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LEGISLATURE OF NEBRASKA
ONE HUNDRED NINTH LEGISLATURE
SECOND SESSION
LEGISLATIVE BILL 851
Introduced by Dungan, 26.
Read first time January 08, 2026
Committee: Revenue
A BILL FOR AN ACT relating to revenue and taxation; to amend sections1
77-2716 and 77-2734.01, Revised Statutes Supplement, 2025; to change2
income tax provisions relating to certain income or loss received3
from S-corporations and limited liability companies; and to repeal4
the original sections. 5
Be it enacted by the people of the State of Nebraska,6
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Section 1. Section 77-2716, Revised Statutes Supplement, 2025, is1
amended to read: 2
77-2716 (1) The following adjustments to federal adjusted gross3
income or, for corporations and fiduciaries, federal taxable income shall4
be made for interest or dividends received: 5
(a)(i) There shall be subtracted interest or dividends received by6
the owner of obligations of the United States and its territories and7
possessions or of any authority, commission, or instrumentality of the8
United States to the extent includable in gross income for federal income9
tax purposes but exempt from state income taxes under the laws of the10
United States; and 11
(ii) There shall be subtracted interest received by the owner of12
obligations of the State of Nebraska or its political subdivisions or13
authorities which are Build America Bonds to the extent includable in14
gross income for federal income tax purposes; 15
(b) There shall be subtracted that portion of the total dividends16
and other income received from a regulated investment company which is17
attributable to obligations described in subdivision (a) of this18
subsection as reported to the recipient by the regulated investment19
company; 20
(c) There shall be added interest or dividends received by the owner21
of obligations of the District of Columbia, other states of the United22
States, or their political subdivisions, authorities, commissions, or23
instrumentalities to the extent excluded in the computation of gross24
income for federal income tax purposes except that such interest or25
dividends shall not be added if received by a corporation which is a26
regulated investment company; 27
(d) There shall be added that portion of the total dividends and28
other income received from a regulated investment company which is29
attributable to obligations described in subdivision (c) of this30
subsection and excluded for federal income tax purposes as reported to31
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the recipient by the regulated investment company; and1
(e)(i) Any amount subtracted under this subsection shall be reduced2
by any interest on indebtedness incurred to carry the obligations or3
securities described in this subsection or the investment in the4
regulated investment company and by any expenses incurred in the5
production of interest or dividend income described in this subsection to6
the extent that such expenses, including amortizable bond premiums, are7
deductible in determining federal taxable income. 8
(ii) Any amount added under this subsection shall be reduced by any9
expenses incurred in the production of such income to the extent10
disallowed in the computation of federal taxable income.11
(2) There shall be allowed a net operating loss derived from or12
connected with Nebraska sources computed under rules and regulations13
adopted and promulgated by the Tax Commissioner consistent, to the extent14
possible under the Nebraska Revenue Act of 1967, with the laws of the15
United States. For a resident individual, estate, or trust, the net16
operating loss computed on the federal income tax return shall be17
adjusted by the modifications contained in this section. For a18
nonresident individual, estate, or trust or for a partial-year resident19
individual, the net operating loss computed on the federal return shall20
be adjusted by the modifications contained in this section and any21
carryovers or carrybacks shall be limited to the portion of the loss22
derived from or connected with Nebraska sources. 23
(3) There shall be subtracted from federal adjusted gross income for24
all taxable years beginning on or after January 1, 1987, the amount of25
any state income tax refund to the extent such refund was deducted under26
the Internal Revenue Code, was not allowed in the computation of the tax27
due under the Nebraska Revenue Act of 1967, and is included in federal28
adjusted gross income. 29
(4) For taxable years beginning or deemed to begin before January 1,30
2026, federal Federal adjusted gross income, or, for a fiduciary, federal31
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taxable income shall be modified to exclude the portion of the income or1
loss received from a small business corporation with an election in2
