In the bowl of a stand mixer fitted with paddle attachment, cream the butter and sugar together until crumbly.
Add the egg yolks and mix until pale and thick.
Mix in baking powder, salt and nutmeg.
Alternate adding flour and sour cream until dough is smooth but still sticky. If dough is way too sticky add flour one tablespoon at a time until good but still sticky consistency. Do not over mix or dough will become tough.
Cover bowl with plastic and refrigerate for 1 hour to firm.
On a floured surface, roll out dough to about ½ inch thickness. Using a donut cutter, a biscuit cutter, or the rim of your favorite round glass, cut out as many donuts as possible, dipping the cutter into flour as necessary to prevent sticking. If not using a donut cutter, a 2-liter bottle cap works perfectly to cut out the hole.
Pour 2 inches of canola oil into a heavy bottomed pot with a candy/ deep fry thermometer attached. heat oil to 325ºF. Fry the donuts a few at a time, careful not to overcrowd the pot. Fry each side for about 2 minutes on each side, taking care not to let them burn. Watch the thermometer closely and adjust heat to maintain correct temperature. Drain donuts on wire rack with a paper bag or baking pan lines with paper towels underneath.