North Dakota Calculation of Tax on Proceeds from Sale of Income Tax Credit

Calculation of Tax on Proceeds from Sale of Income Tax Credit
Schedule ND-1CS 2021 - Calculation Of Tax On Proceeds From Sale Of Income Tax Credit
CALCULATION OF TAX ON PROCEEDS
FROM SALE OF INCOME TAX CREDIT

Schedule ND-1CS

OFFICE OF STATE TAX COMMISSIONER

2021

SFN 28746 (12-2021)

Attach to Form ND-1
Your Name (First, MI, Last Name)

Your Social Security Number

Before completing this schedule, complete Form ND-1, lines 1 through 18.
If using either Schedule ND-1FA or Schedule ND-1NR, see "How to complete this form" in instructions.
1. North Dakota taxable income - Enter the amount from Form ND-1, line 18. However, if using
(C1) 1
Schedule ND-1FA, enter the amount from line 3 of that schedule. If less than zero, enter 0.
2. Gross proceeds - Enter the gross proceeds from the sale of the credit

(C2) 2

3. Were the gross proceeds (on line 2) included in federal taxable income?

(C3) 3

4. If line 3 is Yes, enter the amount from line 1. If line 3 is No, add lines 1 and 2 and enter the
result on this line, and then enter -0- on line 7c and go to line 8

(C4) 4

5. Were the gross proceeds (on line 2) reported as a long-term capital gain on the federal return?

Yes

No

(C5) 5

Yes

No

(C6) 6

Yes

No

If line 5 is Yes, go to line 6.
If line 5 is No, enter -0- on line 7c, and go to line 8.
6. Was a long-term capital gain exclusion claimed on Form ND-1, line 7?
If line 6 is Yes, go to line 7a.
If line 6 is No, enter -0- on line 7c, and go to line 8.
7. a. Enter the amount from Form ND-1, line 7
b. Multiply line 2 by 40% (.40)

7a
7b
(C7) 7c

c. Enter smaller of line 7a or 7b
8. Add lines 4 and 7c
9. Subtract line 2 from line 8. If less than zero, enter -0-

8
9

10. Tax on North Dakota taxable income without proceeds If using Schedule ND-1FA, see the instructions. Otherwise,
figure the tax on the amount on line 9 using the 2021 Tax
(C10) 10
Table in the instructions for Form ND-1
11. Enter larger of line 2 or line 8

11

12. Tax on North Dakota taxable income with proceeds - If using Schedule ND-1FA, see the
instructions. Otherwise, figure the tax on the amount on line 11 using the 2021 Tax
(C12) 12
Table in the Form ND-1 instructions
Full-year resident - If the taxpayer (and taxpayer's spouse, if filing jointly) are full-year
residents, skip lines 13 through 18, and go to line 19.
Full-year nonresident or part-year resident - If the taxpayer (or taxpayer's spouse, if filing
jointly) is filing as a full-year nonresident or part-year resident, go to line 13.
13. a. If Line 3 is Yes, enter amount from Schedule ND-1NR,
line 18; otherwise, skip lines 13 and 14, and go to line 15

13a

b. Subtract line 2 from line 13a
14. a. Enter amount from Schedule ND-1NR, line 19

(C13) 13b
14a

b. Subtract line 2 from line 14a

15. If required to complete lines 13 and 14, divide line 13b by line 14b (round to nearest four
decimal places); otherwise, enter the ratio from Schedule ND-1NR, line 20
16. Multiply line 10 by line 15
17. Subtract line 10 from line 12
18. Add lines 16 and 17
19. Tax - If the taxpayer (and taxpayer's spouse, if filing jointly) are full-year residents, enter
amount from line 12. If the taxpayer (or taxpayer's spouse, if filing jointly) is a full-year
nonresident or part-year resident, enter amount from line 18. Enter the amount from this
line on Form ND-1, line 19.