effect under subchapter S of the Internal Revenue Code or from a limited3
liability company organized pursuant to the Nebraska Uniform Limited4
Liability Company Act that is not derived from or connected with Nebraska5
sources as determined in section 77-2734.01. 6
(5) There shall be subtracted from federal adjusted gross income or,7
for corporations and fiduciaries, federal taxable income dividends8
received or deemed to be received from corporations which are not subject9
to the Internal Revenue Code. 10
(6) There shall be subtracted from federal taxable income a portion11
of the income earned by a corporation subject to the Internal Revenue12
Code of 1986 that is actually taxed by a foreign country or one of its13
political subdivisions at a rate in excess of the maximum federal tax14
rate for corporations. The taxpayer may make the computation for each15
foreign country or for groups of foreign countries. The portion of the16
taxes that may be deducted shall be computed in the following manner:17
(a) The amount of federal taxable income from operations within a18
foreign taxing jurisdiction shall be reduced by the amount of taxes19
actually paid to the foreign jurisdiction that are not deductible solely20
because the foreign tax credit was elected on the federal income tax21
return; 22
(b) The amount of after-tax income shall be divided by one minus the23
maximum tax rate for corporations in the Internal Revenue Code; and24
(c) The result of the calculation in subdivision (b) of this25
subsection shall be subtracted from the amount of federal taxable income26
used in subdivision (a) of this subsection. The result of such27
calculation, if greater than zero, shall be subtracted from federal28
taxable income. 29
(7) Federal adjusted gross income shall be modified to exclude any30
amount repaid by the taxpayer for which a reduction in federal tax is31
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allowed under section 1341(a)(5) of the Internal Revenue Code.1
(8)(a) Federal adjusted gross income or, for corporations and2
fiduciaries, federal taxable income shall be reduced, to the extent3
included, by income from interest, earnings, and state contributions4
received from the Nebraska educational savings plan trust as provided in5
sections 77-1415 to 77-1430 and any account established under the6
achieving a better life experience program as provided in sections7
77-1401 to 77-1409. 8
(b) Federal adjusted gross income or, for corporations and9
fiduciaries, federal taxable income shall be reduced by any contributions10
as a participant in the Nebraska educational savings plan trust, any11
contributions to an account established under the achieving a better life12
experience program made for the benefit of a beneficiary as provided in13
sections 77-1401 to 77-1409, or any contributions to the Give to Enable14
Support Cash Fund as provided in the Give to Enable Support Act, to the15
extent not deducted for federal income tax purposes, but not to exceed16
five thousand dollars per married filing separate return or ten thousand17
dollars for any other return. With respect to a qualified rollover within18
the meaning of section 529 of the Internal Revenue Code from another19
state's plan, any interest, earnings, and state contributions received20
from the other state's educational savings plan which is qualified under21
section 529 of the code shall qualify for the reduction provided in this22
subdivision. For contributions by a custodian of a custodial account23
including rollovers from another custodial account, the reduction shall24
only apply to funds added to the custodial account after January 1, 2014.25
(c) For taxable years beginning or deemed to begin on or after26
January 1, 2021, under the Internal Revenue Code of 1986, as amended,27
federal adjusted gross income shall be reduced, to the extent included in28
the adjusted gross income of an individual, by the amount of any29
contribution made by the individual's employer into an account under the30
Nebraska educational savings plan trust owned by the individual, not to31
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exceed five thousand dollars per married filing separate return or ten1
thousand dollars for any other return. 2
(d) Federal adjusted gross income or, for corporations and3
fiduciaries, federal taxable income shall be increased by:4
(i) The amount resulting from the cancellation of a participation5
agreement refunded to the taxpayer as a participant in the Nebraska6
educational savings plan trust to the extent previously deducted under7
subdivision (8)(b) of this section; and 8
(ii) The amount of any withdrawals by the owner of an account9
established under the achieving a better life experience program as10
provided in sections 77-1401 to 77-1409 for nonqualified expenses to the11
extent previously deducted under subdivision (8)(b) of this section.12
