Nebraska Charitable Endowment Tax Credit
(LB 28, as amended by LB 1010)

Pursuant to provisions of sections 77-27,228 to 77-27,234 of the Nebraska Revised Statutes as amended by LB 1010 (2006 Legislature), for tax years beginning on or after January 1, 2006, but beginning before January 1, 2010, resident individuals, resident estates or trusts, and businesses including corporations may be entitled to a non-refundable credit on their Nebraska income tax returns for a percentage of certain planned gifts or contributions made to particular charitable organizations. (Review specific details below.)

General Provisions and Definitions

A Planned Gift means an irrevocable contribution to a permanent qualified endowment using one of the following techniques authorized under the Internal Revenue Code of 1986, as amended (the Code):

• Charitable remainder trusts (both unitrusts and annuity trusts) as defined by section 664 of the Code.
  • A charitable remainder trust (CRT) is a trust in which the donor reserves an income-type interest for himself or a family member for life or for a term of years not to exceed 20. At the end of the income-type interest, the property goes to a charity named at the outset. Some requirements for the unitrusts (CRUTs) and annuities (CRATs) are the same, others are unique for either;
• Pooled income fund trusts, as defined by section 642(c)(5) of the Code.
  • A pooled income fund offers an opportunity for an individual to make a gift to a charity while enjoying the income from it for his lifetime or designating a family member or other person to receive the income. A pooled income fund resembles a mutual fund in that gifts of various donors are merged and each donor or his named beneficiary receives his allocable share of the income earned by the fund;
• Charitable lead trusts (both unitrusts and annuity trusts) qualifying under section 170(f)(2)(B) of the Code.
  • A charitable lead trust is a charitable gift of an annuity or unitrust interest followed by a noncharitable remainder interest. A gift or estate tax deduction is allowed for the present value of the charity’s interest but a gift of the remainder interest is subject to transfer tax. An income tax deduction is allowed if the donor is treated as the owner of the trust under the grantor trust rules. A remainder interest is a right to receive property at the end of one or more measuring lives or some other defined period;
• Charitable gift annuities (both current and deferred) undertaken pursuant to section 1011(b) of the Code and Nebraska Revised Statute sections 59-1801 to 59-1803.
  • With a charitable gift annuity, an individual makes a gift to charity of cash or property in return for the charity’s promise to pay him (or other named individual) an annuity for life or some other term. The value of the property donated, less the value of the annuity as determined under the IRS valuation tables, qualifies for the charitable income tax deduction. If appreciated property is transferred for a charitable annuity, the bargain sale rules require the donor to recognize gain on some of the appreciation of the gift property;
• Charitable life estate agreements qualifying under section 170(f)(3)(B) of the Code.
  • A charitable life estate agreement is a contribution of a remainder interest in a personal residence or farm, an undivided portion of an entire interest in property, or a qualified conservation contribution. A life estate is the right to receive income from property, or to use non-income producing property, for life. A conservation purpose would be the preservation of land areas for outdoor recreation or the education of the general public; the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem; the preservation of open space for the scenic enjoyment of the general public or pursuant to a clearly delineated governmental conservation policy; or the preservation of an historically important land area or a certified historic structure; or
• Paid-up life insurance policies qualifying as a deduction under section 170 of the Code.
  • The contribution of a paid-up life insurance policy must transfer the entire ownership of the policy to the charitable organization.

Contributions by individuals, S corporations, partnerships, or limited liability companies which do not utilize one of the specific planned gift techniques identified above will not qualify for this credit.

A Qualified Endowment, for purposes of the Nebraska Charitable Endowment Tax Credit, is a permanent, irrevocable fund used for Nebraska charitable purposes and held by a Nebraska incorporated or established organization which is a tax-exempt organization under section 501(c)(3) of the Code, or held by a Nebraska incorporated or established bank or trust company that is holding the fund on behalf of such tax-exempt organization.