(C14) 14b

(C15) 15
16
(C17) 17
18

(C19) 19

2021 Schedule ND-1CS
SFN 28746 (12-2021), Page 2

Purpose of form
If an individual sells an unused research
and experimental expenditure tax credit
(under N.D.C.C. § 57-38-30.5) to another
taxpayer for value, the gross proceeds from
the sale are assignable to North Dakota and
are subject to North Dakota income tax. No
part of the proceeds may be apportioned
or allocated outside North Dakota, and the
gross proceeds may not be reduced by any
loss or deduction allowed for North Dakota
income tax purposes. This schedule must be
used to calculate the individual's income tax
for the tax year.
Note: There are conditions and procedures
that must be satisfied before the credit
may be transferred to another taxpayer.
For more information, see Form CTS, Credit
Transfer Statement, which can be obtained
at www.nd.gov/tax.

Who must complete
An individual must complete this schedule if
either (or both) of the following apply:
•	 The individual sold an unused research
and experimental expenditure tax credit
to another taxpayer for value.
	

Note: The individual (seller) and the
buyer were required to jointly file
Form CTS with the Office of State Tax
Commissioner at the time of the sale.

•	 The individual held an interest in a
passthrough entity that sold a research
and experimental expenditure tax credit
to another taxpayer for value.
	

A "passthrough entity" means a
partnership, S corporation, or a
limited liability company treated like a
partnership or S corporation.

	

"Partnership" includes all forms
of partnerships, such as a limited
partnership, limited liability limited
partnership, etc.

	

Note: The passthrough entity (seller)
and the buyer were required to jointly
file Form CTS with the Office of State
Tax Commissioner at the time of the
sale. In addition, the passthrough
entity (seller) was required to provide a
specially-prescribed notice to each of its
owners showing the owner's share of the
total gross proceeds and instructing the
owner how to report the proceeds on the
owner's North Dakota income tax return.
See Form CTS for more information.

How to complete this form
Before completing this schedule:
1.	 Complete Form ND-1, lines 1 through
line 18.
2.	 If Schedule ND-1FA (3-year averaging
for farm income) is going to be used
to calculate the tax for the tax year,
complete that schedule first. Information
from Schedule ND-1FA will be needed
to complete Schedule ND-1CS. Do
not enter the tax calculated on
Schedule ND-1FA on Form ND-1 or
Schedule ND-1NR.
3.	 If the individual (or the individual's
spouse, if filing jointly) was a nonresident
of North Dakota for part or all of the
tax year, complete Schedule ND-1NR.
Information from that schedule will be
needed to complete Schedule ND-1CS.
Do not enter the tax calculated on
Schedule ND-1NR on Form ND-1.
Credit transfer statement. If the
individual completing Schedule ND-1CS
is the taxpayer who sold the credit, have
on hand a copy of the Form CTS, Credit
Transfer Statement, that was required
to be filed with the Office of State Tax
Commissioner at the time of the sale. It
shows the amount of the gross proceeds
received from the buyer.
Passthrough entity member notice. If
the individual completing Schedule ND-1CS
is doing so because the individual owned
an interest in a passthrough entity that
sold the credit, have on hand a copy of the
Passthrough Entity Member Notice that the
passthrough entity was required to provide
to each of its owners at the time of the sale.
It shows the owner's share of the gross
proceeds.

Specific line instrucitons
Line 2 - Gross proceeds
Enter the amount of gross proceeds from
Form CTS, Credit Transfer Statement, or
from the Passthrough Entity Member Notice,
whichever is applicable.
Line 3 - Inclusion of proceeds in federal
taxable income
In general, the transfer of a state income
tax credit for value is a taxable sale of
property and the gross proceeds are
includable in gross income for federal
income tax purposes - see Tempel,
George H., 136 TC No. 15 (2011) and IRS
Chief Counsel Advice (CCA) 201147024. Fill
in the applicable circle to indicate whether
or not the gross proceeds (on line 2) were
included in federal taxable income.