(9)(a) For income tax returns filed after September 10, 2001, for13
taxable years beginning or deemed to begin before January 1, 2006, under14
the Internal Revenue Code of 1986, as amended, federal adjusted gross15
income or, for corporations and fiduciaries, federal taxable income shall16
be increased by eighty-five percent of any amount of any federal bonus17
depreciation received under the federal Job Creation and Worker18
Assistance Act of 2002 or the federal Jobs and Growth Tax Act of 2003,19
under section 168(k) or section 1400L of the Internal Revenue Code of20
1986, as amended, for assets placed in service after September 10, 2001,21
and before December 31, 2005. 22
(b) For a partnership, limited liability company, cooperative,23
including any cooperative exempt from income taxes under section 521 of24
the Internal Revenue Code of 1986, as amended, limited cooperative25
association, subchapter S corporation, or joint venture, the increase26
shall be distributed to the partners, members, shareholders, patrons, or27
beneficiaries in the same manner as income is distributed for use against28
their income tax liabilities. 29
(c) For a corporation with a unitary business having activity both30
inside and outside the state, the increase shall be apportioned to31
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Nebraska in the same manner as income is apportioned to the state by1
section 77-2734.05. 2
(d) The amount of bonus depreciation added to federal adjusted gross3
income or, for corporations and fiduciaries, federal taxable income by4
this subsection shall be subtracted in a later taxable year. Twenty5
percent of the total amount of bonus depreciation added back by this6
subsection for tax years beginning or deemed to begin before January 1,7
2003, under the Internal Revenue Code of 1986, as amended, may be8
subtracted in the first taxable year beginning or deemed to begin on or9
after January 1, 2005, under the Internal Revenue Code of 1986, as10
amended, and twenty percent in each of the next four following taxable11
years. Twenty percent of the total amount of bonus depreciation added12
back by this subsection for tax years beginning or deemed to begin on or13
after January 1, 2003, may be subtracted in the first taxable year14
beginning or deemed to begin on or after January 1, 2006, under the15
Internal Revenue Code of 1986, as amended, and twenty percent in each of16
the next four following taxable years. 17
(10) For taxable years beginning or deemed to begin on or after18
January 1, 2003, and before January 1, 2006, under the Internal Revenue19
Code of 1986, as amended, federal adjusted gross income or, for20
corporations and fiduciaries, federal taxable income shall be increased21
by the amount of any capital investment that is expensed under section22
179 of the Internal Revenue Code of 1986, as amended, that is in excess23
of twenty-five thousand dollars that is allowed under the federal Jobs24
and Growth Tax Act of 2003. Twenty percent of the total amount of25
expensing added back by this subsection for tax years beginning or deemed26
to begin on or after January 1, 2003, may be subtracted in the first27
taxable year beginning or deemed to begin on or after January 1, 2006,28
under the Internal Revenue Code of 1986, as amended, and twenty percent29
in each of the next four following tax years. 30
(11)(a) For taxable years beginning or deemed to begin before31
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January 1, 2018, under the Internal Revenue Code of 1986, as amended,1
federal adjusted gross income shall be reduced by contributions, up to2
two thousand dollars per married filing jointly return or one thousand3
dollars for any other return, and any investment earnings made as a4
participant in the Nebraska long-term care savings plan under the Long-5
Term Care Savings Plan Act, to the extent not deducted for federal income6
tax purposes. 7
(b) For taxable years beginning or deemed to begin before January 1,8
2018, under the Internal Revenue Code of 1986, as amended, federal9
adjusted gross income shall be increased by the withdrawals made as a10
participant in the Nebraska long-term care savings plan under the act by11
a person who is not a qualified individual or for any reason other than12
transfer of funds to a spouse, long-term care expenses, long-term care13
insurance premiums, or death of the participant, including withdrawals14
made by reason of cancellation of the participation agreement, to the15
extent previously deducted as a contribution or as investment earnings.16
(12) There shall be added to federal adjusted gross income for17
individuals, estates, and trusts any amount taken as a credit for18
franchise tax paid by a financial institution under sections 77-3801 to19
77-3807 as allowed by subsection (5) of section 77-2715.07.20
