317 Neb. 481
Neb.2024Background
- Precision Castparts Corp., an Oregon corporation doing business in Nebraska, was required by federal law to include income from its foreign subsidiaries in its 2017 federal tax return under Section 965 of the Tax Cuts and Jobs Act (TCJA).
- Precision Castparts sought to deduct this Section 965 income on its Nebraska corporation tax return as "dividends ... deemed to be received" under Neb. Rev. Stat. § 77-2716(5).
- The Nebraska Tax Commissioner denied the deduction, determining Section 965 income was a "deemed inclusion" not a "deemed dividend" under federal law and state statute.
- The district court affirmed the Tax Commissioner’s order, holding that Section 965 income did not qualify for the deduction under Nebraska law.
- Precision Castparts appealed this decision to the Nebraska Supreme Court, focusing on statutory construction and federal tax characterization.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is Section 965 income deductible in NE as dividends? | Section 965 income should be treated as "dividends ... deemed to be received" and thus deductible. | Section 965 creates a "deemed inclusion," not a "deemed dividend"; not deductible. | Not deductible; Section 965 does not create "dividends" for NE law. |
| How should "dividends ... deemed to be received" be interpreted? | The phrase includes income regarded as a distribution under federal law, even if not paid out. | The statute requires an explicit designation as a dividend, which Section 965 lacks. | Not interpreted to include Sec. 965 income; must be explicit. |
| Does federal pass-through treatment equate to a dividend distribution? | Pass-through of earnings to shareholders equals a constructive dividend under state statute. | Pass-through treatment is different; there is no deemed distribution, only attribution. | Pass-through does not equal dividend; no deduction permitted. |
| Should statues imposing tax be construed in taxpayer’s favor? | Exemptions and deductions should be broadly interpreted for the taxpayer. | Deductions must be explicit; ambiguity goes to the government. | Strictly construed—no extension of deduction to Section 965 income. |
Key Cases Cited
- Moore v. United States, 144 S. Ct. 1680 (2024) (explains that Section 965 attributes undistributed foreign earnings to shareholders via pass-through, not deemed dividends)
- Rodriguez v. CIR, 722 F.3d 306 (5th Cir. 2013) (Congress must explicitly deem income as dividends; Section 965 does not)
- Crow v. Nebraska Dept. of Rev., 316 Neb. 154 (2024) (sets forth standard for Administrative Procedure Act review in Nebraska courts)
- Big Blue Express v. Nebraska Dept. of Rev., 309 Neb. 838 (2021) (restates that tax exemptions/deductions must be strictly construed)