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Nebraska Supreme Court upholds taxpayers’ special capital gains election, finds economic substance doctrine inapplicable

On October 14, 2016, the Nebraska Supreme Court held that the taxpayers qualified for the state’s special capital gains election because they met the literal terms of the statutes providing for the election.(1) The decision is notable for the Court’s refusal to apply either the “economic substance” doctrine or the “sham transaction” doctrine as a basis to disallow the taxpayers’ election, notwithstanding the fact that the taxpayers had entered into a presale restructuring transaction solely for the purpose of qualifying for the election. Instead, the Court focused its analysis on a strict application of the principles of statutory interpretation.


(1) Stewart v. Nebraska Dep’t of Revenue, Nebraska Supreme Court, No. S-15-700, Oct. 14, 2016.