(13)(a) For taxable years beginning or deemed to begin on or after21
January 1, 2015, and before January 1, 2024, under the Internal Revenue22
Code of 1986, as amended, federal adjusted gross income shall be reduced23
by the amount received as benefits under the federal Social Security Act24
which are included in the federal adjusted gross income if:25
(i) For taxpayers filing a married filing joint return, federal26
adjusted gross income is fifty-eight thousand dollars or less; or27
(ii) For taxpayers filing any other return, federal adjusted gross28
income is forty-three thousand dollars or less. 29
(b) For taxable years beginning or deemed to begin on or after30
January 1, 2020, and before January 1, 2024, under the Internal Revenue31
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Code of 1986, as amended, the Tax Commissioner shall adjust the dollar1
amounts provided in subdivisions (13)(a)(i) and (ii) of this section by2
the same percentage used to adjust individual income tax brackets under3
subsection (3) of section 77-2715.03. 4
(c) For taxable years beginning or deemed to begin on or after5
January 1, 2021, and before January 1, 2024, under the Internal Revenue6
Code of 1986, as amended, a taxpayer may claim the reduction to federal7
adjusted gross income allowed under this subsection or the reduction to8
federal adjusted gross income allowed under subsection (14) of this9
section, whichever provides the greater reduction.10
(14)(a) For taxable years beginning or deemed to begin on or after11
January 1, 2021, under the Internal Revenue Code of 1986, as amended,12
federal adjusted gross income shall be reduced by a percentage of the13
social security benefits that are received and included in federal14
adjusted gross income. The pertinent percentage shall be:15
(i) Five percent for taxable years beginning or deemed to begin on16
or after January 1, 2021, and before January 1, 2022, under the Internal17
Revenue Code of 1986, as amended; 18
(ii) Forty percent for taxable years beginning or deemed to begin on19
or after January 1, 2022, and before January 1, 2023, under the Internal20
Revenue Code of 1986, as amended; 21
(iii) Sixty percent for taxable years beginning or deemed to begin22
on or after January 1, 2023, and before January 1, 2024, under the23
Internal Revenue Code of 1986, as amended; and 24
(iv) One hundred percent for taxable years beginning or deemed to25
begin on or after January 1, 2024, under the Internal Revenue Code of26
1986, as amended. 27
(b) For purposes of this subsection, social security benefits means28
benefits received under the federal Social Security Act.29
(c) For taxable years beginning or deemed to begin on or after30
January 1, 2021, and before January 1, 2024, under the Internal Revenue31
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Code of 1986, as amended, a taxpayer may claim the reduction to federal1
adjusted gross income allowed under this subsection or the reduction to2
federal adjusted gross income allowed under subsection (13) of this3
section, whichever provides the greater reduction. 4
(15)(a) For taxable years beginning or deemed to begin on or after5
January 1, 2015, and before January 1, 2022, under the Internal Revenue6
Code of 1986, as amended, an individual may make a one-time election7
within two calendar years after the date of his or her retirement from8
the military to exclude income received as a military retirement benefit9
by the individual to the extent included in federal adjusted gross income10
and as provided in this subdivision. The individual may elect to exclude11
forty percent of his or her military retirement benefit income for seven12
consecutive taxable years beginning with the year in which the election13
is made or may elect to exclude fifteen percent of his or her military14
retirement benefit income for all taxable years beginning with the year15
in which he or she turns sixty-seven years of age.16
(b) For taxable years beginning or deemed to begin on or after17
January 1, 2022, under the Internal Revenue Code of 1986, as amended, an18
individual may exclude one hundred percent of the military retirement19
benefit income received by such individual to the extent included in20
federal adjusted gross income. 21
(c) For purposes of this subsection, military retirement benefit22
means retirement benefits that are periodic payments attributable to23
service in the uniformed services of the United States for personal24
services performed by an individual prior to his or her retirement. The25
term includes retirement benefits described in this subdivision that are26
reported to the individual on either: 27
(i) An Internal Revenue Service Form 1099-R received from the United28
States Department of Defense; or 29
(ii) An Internal Revenue Service Form 1099-R received from the30
United States Office of Personnel Management. 31
