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Nebraska Endowment Credit

Revised January 11, 2010

General Provisions and Definitions |  Individuals
S Corporations, Partnerships, and Limited Liability Companies | C Corporations
Estates and Trusts | Life Expectancy Tables

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.

The Nebraska Endowment Credit is available for tax years beginning January 1, 2006 through tax years beginning before January 1, 2010. Resident individuals and resident shareholders or partners of businesses filing as partnerships or S corporations may be entitled to a non‑refundable credit on their Nebraska income tax returns for a percentage of the federal value of certain planned gifts. Corporations (other than S corporations) may also be entitled to a non‑refundable credit on their Nebraska income tax returns for a percentage of any outright contributions. Resident estates or trusts may be entitled to a non‑refundable credit on their Nebraska income tax return for a percentage of the federal value of certain planned gifts or of any outright contributions. All gifts, whether planned or outright, must be made to the endowment funds of Nebraska 501(c)(3) charitable organizations. The credit cannot be carried forward or back. The Department of Revenue is issuing these guidelines with the definitions and calculations provided pursuant to Neb. Rev. Stat. §§ 77‑27,228 to 77‑27,234.

General Provisions and Definitions

For purposes of the Nebraska Endowment Credit, a qualified endowment is a permanent, irrevocable endowment fund held for Nebraska charitable purposes. It must be held by a Nebraska incorporated or established organization which is a tax exempt organization under section 501(c)(3) of the Internal Revenue Code, or held by a Nebraska incorporated or established bank or trust company that is holding the fund on behalf of a Nebraska tax exempt organization.

An endowment fund must be a documented institutional fund or part of an institutional fund that is not wholly expendable by the institution on a current basis. The gifted amounts must remain permanently intact.

The endowment fund and the gift instruments may not be modified or altered unless required by the Internal Revenue Code or by Nebraska statute due to dissolution of the 501(c)(3) organization. If the 501(c)(3) organization or the endowment is dissolved, the gift instrument must specify that the endowed gifts in the endowment fund must be transferred to another Nebraska 501(c)(3) 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 is the National Endowment for the Arts.

All gifts must include documentation that they are irrevocably given to a qualified endowment. The gifts cannot be modified or altered for any purpose other than as a result of the dissolution of the 501(c)(3) organization.

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 (IRC):

  1. Charitable remainder unitrust as defined by IRC § 664.

A charitable remainder unitrust provides a variable payment, based on a percentage of the trust assets as revalued annually. A charitable remainder unitrust is a trust in which the donor reserves a stream of income for the donor or a family member for life or for a term of years. At the end of the term (often at the death of the person receiving the stream of income), the property goes to a charity named at the outset.  A charitable remainder unitrust has other unique features.

For the donor to be eligible for the Nebraska Endowment Credit, the charitable remainder unitrust must also provide that (1) the trust cannot terminate, and (2) the beneficiaries’ interest in the trust cannot be assigned or contributed to the qualified endowment before (a) five years, or (b) the date of death of the annuitant, or the person receiving the income, whichever comes first.

  1. Charitable remainder annuity trust as defined by IRC § 664.

A charitable remainder annuity trust provides a fixed annual payment stated as an amount, or as a percentage of the value of the initial trust assets. A charitable remainder annuity trust is also a trust in which the donor reserves a stream of income for the donor or a family member for life or for a term of years. At the end of the term (often the death of the person receiving the stream of income), the property goes to a charity named at the outset.  A charitable remainder annuity trust has other features differentiating it from the charitable remainder unitrust.

For purposes of the Nebraska Endowment Credit, the charitable remainder annuity trust must also provide that (1) the trust cannot terminate, and (2) the endowment’s interest in the trust cannot be assigned or contributed to the qualified endowment before (a) five years, or (b) the date of death of the person receiving the stream of income, whichever comes first.

