Could a new owner of a pass-through entity use distributed Nebraska Historic Tax Credits for a year before becoming an owner?

Plain-English summary

A person who joined a pass-through entity after the historic property was placed in service could not use distributed Type B credits against tax for the earlier year. Tax attributes from a pass-through could be used only for a year when the taxpayer was a member, partner, or shareholder.

The Act allowed unused Nebraska Historic Tax Credits to carry forward until used, but it did not authorize carrying them back.

Type A and Type B credits

The GIL distinguished credits sold or transferred under the Act—described as Type A—from Type B credits passed through to an entity's owners.

An applicant or buyer of a qualifying Type A transferable credit could use it for the year the property was placed in service under the cited provisions. That special rule did not extend to a later-admitted owner receiving Type B credits.

Common questions

Q: Could a newly admitted partner amend the prior year's return to use Type B credits?

A: No. The taxpayer was not an owner during that year, and the Act had no carryback provision.

Q: Could unused credits move to later years?

A: Yes. The GIL said unused credits could be carried forward until fully used.

Q: Did the pass-through agreement override the ownership-year rule?

A: No. Even though Type B credits could be distributed as income or losses were distributed or as owners agreed, the recipient still had to be an owner in the year of use.

Q: Which credits did the holding address?

A: Type B credits distributed through a pass-through entity to its members, partners, or shareholders.

Citations and references

• Neb. Rev. Stat. § 77-2904(1) — applicant's use in the placed-in-service year
• Neb. Rev. Stat. § 77-2909 — sale or transfer of Type A credits
• Neb. Rev. Stat. § 77-2906(5) — pass-through distribution of Type B credits
• Neb. Rev. Stat. § 77-2906(6) — carryforward and absence of carryback
• Nebraska GIL 29-17-2 — applies to credits earned or distributed after March 7, 2017

Source

• Landing page: https://revenue.nebraska.gov/about/legal-information/general-information-letters-gils
• Original PDF: https://revenue.nebraska.gov/sites/revenue.nebraska.gov/files/doc/legal/gil/GIL29-17-2_NHTCs.pdf

Original ruling text

GIL 29-17-2 Use of Nebraska Historic Tax Credits by Members, Partners, or Shareholders
This guidance document is advisory in nature but is binding on the Nebraska Department of Revenue
(Department) until amended. A guidance document does not include internal procedural documents that
only affect the internal operations of the Department and does not impose additional requirements or
penalties on regulated parties or include confidential information or rules and regulations made in
accordance with the Administrative Procedure Act. If you believe that this guidance document imposes
additional requirements or penalties on regulated parties, you may request a review of the document.
This guidance document may change with updated information or added examples. The Department
recommends you do not print this document. Instead, sign up for the subscription service at
revenue.nebraska.gov to get updates on your topics of interest.
March 7, 2017
Dear XXXX,
You have asked when members, partners, or shareholders (owners) of a flow-through entity who received
Nebraska Historic Tax Credits (NHTCs) through distribution through the ownership structure may use the
NHTCs against their tax liability. Specifically, if the owner is admitted into the ownership structure of a passthrough entity holding NHTCs in a year after the historically-significant real property is placed in service, may
the owner use the NHTCs to offset tax liabilities for the prior year when the building was placed in service? To
provide guidance to taxpayers throughout the state, the Nebraska Department of Revenue (Department) has
decided to answer this singular question by issuing a General Information Letter (GIL).
GILs address general questions; provide analysis of issues; and direct taxpayers to the Nebraska statutes,
Department regulations, revenue rulings, or other sources of information to help answer a question. A GIL
is a statement of current Department policy, and taxpayers may rely on the Department to follow the
principles or procedures described in a GIL until it is rescinded or superseded. You may also find current
regulations, revenue rulings, information guides, taxpayer rulings, and other GILs at revenue.nebraska.gov
that may be helpful to you.
The Nebraska Job Creation and Mainstreet Revitalization Act (Act) allows a credit to an applicant incurring
eligible expenditures to rehabilitate historically-significant real property. The allowable credit is equal to
20% of the eligible expenditures. NHTCs may be used against the income tax, insurance premium tax, or
financial institutions franchise tax liability as provided below:

1. Neb. Rev. Stat § 77-2904(1) allows any person incurring eligible expenditures to use the credit “for
   the year the historically significant real property is placed in service;”
2. Neb. Rev. Stat. § 77-2909 provides that if the applicant is a for-profit entity, up to one-half of the
   credits may be sold or transferred for use by the buyer “in the year the historically significant real
   property is placed in service.” If the taxpayer is a political subdivision of Nebraska, or an income
   tax-exempt entity under IRC § 501(c)(3), 100% of the credits may be transferred to another
   taxpayer (Type A credits);
3. Neb. Rev. Stat § 77-2906(5) allows NHTCs to be passed through to the owners of a pass-through
   entity on the same basis as income or losses are distributed, or as agreed to between the owners
   (Type B credits); and
4. Neb. Rev. Stat. § 77-2906(6) allows unused NHTCs to be carried forward until fully utilized, but
   there is no provision for carrying NHTCs back to an earlier tax year.
   After reviewing these statutory provisions and the IRC with respect to the treatment of historic tax credits
   by pass-through entities, the Department has determined that Type B credits that are distributed to owners

may not be used by the owner to offset taxes for any year prior to the year the recipient became an owner
of a pass-through entity holding Type B NHTCs. While Neb. Rev. Stat. §§ 77-2904(1) and 77-2909(3)
allow an applicant and a purchaser of a Type A transferrable tax credit to use credits in the year a project
was placed in service, Neb. Rev. Stat. § 77-2906(5) does not extend this legislative grace to owners who
are distributed Type B credits, but who did not have an ownership interest in the entity during the year when
the historically-significant real property was placed in service. To reiterate, the Act contains no carryback
provisions and tax credits may only be carried back by express legislative approval.
Additionally, the usual rules that apply to pass-through entities apply in these circumstances, including
partnership tax filing requirements in the IRC and regulations promulgated thereunder. Tax attributes that
are distributed by a pass-through entity may only be applied with respect to a year in which the taxpayer
was a member, partner, or shareholder of the pass-through entity. This general principle applies to the use
of NHTCs.
The position established by this GIL applies to all NHTCs earned or distributed after the date of this GIL.
For the Tax Commissioner

George Kilpatrick, Attorney
Nebraska Department of Revenue