Neb. Rev. Stat. § 77-2727 — Income tax; partnership; subject to act; credit; election to file return at entity level; how treated

(1) Except as provided in subsection (6) of this section and subsection (5) of section 77-2775 , a partnership as such shall not be subject to the income tax imposed by the Nebraska Revenue Act of 1967. Persons or their authorized representatives carrying on business as partners shall be liable for the income tax imposed by the Nebraska Revenue Act of 1967 only in their separate or individual capacities. (2) The partners of such partnership who are residents of this state or corporations shall include in their incomes their proportionate share of such partnership's income. (3) If any partner of such partnership is a nonresident individual during any part of the partnership's reporting year, he or she shall file a Nebraska income tax return which shall include in Nebraska adjusted gross income that portion of the partnership's Nebraska income, as determined under the provisions of sections 77-2728 and 77-2729 , allocable to his or her interest in the partnership and shall execute and forward to the partnership, on or before the original due date of the Nebraska partnership return, an agreement which states that he or she will file a Nebraska income tax return and pay income tax on all income derived from or attributable to sources in this state, and such agreement shall be attached to the partnership's Nebraska return for such reporting year. (4)(a) Except as provided in subdivision (c) of this subsection, in the absence of the nonresident individual partner's executed agreement being attached to the Nebraska partnership return, the partnership shall remit a portion of such partner's income which was derived from or attributable to Nebraska sources with its Nebraska return for the reporting year. For tax years beginning or deemed to begin before January 1, 2013, the amount of remittance, in such instance, shall be the highest individual income tax rate determined under section 77-2715.02 multiplied by the nonresident individual partner's share of the partnership income which was derived from or attributable to sources within this state. For tax years beginning or deemed to begin on or after January 1, 2013, the amount of remittance, in such instance, shall be the highest individual income tax rate determined under section 77-2715.03 multiplied by the nonresident individual partner's share of the partnership income which was derived from or attributable to sources within this state. (b) Any amount remitted on behalf of any partner shall be allowed as a credit against the Nebraska income tax liability of the partner. (c) Subdivision (a) of this subsection does not apply to a publicly traded partnership as defined by section 7704(b) of the Internal Revenue Code of 1986, as amended, that is treated as a partnership for the purposes of the code and that has agreed to file an annual information return with the Department of Revenue reporting the name, address, taxpayer identification number, and other information requested by the department of each unit holder with an income in the state in excess of five hundred dollars. (5) The Tax Commissioner may allow a nonresident individual partner to not file a Nebraska income tax return if the nonresident individual partner's only source of Nebraska income was his or her share of the partnership'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 partnership has remitted the amount required by subsection (4) of this section on behalf of such nonresident individual partner. The amount remitted shall be retained in satisfaction of the Nebraska income tax liability of the nonresident individual partner. (6) 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 partnership 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 may be made on the applicable income tax return and shall 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 partnership 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 partnership'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 partnership 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 partnership that does not make an election under this subsection shall be treated as income tax withholding on behalf of the partners; (d) Except as provided in subdivision (e) of this subsection, the partners of an electing partnership shall file a Nebraska return to report their pro rata or distributive share of the income of the electing partnership 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 partnership shall add back any amount of Nebraska income tax imposed under the Nebraska Revenue Act of 1967 and deducted by the electing partnership for federal income tax purposes under section 164 of the Internal Revenue Code; (e) A nonresident individual who is a partner of an electing partnership 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 partner, or for the partner and the partner's spouse if a joint federal income tax return is filed, is from one or more electing partnerships or electing small business corporations as defined in subdivision (9)(a) of section 77-2734.01 for such taxable year and such nonresident individual partner's tax under the Nebraska Revenue Act of 1967 would be fully satisfied by the credit allowed to such partner 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)(i) A refundable credit shall be available to the partners in an amount equal to their pro rata or distributive share of the Nebraska income tax paid by the electing partnership. For tax returns filed for taxable years beginning or deemed to begin on or after January 1, 2022, such credit shall be allowed for the same taxable year for which the election is made, without regard to the year in which the tax is paid to Nebraska or deducted on a federal income tax return; (ii) In the case of a partnership or small business corporation that is a partner of an electing partnership, the refundable credit under this subdivision (g) shall (A) be allowed to its partners or shareholders in accordance with the determination of income and distributive share of the Nebraska income tax paid by the electing partnership or (B) be applied against the partner's tax, interest, and penalty. Any excess credit deemed an overpayment may be refunded or applied to the subsequent tax year; (iii) If a partnership making the election under this subsection is a partner of another electing partnership, net income shall be computed as provided in subsection (1) of this section. The upper tier electing partnership shall claim a credit for the tax paid by the lower tier electing partnership. The upper tier electing partnership shall distribute out the pro rata or distributive share of the credits to its partners for tax paid under this subsection by all tiers of electing partnerships. As used in this subdivision, the term lower tier electing partnership means an electing partnership in which some or all of the partners are an electing partnership. The term upper tier electing partnership means an electing partnership that is a partner of a lower tier electing partnership. An electing partnership may have two or more tiers; 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 partnership shall 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 partnership. 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 partnership 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 partners of the electing partnership 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 partnership nor its partners 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 partners 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 partnership 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. (7) For purposes of this section: (a) Electing partnership means, with respect to a taxable period, an eligible partnership that has made an election pursuant to subsection (6) of this section with respect to such taxable period; and (b) Eligible partnership means any partnership as provided for in section 7701(a)(2) of the Internal Revenue Code that has a filing requirement under the Nebraska Revenue Act of 1967 other than a publicly traded partnership as defined in section 7704 of the Internal Revenue Code. An eligible partnership includes any entity, including a limited liability company, treated as a partnership for federal income tax purposes that otherwise meets the requirements of this subdivision. (8) For purposes of this section, any partner that is a grantor trust of a nonresident shall be disregarded and this section shall apply as though the nonresident grantor was the partner