Form 4797n - Nebraska Special Capital Gains/extraordinary Dividend Election And Computation - 2014 Page 4
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6General Instructions
How to Complete this Form
To exclude income if an election has previously been made –
If you are the employee, complete Page 1.
If you are not the employee, complete Part III and also Page 1.
To make an election and exclude income –
If you are the employee, complete Part I and Page 1.
If you are not the employee, complete Parts I, II, III, and also Page 1.
To make an election without excluding any income –
If you are the employee, complete only Part I.
If you are not the employee, complete only Parts I and II.
Terms
Capital Stock. Capital stock is common or preferred stock and may be either voting or nonvoting. Capital stock does not
include stock rights, stock warrants, stock options, debt securities, or cash distributions from employee stock ownership plans.
Descendant. Descendant is a direct descendant of the employee (for example, child or grandchild). Please contact the
Department if you have a specific question regarding whether a person qualifies as a descendant.
Employee. Employee is an individual, subject to withholding, who is or was employed by a qualified corporation and who
obtained the capital stock either: (1) because of employment by the qualified corporation; or (2) while employed by the
qualified corporation.
Extraordinary Dividend. Extraordinary dividend is any dividend that is more than 20% of the fair market value of the
related stock on the date the dividend is declared.
Non-Qualified Stock. Non-qualified stock is stock that does not qualify for the exclusion because it was received:
1. Through the creation or purchase of a corporation by an investor who is not an employee;
2. For services performed for a corporation by a non-employee; or
3. Stock that was inherited or transferred through a testamentary trust.
Qualified Corporation. Qualified corporation is any corporation which (at the time of the first sale or exchange of capital
stock or declaration of extraordinary dividend on capital stock for which the election is made):
1. Has been in existence and actively doing business in Nebraska for at least three years;
2. Has at least five shareholders; and
3. Has no more than 90% of the capital stock held by any single shareholder or group of related shareholders.
For purposes of determining whether a corporation has at least five shareholders and whether any single shareholder or group
of related shareholders holds more the 90% of the capital stock, each member of an employee stock ownership plan (ESOP)
trust qualified under IRC § 401(a) is counted as an individual shareholder.
Other Corporations. The election also applies to the capital stock of other corporations that are related to the elected
corporation, such as a parent or subsidiary. Brother-sister corporations do not qualify under the same election. The election
also applies to the capital stock of a corporation that was a party to a tax-free reorganization with the elected corporation
that occurred during or after the time the employee was employed by the elected corporation. If the name of the corporation
is not the same as the name on the election, include an explanation of how the named corporation is a qualified corporation.
The Exclusion
Once the election is made, the following transactions by a resident, or by a partial-year resident while a resident, qualify
for the income exclusion:
1. Sales and exchanges of the qualifying stock in the taxable year the election was made and any following taxable
year; and
2. Sales and exchanges of stock owned by a spouse or descendant received as a gift, including a gift in trust from the
employee during his or her lifetime. Stock received by a non-employee through a will or testamentary trust does
not qualify for the exclusion.
For more information, please refer to
Neb. Rev. Stat. §§ 77-2715.08
and 77-2715.09.
Qualifying Capital Stock. To exclude income from the sale or exchange of capital stock of a corporation, it is necessary
to determine if the specific shares that were sold or exchanged qualify for the exclusion. The qualifying shares must have
been acquired either while the employee was employed by the corporation or on account of employment.
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