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(16) For taxable years beginning or deemed to begin on or after1
January 1, 2021, under the Internal Revenue Code of 1986, as amended,2
federal adjusted gross income shall be reduced by the amount received as3
a Segal AmeriCorps Education Award, to the extent such amount is included4
in federal adjusted gross income. 5
(17) For taxable years beginning or deemed to begin on or after6
January 1, 2022, under the Internal Revenue Code of 1986, as amended,7
federal adjusted gross income shall be reduced by the amount received by8
or on behalf of a firefighter for cancer benefits under the Firefighter9
Cancer Benefits Act to the extent included in federal adjusted gross10
income. 11
(18) There shall be subtracted from the federal adjusted gross12
income of individuals any amount received by the individual as student13
loan repayment assistance under the Teach in Nebraska Today Act, to the14
extent such amount is included in federal adjusted gross income.15
(19) For taxable years beginning or deemed to begin on or after16
January 1, 2023, under the Internal Revenue Code of 1986, as amended, a17
retired individual who was employed full time as a firefighter or18
certified law enforcement officer for at least twenty years and who is at19
least sixty years of age as of the end of the taxable year may reduce his20
or her federal adjusted gross income by the amount of health insurance21
premiums paid by such individual during the taxable year, to the extent22
such premiums were not already deducted in determining the individual's23
federal adjusted gross income. 24
(20) For taxable years beginning or deemed to begin on or after25
January 1, 2024, under the Internal Revenue Code of 1986, as amended, an26
individual may reduce his or her federal adjusted gross income by the27
amounts received as annuities under the Civil Service Retirement System28
which were earned for being employed by the federal government, to the29
extent such amounts are included in federal adjusted gross income.30
(21) For taxable years beginning or deemed to begin on or after31
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January 1, 2025, under the Internal Revenue Code of 1986, as amended, an1
individual who is a member of the Nebraska National Guard may exclude one2
hundred percent of the income received from any of the following sources3
to the extent such income is included in the individual's federal4
adjusted gross income: 5
(a) Serving in a 32 U.S.C. duty status such as members attending6
drills, annual training, and military schools and members who are serving7
in a 32 U.S.C. active guard reserve or active duty for operational8
support duty status; 9
(b) Employment as a 32 U.S.C. federal dual-status technician with10
the Nebraska National Guard; or 11
(c) Serving in a state active duty status. 12
(22)(a) For taxable years beginning or deemed to begin on or after13
January 1, 2024, under the Internal Revenue Code of 1986, as amended, an14
individual may reduce his or her federal adjusted gross income by the15
amount of interest and principal balance of medical debt discharged under16
the Medical Debt Relief Act, to the extent included in such individual's17
federal adjusted gross income. 18
(b) For taxable years beginning or deemed to begin on or after19
January 1, 2024, under the Internal Revenue Code of 1986, as amended,20
federal adjusted gross income or, for corporations and fiduciaries,21
federal taxable income shall be reduced by the amount of contributions22
made to the Medical Debt Relief Fund, to the extent not deducted for23
federal income tax purposes. 24
(23) For taxable years beginning or deemed to begin on or after25
January 1, 2025, under the Internal Revenue Code of 1986, as amended, an26
individual who is a qualifying employee as defined in section 77-3108 may27
reduce his or her federal adjusted gross income by the amount allowed28
under section 77-3111. 29
(24) For taxable years beginning or deemed to begin on or after30
January 1, 2026, under the Internal Revenue Code of 1986, as amended,31
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federal adjusted gross income or, for corporations and fiduciaries,1
federal taxable income shall be reduced by the amounts allowed to be2
deducted pursuant to section 77-27,242. 3
(25) There shall be added to federal adjusted gross income or, for4
corporations and fiduciaries, federal taxable income for all taxable5
years beginning on or after January 1, 2025, the amount of any net6
capital loss that is derived from the sale or exchange of gold or silver7
bullion to the extent such loss is included in federal adjusted gross8
income except that such loss shall not be added if the loss is derived9
from the sale of bullion as a taxable distribution from any retirement10
plan account that holds gold or silver bullion. For the purposes of this11