  1. Pooled income fund trust as defined by IRC § 642(c)(5).

    IRC §642(c)(5) defines a pooled income fund as a trust:

    (A) to which each donor transfers property, contributing an irrevocable remainder interest in such property to or for the use of an organization described in section 170(b)(1)(A) (other than in clauses (vii) or (viii)), and retaining an income interest for the life of one or more beneficiaries (living at the time of such transfer);
     
    (B) in which the property transferred by each donor is commingled with property transferred by other donors who have made or make similar transfers;
     
    (C) which cannot have investments in securities which are exempt from taxes imposed by this subtitle;
     
    (D) which includes only amounts received from transfers which meet the requirements of this paragraph;
     
    (E) which is maintained by the organization to which the remainder interest is contributed and of which no donor or beneficiary of an income interest is a trustee; and
     
    (F) from which each beneficiary of an income interest receives income, for each year for which he is entitled to receive the income interest referred to in subparagraph (A), determined by the rate of return earned by the trust for such year.

    In order to qualify as a pooled income fund, the trust must meet all of the requirements set forth in the IRC, the Regulations promulgated, and Revenue Rulings and Procedures.

  2. Charitable lead unitrust qualifying under IRC § 170(f)(2)(B).

A charitable lead unitrust is a trust created by the donor which distributes a variable income amount to charity for a fixed term of years or the life of one or more individuals.  Upon conclusion of the term or the death of the donor, the trust terminates, and according to the terms of the trust instrument, distributes its remainder interest back to the donor or one or more individuals specified in the trust.

  1. Charitable lead annuity trust qualifying under IRC § 170(f)(2)(B).

A charitable lead annuity trust is a trust created by the donor which distributes a fixed income amount to charity for either a fixed term of years or the life of one or more individuals. Upon conclusion of the term or the death of the donor, the trust terminates, and according to the terms of trust instrument, distributes its remainder interest back to the donor or to one or more individuals specified in the trust.  

  1. Charitable gift annuity undertaken pursuant to IRC § 1011(b) and Neb. Rev. Stat. §§ 59‑1801 to 59‑1803.

A charitable gift annuity consists of two elements: (1) a bargain sale to the endowment, and (2) the purchase of a fixed income annuity contract by the endowment.  Annuity payments begin within the first year of the donation of the gift.

To qualify for the credit:

  • The charitable gift annuity must be undertaken with a bargain sale to the permanent qualified endowment in return for the endowment’s promise to pay the donor (or other named individual) an annuity for life or some other term. The value of the contribution is determined under the Internal Revenue Service (IRS) regulations for charitable income tax deductions.

A bargain sale is a sale or exchange of property by the donor to a charity for less than the fair market value where the donor intends the “bargain” element of the sale or exchange as a contribution to the charity.

  • The remainder interest of a charitable gift annuity cannot be assigned to the qualified endowment before (a) five years, or (b) the date of death of the annuitant, whichever comes first.
  1. Deferred charitable gift annuity undertaken pursuant to IRC § 1011(b) and Neb. Rev. Stat. §§ 59‑1801 to 59‑1803.

A deferred charitable gift annuity also consists of two elements: (1) a bargain sale, and (2) a purchase of a fixed income annuity contract by the “donor.”  Annuity payments of the annuity contract begin at a later time as specified by the donor.

To qualify for the credit:

  • The deferred charitable gift annuity must be undertaken with a bargain sale or exchange (see definition above) to the permanent qualified endowment in return for the endowment’s promise to pay the annuitant (or other named individual) an annuity for life or some other term. The value of the contribution is determined under the IRS regulations for charitable income tax deductions.
     
  • The deferred charitable gift annuity must require the annuity payments to begin within the life expectancy of the annuitant or of the joint life expectancies of the annuitants as determined by the actuarial tables adopted by the Department pursuant to Revenue Ruling 22‑05‑3.
     
  • The remainder interest of a deferred charitable gift annuity cannot be assigned to the qualified endowment before (a) five years, or (b) the date of death of the annuitant, whichever comes first.
  1. Charitable life estate agreement qualifying under IRC § 170(f)(3)(B).