Contributions to national tax-exempt organizations that are not incorporated or established in Nebraska do not qualify for this credit. An example of this type of organization would be the National Endowment for the Arts.

The Amount of Credit is limited to $5,000 of non-refundable credit per taxpayer regardless of the gifting method used or the source of the contribution (individual gift, flow through from qualifying entity, etc.). The amount of charitable contribution must qualify for deductibility on the federal return and is also eligible for the Nebraska Charitable Endowment Tax Credit on the Nebraska return. The amount of credit claimed must be supported by adequate documentation.

Individuals

The Individual Nebraska Charitable Endowment Tax Credit is only for Nebraska residents and is calculated at 15 % of a planned gift to a qualified endowment, up to a maximum $5,000 credit, but not to exceed the individual’s income tax liability.

The credit may flow through from qualifying small business corporations, partnerships, or limited liability companies to their shareholders, partners, and members (see Small Business Corporations, Partnerships, or Limited Liability Companies below). The credit cannot be carried back or forward, and shall only be applied to the tax year in which the contribution is made.

An individual taxpayer may qualify for a maximum credit of $5,000; thus, married-filing joint taxpayers may qualify for up to $10,000 of credit on their Nebraska return. Each taxpayer filing a joint return must show distinct separate planned gifts, or planned gifts of jointly owned property of sufficient amount. Adequate documentation will be required to substantiate the credit claimed.

Taxpayers may not claim contributions made by their dependents.

S Corporations, Partnerships, and Limited Liability Companies

Small Business Corporations, Partnerships, or Limited Liability Companies - The credit is calculated at 15% of a planned gift to a qualified endowment, and may flow through from qualifying small business corporations, partnerships, or limited liability companies to their shareholders, partners, or members when the entity makes such a gift. In order to qualify, the entity must be carrying on rental activity; or carrying on a trade or business for which deductions would be allowed under section 162 of the Code.

The credit is to be disbursed to the shareholders, partners, or members in the same proportion used to distribute income or loss for income tax purposes. The credit for each shareholder, partner, or member will be calculated in the same manner, and is subject to the same limitations and restrictions, as the Individual Nebraska Charitable Endowment Tax Credit (see above). The credit cannot be carried back or forward, and can only be claimed in the tax year in which the contribution is made. The credit applies to the same tax year end used to report income.

Corporations

The Corporate Nebraska Charitable Endowment Tax Credit is calculated at 10% of any outright contribution to a qualified endowment, up to a maximum $5,000 credit regardless of the source of the contribution (including flow through of a planned gift from a qualifying entity), but not to exceed the corporate taxpayer’s income tax liability. The credit cannot be carried back or forward, and shall be applied only to the tax year in which the contribution is made. The credit applies to the same tax year end used to report income.

Estates or Trusts

The Resident Estate or Trust Nebraska Charitable Endowment Tax Credit is calculated at 15% of a planned gift or 10% of an outright gift to a qualified endowment, up to a maximum $5,000 credit, but not to exceed the fiduciary’s income tax liability. Any portion of the $5,000 credit not used by the estate or trust may pass through to beneficiaries in the same proportion used to report the beneficiary’s income from the estate or trust. The credit received by the beneficiary, in combination with any other Nebraska Charitable Endowment Tax Credit earned, cannot exceed a maximum of $5,000. The credit cannot be carried back or forward, and can only be claimed in the tax year in which the contribution is made. The credit applies to the same tax year end used to report income.

Life Expectancy Tables

Pursuant to Section 77-27,228(2)(b) of the Nebraska Revised Statutes, the Department of Revenue has adopted the life expectancy tables from actuarial tables contained in certain publications of the Internal Revenue Service. The relevant life expectancy tables are those referred to in Internal Revenue Service Regulation § 1.401(a)(9)-9. These life expectancy tables may be found in IRS Publication 590, and are to be used for calculating life expectancies when making contributions via deferred charitable gift annuities so that they may properly qualify as planned gifts. See Revenue Ruling 22-05-3.