subsection, bullion has the same meaning as in section 77-2704.66.12
(26) There shall be subtracted from federal adjusted gross income13
or, for corporations and fiduciaries, federal taxable income for all14
taxable years beginning on or after January 1, 2025, the amount of any15
net capital gain that is derived from the sale or exchange of gold or16
silver bullion to the extent such gain is included in federal adjusted17
gross income except that such gain shall not be subtracted if the gain is18
derived from the sale of bullion as a taxable distribution from any19
retirement plan account that holds gold or silver bullion. For the20
purposes of this subsection, bullion has the same meaning as in section21
77-2704.66. 22
Sec. 2. Section 77-2734.01, Revised Statutes Supplement, 2025, is23
amended to read: 24
77-2734.01 (1)(a) For taxable years beginning or deemed to begin25
before January 1, 2026, residents (1) Residents of Nebraska who are26
shareholders of a small business corporation having an election in effect27
under subchapter S of the Internal Revenue Code or who are members of a28
limited liability company organized pursuant to the Nebraska Uniform29
Limited Liability Company Act shall include in their Nebraska taxable30
income, to the extent includable in federal gross income, their31
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proportionate share of such corporation's or limited liability company's1
federal income adjusted pursuant to this section. Income or loss from2
such corporation or limited liability company conducting a business,3
trade, profession, or occupation shall be included in the Nebraska4
taxable income of a shareholder or member who is a resident of this state5
to the extent of such shareholder's or member's proportionate share of6
the net income or loss from the conduct of such business, trade,7
profession, or occupation within this state, determined under subsection8
(2) of this section. A resident of Nebraska shall include in Nebraska9
taxable income fair compensation for services rendered to such10
corporation or limited liability company. Compensation actually paid11
shall be presumed to be fair unless it is apparent to the Tax12
Commissioner that such compensation is materially different from fair13
value for the services rendered or has been manipulated for tax avoidance14
purposes. 15
(b) For taxable years beginning or deemed to begin on or after16
January 1, 2026, residents of Nebraska who are shareholders of a small17
business corporation having an election in effect under subchapter S of18
the Internal Revenue Code or who are members of a limited liability19
company organized pursuant to the Nebraska Uniform Limited Liability20
Company Act shall include in their Nebraska taxable income, to the extent21
includable in federal gross income, their proportionate share of such22
corporation's or limited liability company's federal income. A resident23
of Nebraska shall include in Nebraska taxable income fair compensation24
for services rendered to such corporation or limited liability company.25
Compensation actually paid shall be presumed to be fair unless it is26
apparent to the Tax Commissioner that such compensation is materially27
different from fair value for the services rendered or has been28
manipulated for tax avoidance purposes. 29
(2) The income of any small business corporation having an election30
in effect under subchapter S of the Internal Revenue Code or limited31
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liability company organized pursuant to the Nebraska Uniform Limited1
Liability Company Act that is derived from or connected with Nebraska2
sources shall be determined in the following manner:3
(a) If the small business corporation is a member of a unitary4
group, the small business corporation shall be deemed to be doing5
business within this state if any part of its income is derived from6
transactions with other members of the unitary group doing business7
within this state, and such corporation shall apportion its income by8
using the apportionment factor determined for the entire unitary group,9
including the small business corporation, under sections 77-2734.05 to10
77-2734.15; 11
(b) If the small business corporation or limited liability company12
is not a member of a unitary group and is subject to tax in another13
state, it shall apportion its income under sections 77-2734.05 to14
77-2734.15; and 15
(c) If the small business corporation or limited liability company16
is not subject to tax in another state, all of its income is derived from17
or connected with Nebraska sources. 18
(3) Nonresidents of Nebraska who are shareholders of such19
corporations or members of such limited liability companies shall file a20
Nebraska income tax return and shall include in Nebraska adjusted gross21
income their proportionate share of the corporation's or limited22