Line 4 - North Dakota taxable income
with proceeds
The entire gross proceeds from the sale of
the credit are assignable to, and taxable
by, North Dakota. If the gross proceeds
(on line 2) were included in federal taxable
income, enter the North Dakota taxable
income amount from line 1 on line 4. If the
gross proceeds were not included in federal
taxable income, add the gross proceeds (on
line 2) to the North Dakota taxable income
(on line 1) and enter the result on line 4.
Lines 5 through 7 - Long-term capital
gain exclusion adjustment
The gross proceeds from the sale of the
credit may not be reduced by any loss or
deduction allowed for North Dakota income
tax purposes. If the gross proceeds (on
line 2) were reported as a long-term capital
gain for federal income tax purposes and
a long-term capital gain exclusion was
claimed on Form ND-1, line 7, the portion
of the exclusion amount attributable to the
gross proceeds must be added back into
North Dakota taxable income. Complete
lines 5 through 7 to calculate the amount
of the exclusion that must be added back.
If this does not apply, enter zero on line 7c
and go to line 8.
Line 10 - Tax on North Dakota taxable
income without proceeds
If Schedule ND-1FA is going to be used to
compute the tax for the year, and if the
gross proceeds (on Schedule ND-1CS,
line 2) were included in federal taxable
income, the tax on Schedule ND-1FA must
be recomputed by completing a second
Schedule ND-1FA. Write "Recomputation
of tax for Schedule ND-1CS, line 10" at
the top of the second Schedule ND-1FA.
Complete the second Schedule ND-1FA
using the same figures from the original
Schedule ND‑1FA except that the amount
on Schedule ND-1CS, line 9, must
be entered as the starting figure on
line 1 of the second Schedule ND‑1FA.
Enter the recomputed tax from line 23
of the second Schedule ND-1FA on
Schedule ND‑1CS, line 10.
If the gross proceeds (on Schedule ND‑1CS,
line 2) were not included in federal
taxable income, enter the amount from
Schedule ND-1FA, line 23, on this line.
Line 12 - Tax on North Dakota taxable
income with proceeds
If Schedule ND-1FA is going to be used to
compute the tax for the year, and if the
gross proceeds (on Schedule ND‑1CS,
line 2) were included in federal
taxable income, enter the amount from
Schedule ND‑1FA, line 23, on this line.

2021 Schedule ND-1CS
SFN 28746 (12-2021), Page 3

If the gross proceeds (on Schedule ND-1CS,
line 2) were not included in federal taxable
income, the tax on Schedule ND-1FA must
be recomputed by completing a second
Schedule ND‑1FA. Write "Recomputation
of tax for Schedule ND‑1CS, line 12" at
the top of the second Schedule ND-1FA.
Complete the second Schedule ND-1FA
using the same figures from the original
Schedule ND-1FA except that the amount
on Schedule ND-1CS, line 11, must
be entered as the starting figure on
line 1 of the second Schedule ND‑1FA.
Enter the recomputed tax from line 23
of the second Schedule ND‑1FA on
Schedule ND‑1CS, line 12.

If the taxpayer (and the taxpayer's
spouse, if filing jointly) are filing as
full-year residents, enter the amount
from Schedule ND-1CS, line 12, on
Schedule ND‑1CS, line 19. Do not
complete lines 13 through 18 of
Schedule ND-1CS.
If the taxpayer (or the taxpayer's spouse,
if filing jointly) is filing as a full-year
nonresident or a part-year resident,
complete lines 13 through 18.

Lines 13 and 14 - North Dakota
income ratio
If the answer to the question on line 3 is
Yes, lines 13 and 14 must be completed to
recompute the North Dakota income ratio
on Schedule ND‑1NR.
If the answer to the question on line 3 is
No, skip lines 13 and 14, and enter the
North Dakota income ratio from Schedule
ND-1NR, line 20, on Schedule ND-1CS,
line 15.