A charitable life estate agreement is a contribution of a personal residence or farm, an undivided portion of an entire interest in property, or a qualified conservation contribution that is effective after the death of the holder of a life estate. A life estate is the right to receive income from the property, or to use non‑income producing property, for life. A conservation purpose would be:

  • Preservation of land areas for outdoor recreation or the education of the general public;
     
  • Protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem;
     
  • Preservation of open space for the scenic enjoyment of the general public or pursuant to a clearly delineated governmental conservation policy; or
     
  • Preservation of a historically important land area or a certified historic structure.
  1. Paid‑up life insurance policy qualifying as a deduction under IRC § 170.

Paid‑up life insurance is insurance that remains in effect even though no more premiums are due. A contribution of a paid‑up life insurance policy must transfer the entire ownership of the policy to the charitable organization. The amount used for the credit calculation is the value of the contribution as determined under applicable federal guidelines, not the amount of life insurance coverage.

Note: 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 the Nebraska Endowment Credit.

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


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Individuals

The Nebraska Endowment Credit is limited to Nebraska residents and is 15% of the federal deduction for the 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 is entered on line 25 of Form 1040N.

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 forward or back, and may 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. Married, filing jointly 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 or annuities of sufficient amount.

Note: Taxpayers may not claim contributions made by their dependents.

Documentation:  Adequate documentation to substantiate the credit claimed is a statement from the qualified endowment attached to the Nebraska return that includes the following:

  1. Name, address, and federal identification number of the qualified endowment;
  2. Federal contribution value of the planned gift as determined under applicable federal guidelines;
  3. Date the gift was contributed; and
  4. Type of planned gift. It must be one of the following:
    • Charitable remainder trust (unitrust or annuity);
    • Pooled income fund trust;
    • Charitable lead trust;
    • Charitable gift annuity (current or deferred);
    • Charitable life estate agreement; or
    • Paid‑up life insurance.

If the individual has received a credit distributed from a partnership, S corporation, estate, or trust, the individual must receive the statement from the pass‑through entity.

If this statement is not available, a copy of the planned gift document must be attached to the return.

The worksheet below may be used to calculate the credit.

Individual Income Tax Return ‑ Nebraska Endowment Credit
Federal contribution value of the planned gift(s) $ ________________
Multiplied by 15%   X 0.15
Total (enter on line 25 of Form 1040N) $ ________________
The total credit cannot exceed $5,000.

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S Corporations, Partnerships, and Limited Liability Companies

The Nebraska Endowment Credit is 15% of a planned gift to a qualified endowment, and may flow through from qualifying S corporations, partnerships, or limited liability companies (LLC) to their shareholders, partners, or members when the entity makes such a gift. To qualify, the entity must be carrying on rental activity, or carrying on a trade or business for which deductions would be allowed under IRC § 162.

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 credit for individuals (see above). The credit cannot be carried forward or back, 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. The credit cannot be used to offset withholding of shareholders, partners, or members.

Documentation:  If a partnership, S corporation, or LLC is acting as a pass‑through entity for this credit, it is required to file a return with an attached statement from the qualified endowment that includes:

  1. Name, address, and federal identification number of the qualified endowment;
  2. Federal contribution value of the planned gift as determined under applicable federal guidelines;
  3. Date the gift was contributed;
  4. A list of all shareholders, partners, or members, their social security or federal identification numbers, and amount of credit distributed to each shareholder, partner, or member; and
  5. Type of planned gift. It must be one of the following:
    • Charitable remainder trust (unitrust or annuity);
    • Pooled income fund trust;
    • Charitable lead trust;
    • Charitable gift annuity (current or deferred);
    • Charitable life estate agreement; or
    • Paid‑up life insurance.

If this statement is not available, a copy of the planned gift documentation must be attached to the return.