liability company's Nebraska income as determined under subsection (2) of23
this section. 24
(4) The nonresident shareholder or member shall execute and forward25
to the corporation or limited liability company before the filing of the26
corporation's or limited liability company's return an agreement which27
states he or she will file a Nebraska income tax return and pay the tax28
on the income derived from or connected with sources in this state, and29
such agreement shall be attached to the corporation's or limited30
liability company's Nebraska return for such taxable year.31
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(5) For taxable years beginning or deemed to begin before January 1,1
2013, in the absence of the nonresident shareholder's or member's2
executed agreement being attached to the Nebraska return, the corporation3
or limited liability company shall remit with the return an amount equal4
to the highest individual income tax rate determined under section5
77-2715.02 multiplied by the nonresident shareholder's or member's share6
of the corporation's or limited liability company's income which was7
derived from or attributable to this state. For taxable years beginning8
or deemed to begin on or after January 1, 2013, in the absence of the9
nonresident shareholder's or member's executed agreement being attached10
to the Nebraska return, the corporation or limited liability company11
shall remit with the return an amount equal to the highest individual12
income tax rate determined under section 77-2715.03 multiplied by the13
nonresident shareholder's or member's share of the corporation's or14
limited liability company's income which was derived from or attributable15
to this state. The amount remitted shall be allowed as a credit against16
the Nebraska income tax liability of the shareholder or member.17
(6) The Tax Commissioner may allow a nonresident individual18
shareholder or member to not file a Nebraska income tax return if the19
nonresident individual shareholder's or member's only source of Nebraska20
income was his or her share of the small business corporation's or21
limited liability company's income which was derived from or attributable22
to sources within this state, the nonresident did not file an agreement23
to file a Nebraska income tax return, and the small business corporation24
or limited liability company has remitted the amount required by25
subsection (5) of this section on behalf of such nonresident individual26
shareholder or member. The amount remitted shall be retained in27
satisfaction of the Nebraska income tax liability of the nonresident28
individual shareholder or member. 29
(7) A small business corporation or limited liability company return30
shall be filed if the small business corporation or limited liability31
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company has income derived from Nebraska sources. 1
(8) Notwithstanding any provision of this section to the contrary:2
(a) For tax years beginning or deemed to begin on or after January3
1, 2018, a small business corporation may annually make an irrevocable4
election to pay the taxes, interest, or penalties levied by the Nebraska5
Revenue Act of 1967 at the entity level for the taxable period covered by6
such return. For tax years beginning on or after January 1, 2023, such7
election may be made on the applicable income tax return and shall be8
made on or before the due date for filing the applicable income tax9
return, including any extensions that have been granted;10
(b) An electing small business corporation with respect to a taxable11
period shall pay an income tax equivalent to the highest individual12
income tax rate provided in section 77-2715.03 multiplied by the electing13
small business corporation's net income as apportioned or allocated to14
this state in accordance with the Nebraska Revenue Act of 1967, for such15
taxable period; 16
(c) An electing small business corporation shall be treated as a17
corporation with respect to the requirements of section 77-2769 for18
payments of estimated tax. The requirement for payment of estimated tax19
under section 77-2769 shall not apply for tax years beginning prior to20
January 1, 2024. Payments of estimated tax made by an eligible small21
business corporation that does not make an election under this subsection22
shall be treated as income tax withholding on behalf of the shareholders;23
(d) Except as provided in subdivision (e) of this subsection, the24
shareholders of an electing small business corporation shall file a25
Nebraska return to report their pro rata or distributive share of the26
income of the electing small business corporation in accordance with the27
Nebraska Revenue Act of 1967, as applicable. In determining the sum of28
its pro rata or distributive share and computing the tax under this29
subsection, an electing small business corporation shall add back any30
