Nebraska’s tax department has issued guidance confirming its position that IRC 965 deemed repatriation income: 1) must be included in a taxpayer’s corporate income tax base (less the IRC 965(c) deduction); and 2) does not qualify for the state’s dividends received deduction. Nebraska Dep’t of Revenue, Gen. Info. Letter 24-19-1 (Sept. 13, 2019).

The Department previously issued guidance to this effect in December 2018, but the new guidance expands on the Department’s position that IRC 965 income does not qualify for the state’s dividends received deduction. The Department reasons that under federal income tax law, IRC 965 income is treated as an addition to subpart F income and, therefore, is neither a “dividend” nor a “deemed” dividend.  Nebraska is in the minority because most states that include IRC 965 income in the tax base permit a full or partial offset under a dividends received deduction statute or subpart F income subtraction statute.

Nebraska’s new guidance also provides apportionment factor relief. IRC 965 income is included in the sales factor denominator, and excluded from the sales factor numerator.