Nebraska District Court finds GIL 24-19-1 to be defamation | McDermott Will & Emery


Last week, Lancaster County District Court upheld the state’s dismissal motion COST versus the Nebraska Treasury Department. COST brought this declaratory action to invalidate GIL 24-19-1, in which the department determined that income deemed repatriated under IRC Section 965 was not eligible for state dividend deduction and, therefore, Nebraska corporation tax subject. COST has until July 19, 2021 to appeal the judge’s decision.

The state’s motion was made on procedural grounds, including that the GIL be a guide, not a “rule,” so that a declaratory decision is not permitted under Nebraska law. COST argued that the GIL, while called a guidance document, is essentially a rule as it sets a legal standard and specifically penalizes taxpayers who fail to comply. The district court found the GIL is not a rule and granted the state’s request. The district court has not dealt with the substantive issue of whether 965 income is eligible for the deduction of dividends received.

Although at first glance this decision may seem like a loss to the taxpayer, the judge’s formulation suggests otherwise. Finding that the GIL is not a “rule”, the judge found that the GIL was a mere interpretation of the law that was not binding on the taxpayer and no claim to deference by the Nebraska courts. This reinforces an already strong argument by taxpayers on the matter.

The ministry’s position that 965 income is not eligible for dividend deduction is at odds with the legislative history of the deduction and the nature of the 965 income. The fact that a judge found that position is now no longer heeded only makes the taxpayer’s case stronger.

As a practical matter, taxpayers who have objected to the assessment of 965 income should consider including the argument of deference in their appeals, and taxpayers who have followed the GIL and paid taxes on 965 income may consider filing claims. The contents of this matter will be litigated one way or another, and the District Court’s finding that the GIL is not being honored can only help the taxpayer case.

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