amount of Nebraska income tax imposed under the Nebraska Revenue Act of31
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1967 and deducted by the electing small business corporation for federal1
income tax purposes under section 164 of the Internal Revenue Code;2
(e) A nonresident individual who is a shareholder of an electing3
small business corporation shall not be required to file a Nebraska tax4
return for a taxable year if, for such taxable year, the only source of5
income derived from or connected with sources within this state for such6
shareholder, or for the shareholder and the shareholder's spouse if a7
joint federal income tax return is filed, is from one or more electing8
small business corporations or electing partnerships as defined in9
subdivision (7)(a) of section 77-2727 for such taxable year and such10
nonresident individual shareholder's tax under the Nebraska Revenue Act11
of 1967 would be fully satisfied by the credit allowed to such12
shareholder under subdivision (g) of this subsection;13
(f) If the amount calculated under subdivision (a) of this14
subsection results in a net operating loss, such net operating loss may15
not be carried forward to succeeding taxable years;16
(g) A refundable credit shall be available to the shareholders in an17
amount equal to their pro rata or distributive share of the Nebraska18
income tax paid by the electing small business corporation. For tax19
returns filed for taxable years beginning or deemed to begin on or after20
January 1, 2022, such credit shall be allowed for the same taxable year21
for which the election is made, without regard to the year in which the22
tax is paid to Nebraska or deducted on a federal income tax return; and23
(h)(i) For tax years beginning or deemed to begin on or after24
January 1, 2018, but prior to January 1, 2023, the electing small25
business corporation shall make the election under this subsection on or26
after January 1, 2023, but before December 31, 2025, in the form and27
manner prescribed by the Tax Commissioner for all years for which the28
election under this subsection is made on behalf of the electing small29
business corporation. The Tax Commissioner shall establish the form and30
manner, which shall not include any changes to the past returns other31
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than those that are directly related to the election under this1
subsection. 2
(ii) Notwithstanding any other provision of law, if an electing3
small business corporation files in the form and manner as specified in4
subdivision (h)(i) of this subsection, the deadline for filing a claim5
for credit or refund prescribed in section 77-2793 shall be extended for6
affected shareholders of the electing small business corporation until7
the timeframe specified in section 77-2793 or January 31, 2026, whichever8
is later. The resulting claim of refund for tax years beginning prior to9
January 1, 2023, shall be submitted in the form and manner as prescribed10
by the Tax Commissioner. Neither the electing small business corporation11
nor its shareholders shall incur any penalties for late filing nor owe12
interest on such amounts. The Tax Commissioner shall not be required to13
pay interest on any amounts owed to the shareholders resulting from such14
refund claims. 15
(iii) Notwithstanding the dates provided in subdivision (h)(i) of16
this subsection, the Tax Commissioner shall have one year from the date17
an electing small business corporation files in the form and manner as18
specified in subdivision (h)(i) of this subsection to review and make a19
written proposed deficiency determination in accordance with section20
77-2786. Any notice of deficiency determination made as specified in this21
subdivision may be enforced at any time within six years from the date of22
the notice of deficiency determination. 23
(9) For purposes of this section: 24
(a) Electing small business corporation means, with respect to a25
taxable period, an eligible small business corporation having an election26
in effect under subchapter S of the Internal Revenue Code that has made27
an election pursuant to subsection (8) of this section with respect to28
such taxable period; and 29
(b) Eligible small business corporation means an entity subject to30
taxation under subchapter S of the Internal Revenue Code and the31
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regulations thereunder. 1
(10) For purposes of this section, any shareholder or member of the2
corporation or limited liability company that is a grantor trust of a3
nonresident shall be disregarded and this section shall apply as though4
the nonresident grantor was the shareholder or member.5
Sec. 3. Original sections 77-2716 and 77-2734.01, Revised Statutes6
Supplement, 2025, are repealed. 7
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