the electing small business corporation for federal income tax purposes under section 164 of the Internal Revenue Code;
(e) A nonresident individual who is a shareholder of an electing small business corporation shall not be required to file a Nebraska tax return for a taxable year if, for such taxable year, the only source of income derived from or connected with sources within this state for such shareholder, or for the shareholder and the shareholder's spouse if a joint federal income tax return is filed, is from one or more electing small business corporations or electing partnerships as defined in subdivision (7)(a) of section 77-2727 for such taxable year and such nonresident individual shareholder's tax under the Nebraska Revenue Act of 1967 would be fully satisfied by the credit allowed to such shareholder under subdivision (g) of this subsection;
(f) If the amount calculated under subdivision (a) of this subsection results in a net operating loss, such net operating loss may not be carried forward to succeeding taxable years;
(g) A refundable credit shall be available to the shareholders in an amount equal to their pro rata or distributive share of the Nebraska income tax paid by the electing small business corporation; and
(h)(i) For tax years beginning or deemed to begin on or after January 1, 2018, but prior to January 1, 2023, the electing small business corporation must make the election under this subsection on or after January 1, 2023, but before December 31, 2025, in the form and manner prescribed by the Tax Commissioner for all years for which the election under this subsection is made on behalf of the electing small business corporation. The Tax Commissioner shall establish the form and manner, which shall not include any changes to the past returns other than those that are directly related to the election under this subsection.
(ii) Notwithstanding any other provision of law, if an electing small business corporation files in the form and manner as specified in subdivision (h)(i) of this subsection, the deadline for filing a claim for credit or refund prescribed in section 77-2793 shall be extended for affected shareholders of the electing small business corporation until the timeframe specified in section 77-2793 or January 31, 2026, whichever is later. The resulting claim of refund for tax years beginning prior to January 1, 2023, shall be submitted in the form and manner as prescribed by the Tax Commissioner. Neither the electing small business corporation nor its shareholders shall incur any penalties for late filing nor owe interest on such amounts. The Tax Commissioner shall not be required to pay interest on any amounts owed to the shareholders resulting from such refund claims.
(iii) Notwithstanding the dates provided in subdivision (h)(i) of this subsection, the Tax Commissioner shall have one year from the date an electing small business corporation files in the form and manner as specified in subdivision (h)(i) of this subsection to review and make a written proposed deficiency determination in accordance with section 77-2786. Any notice of deficiency determination made as specified in this subdivision may be enforced at any time within six years from the date of the notice of deficiency determination.
(9) For purposes of this section:
(a) Electing small business corporation means, with respect to a taxable period, an eligible small business corporation having an election in effect under subchapter S of the Internal Revenue Code that has made an election pursuant to subsection (8) of this section with respect to such taxable period; and
(b) Eligible small business corporation means an entity subject to taxation under subchapter S of the Internal Revenue Code and the regulations thereunder.
(10) For purposes of this section, any shareholder or member of the corporation or limited liability company that is a grantor trust of a nonresident shall be disregarded and this section shall apply as though the nonresident grantor was the shareholder or member.
Source
Laws 1984, LB 1124, § 4;
Laws 1985, LB 273, § 54;
Laws 1987, LB 523, § 23;
Laws 1987, LB 773, § 18;
Laws 1991, LB 773, § 16;
Laws 1993, LB 121, § 508;
Laws 2005, LB 216, § 12;
Laws 2008, LB915, § 3;
Laws 2010, LB888, § 105;
Laws 2012, LB970, § 8;
Laws 2013, LB283, § 7;
Laws 2019, LB512, § 21;
Laws 2023, LB754, § 13.
Effective Date: June 1, 2023
Cross References
Nebraska Uniform Limited Liability Company Act, see section 21-101.