Neb. Admin. Code § 316-24-048 — Income from United States Government Obligations

048.01 Interest or dividend income from obligations of the United States and its territories and possessions or of any authority, commission, or instrumentality of the United States shall be subtracted from federal taxable income to the extent such income is includable in federal gross income, but exempt from state income taxes pursuant to federal law. 048.02 The amount subtracted shall be reduced by any interest on indebtedness incurred to carry the obligations described above, and by any expenses incurred in the production of the interest or dividend income derived from such obligations to the extent that such expenses are deductible in determining federal taxable income. 048.03 A corporate taxpayer may not elect to forego the deduction set forth in paragraph 048.01 or the adjustments set forth in paragraphs 048.02 and 048.04. 048.04 Investment interest expense shall be determined by (a) dividing the taxpayer's average investment in exempt securities by the taxpayer's average total assets and multiplying such ratio by the taxpayer's total interest expense and (b) subtracting from the result of (a) any interest disallowed under 26 U.S.C.A. 265 and 291. 048.05 As used in this regulation, unless the context requires otherwise: 048.05A Exempt securities shall mean the obligations that earn income exempt from taxation under section 048.01 of this regulation or under 26 U.S.C. 103; 048.05B Average investment in exempt securities shall mean the average of the aggregate tax bases in exempt securities at the beginning and at the end of the taxable year; 048.05C Average total assets shall mean the average of the aggregate tax bases in total assets at the beginning and at the end of the taxable year; and 048.05D Total interest expense shall mean the total interest expense allowed as a deduction in computing federal taxable income plus any interest disallowed under 26 U.S.C.A. 265 and 291. 048.06 The State 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 such ratio. 048.07 When determining the computation in section 048.04 of this regulation, the taxpayer 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) such 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 State 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. 048.08 United States Government interest and dividend income that is exempt from state taxation includes the following: 048.08A Series E, F, G, and H savings bonds; 048.08B United States Treasury bills; 048.08C U.S. Government notes; 048.08D U.S. Government bonds; 048.08E U.S. Government certificates; 048.08F Interest on debentures issued to mortgages of mortgagees foreclosed under provisions of the National Housing Act if insured after February 3, 1938; 048.08G Retirement bond as provided by I.R.C. section 409; 048.08H Federal Farm Credit Bank Consolidated System wide bonds; 048.08I Federal Land Banks and Associations; 048.08J Federal Intermediate Credit Bank; 048.08K Commodity Credit Corporation; 048.08L Federal Farm Mortgage Corporation; 048.08M Federal Home Loan Banks; 048.08N Reconstruction Finance Corporation; 048.08O General Services Administration Participation Certificates; 048.08P Central Bank for Cooperatives (interest only); 048.08Q Federal Reserve Banks; 048.08R Federal Savings and Loan Insurance Corporation; 048.08S Production Credit Association (interest only); 048.08T Tennessee Valley Authority bonds; 048.08U Postal Service Bonds; 048.08V Federal Deposit Insurance Corporation (interest only); 048.08W Student Loan Marketing Association (interest only); 048.08X Resolution Trust Corporation; 048.09 Interest from repurchase agreements involving federal securities is not exempt and is subject to Nebraska income tax. 048.10 Gains and losses from the sale or other disposition of federal securities, as distinguished from interest income, are taxable for state income tax purposes. 048.11 Dividends and other income received from a regulated investment company are excluded to the extent they represent U.S. Government interest and dividend income included above. (Section 77-2716, R.S.Supp., 1998. Nebraska Department of Revenue v. John Loewenstein, 513 U.S. 123 (1994). November 11, 1998.)