The S corporation, partnership, or LLC must also supply each shareholder, partner, or member with a statement that includes the same information included in items 1‑3 above, as well as identifying the pass‑through entity and the partner, shareholder, or member by name and social security or federal identification number, and the distributive share of credit for the shareholder, partner, or member.


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C Corporations

For C corporations, the Nebraska Endowment Credit is 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 is entered on line 15 of the Form 1120N. The credit cannot be carried forward or back, 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.

Documentation:  The C Corporation must attach a statement from the qualified endowment to its Form 1120N which includes:

  1. Name, address, and federal identification number of the qualified endowment;
  2. Amount of the contribution; and
  3. Date the contribution was made.

The worksheet below may be used to calculate the credit.

Corporate Tax Return ‑ Nebraska Endowment Credit

Federal contribution value $ ________________
Multiplied by 10%   X 0.10
Total (enter on line 15 of Form 1120N) $ ________________
The total credit cannot exceed $5,000.

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Estates or Trusts
(Fiduciary Return)

The Nebraska Endowment Credit, for a resident estate or trust, is 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. The credit used by the estate or trust is entered on line 14 of the Form1041N. Any portion of the $5,000 credit that is 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, when combined with any other Nebraska Endowment Credit earned, cannot exceed a maximum of $5,000. The credit cannot be carried forward or back, and may 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.The credit cannot be used to offset withholding for beneficiaries.

Documentation: If an estate or trust is using the credit or acting as a pass‑through entity for this credit, it is required to attach a statement from the qualified endowment to its Form 1041N which includes:

  1. Name, address, and federal identification number of the qualified endowment;
  2. Federal contribution value of the planned gift as determined under applicable federal guidelines or, if not a planned gift, the total amount of contribution;
  3. Date the gift or contribution was made;
  4. A list of all beneficiaries, their social security or federal identification numbers, and amount of credit distributed to each beneficiary; and
  5. Type of gift, one of the following must be used:
    • Charitable remainder trust (unitrust or annuity);
    • Pooled income fund trust;
    • haritable lead trust;
    • Charitable gift annuity (current or deferred);
    • Charitable life estate agreement;
    • Paid‑up life insurance; or
    • Outright gift.

The estate or trust must also supply each beneficiary with a statement that includes the same information included in items 1‑3 above, as well as identifying the estate or trust and the beneficiary by name and social security or federal identification number, and the distributive share of credit for the beneficiary.

If this statement is not available, a copy of the planned gift document must be attached to the return. An outright gift must have the qualified endowment statement attached to the return.

Fiduciary Tax Return ‑ Nebraska Endowment Credit from Planned Gift

1. Federal contribution value $ ________________
2. Multiplied by 15%   X 0.15
3. Nebraska Endowment Credit (line 1 times line 2) $ ________________
4. Nebraska Endowment Credit received from other sources $ ________________
5. Total Credit (line 3 plus line 4) (cannot exceed $5,000) $ ________________
The credit is first used by the estate or trust (entered on line 14 Form 1041N) to offset any tax due. Any remaining credit is available for distribution to beneficiaries.

Fiduciary Tax Return ‑ Nebraska Endowment Credit from Outright Gift

1. Total gift amount $ ________________
2. Multiplied by 10%   X 0.10
3. Nebraska Endowment Credit (line 1 times line 2) $ ________________
4. Nebraska Endowment Credit received from other sources $ ________________
5. Total Credit (line 3 plus line 4) (cannot exceed $5,000) $ ________________

The credit is first used by the estate or trust (entered on line 14, Form 1041N) to offset any tax due. Any remaining credit is available for distribution to beneficiaries.

Life Expectancy Tables

Pursuant to Neb. Rev. Stat. § 77‑27,228(2)(b), the Department of Revenue has adopted the life expectancy tables from actuarial tables contained in certain publications of the IRS. The relevant life expectancy tables are those referred to in IRS 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 and Life Estate/Remainder Interest Table.


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