Form 4797n - Special Capital Gains Election And Computation 2005 Page 2
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1
2INSTRUCTIONS
DEFINITIONS
LINE 5. If stock acquisition date does not occur during employment dates, attach
CAPITAL STOCK is common or preferred stock and may be either voting or
an explanation of how stock was acquired because of employment or while
nonvoting. Capital stock does not include stock rights, stock warrants, stock
employed by the corporation.
options, debt securities, or cash distributions from employee stock ownership
LINE 7. If the election is properly being made on this return, enter the phrase “See
plans.
Part I.” If an election was previously made, attach a copy of the Form 4797N upon
Stock received through the creation or purchase of a corporation by an
which the election was previously made either by you or the qualified person.
investor who is not also an employee, or for services performed for a
LINE 8. Enter the sales price of the stock as shown on your Federal Schedule D
corporation by a non-employee does not qualify for this election. Stock that
(or Form 1099-B). If a broker advised you that the gross proceeds (gross sales
was inherited or transferred through a testamentary trust does not qualify
price) less commission and option premium were reported to the Internal Revenue
for this election.
Service, enter the net amount on line 8 and do not include the commission and
QUALIFIED CORPORATION is any corporation which, at the time of the first
option premium on line 9.
sale or exchange for which the election is made, has been in existence and actively
LINE 9. In general, the cost or other basis is the cost of the stock as shown on your
doing business in Nebraska for at least three years. At that time, the corporation
Federal Schedule D. If you do not use cash cost as a basis, attach an explanation
must have at least five shareholders with at least two shareholders or groups of
of your basis.
shareholders who are not related to each other and with no more than ninety
When selling stock, adjust your basis by subtracting all the nontaxable distributions
percent of the stock being held by a single related group of shareholders.
you receive before the sale. Also, adjust your basis for any stock splits.
EMPLOYEE is the individual who acquired the capital stock of a qualified
corporation either (1) because of employment by the corporation, or (2) while
Increase your basis by any expenses of sale such as a broker’s fee, commission,
employed by the corporation.
and option premium before making an entry on line 9, unless you reported net
sales price on line 8.
Once the election has been made, (1) subsequent sales and exchanges of the
qualifying stock in any taxable year and (2) sales and exchanges of stock owned
LINE 10. Enter the amount of the capital gain on qualified stock transactions this
by a spouse or issue received as a gift, including a gift in trust, from the employee
year. Distributions which are considered ordinary income or which are reported
during his or her lifetime, qualify for the income exclusion. However, the gain on
on Forms W-2 and not included on your Federal Schedule D are not eligible for
the sale of stock owned by other trusts, partnerships, or other entities cannot be
the exclusion. Losses on the sale of qualifying stock must be netted against gains
excluded even though it is reported on the employee’s return.
to determine the amount of capital gain to report on line 10.
MAXIMUM EXCLUSION. The amount to be excluded cannot exceed the amount
LINE 11. Enter the amount of the qualified gain on transactions in prior years that
of the gain included in your adjusted gross income.
has been carried forward.
PART II — INSTRUCTIONS
LINE 13. If line 13, Federal Form 1040 or line 4, Federal Form 1041, is a capital
SPECIAL INSTRUCTIONS
gain, add that amount to $3,000 ($1,500 if married filing separate) and enter on
If a joint return is being filed and both spouses are reporting a special capital
line 13 of this form. If line 13, Federal Form 1040 or line 4, Federal Form 1041,
gains exclusion, file a separate Form 4797N for each spouse and complete all
is a capital loss, enter $3,000 ($1,500 if married filing separate) reduced by the
appropriate lines through Part II, line 7. Complete lines 8 through 15 on only
amount of that loss. Caution: The amount on line 13 of this form cannot be less
one of the Forms 4797N using the combined information for both spouses. On
than zero or more than line 14, Form 1040N, computed without regard to the
the other Form 4797N write, “Exclusion calculation on other form”.
special capital gains exclusion (i.e., what line 14, Form 1040N would be if the
capital gains exclusion is zero).
LINE 1. Enter the name of the stock as reported on Federal Schedule D. If the
LINE 15. If line 12 is larger than line 14, subtract line 14 from line 12. This is the
name of the corporation whose stock is being sold differs from the corporation
amount of qualified gain that may be carried over and excluded in future years.
appearing on line 4 of Part I Election, attach an explanation as to how the
Otherwise, enter -0-.
corporations are related and why the stock being excluded qualifies for the special
capital gains exclusion.
Attach a copy of your Federal Schedule D, or other appropriate federal
LINE 2. Enter the description of the capital stock. For example, “100 shares of
documentation. If the gain results from an installment sale, you must attach
a copy of Federal Form 6252.
seven percent preferred voting stock.”
PART III —
If you are not the employee, complete this part to see if you qualify to make the Election and claim the Income Exclusion
INSTRUCTIONS
Start with Question #1. Follow the directions provided by the questions. Answer only the questions indicated by the directions.You will not have to answer
all of the questions. If the Part III questions do not pertain to your particular situation, contact the Nebraska Department of Revenue for assistance in
determining your qualifications for the special capital gains election. If a trust, the beneficiary(ies) must answer the questions. Remember, stock that
was inherited or transferred through a testamentary trust does not qualify for this election.
1 Has the employee previously made a special capital gains
7 Did the employee’s spouse make the special capital
election for this stock?
YES
NO
gains election?
YES
NO
If Yes, answer Question 2. If No, answer Question 4.
If Yes, STOP HERE. You qualify for the income exclusion. Complete Part II and
2 Relationship to employee (check only one):
include a copy of the 4797N which has previously been filed by the employee’s
spouse.
Spouse
Child or Other Issue, e.g., grandchild
If No, answer Question 8.
If Spouse, answer Question 3. If Child or Other Issue, STOP HERE.
You qualify for the income exclusion. Complete Part II and include a copy of the
8 Is the employee’s spouse still living?
4797N which has previously been filed by employee.
YES
NO
3 Were you married to the employee on the date of sale or
If Yes, STOP HERE. You do not qualify for the election. Do not answer
exchange of the stock?
YES
NO
the remaining question and do not complete Part I or Part II.
STOP HERE. If Yes, you qualify for the income exclusion. Complete Part II and
If No, answer Question 9.
include a copy of the 4797N which has previously been filed by the employee.
If No, you do not qualify for the election. Do not answer the remaining
9 Are you the oldest surviving issue, e.g., child,
questions and do not complete Part I or Part II.
grandchild?
YES
NO
4 Is the employee still living?
YES
NO
If Yes, STOP HERE. You may make the election by completing Part I; then
If Yes, STOP HERE, you do not qualify for the election. Do not answer the
complete Part II.
remaining questions and do not complete Part I or Part II.
If No, answer Question 10.
If No, answer Question 5.
5 Relationship to employee (check only one):
10 Did the employee’s oldest surviving issue previously
Spouse
Child or Other Issue, e.g., grandchild
make the special capital gains election?
YES
NO
If Spouse, answer Question 6. If Child or Other Issue, answer Question 7.
STOP HERE. If Yes, you qualify for the income exclusion. Complete Part II, and
6 Were you married to the employee on the date of sale or
include a copy of 4797N which has previously been filed by the employee’s
exchange of stock or on the date of the employee’s
oldest surviving issue.
death, whichever is earlier?
YES
NO
If No, you do not qualify for the election. Do not complete Part I or Part II.
STOP HERE. If Yes, you may make the election by completing Part I; then
complete Part II. If No, you do not qualify for the election. Do not answer the
remaining questions and do not complete Part I or Part II.
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