AR ADC 006.05.307-26-51-102Arkansas Administrative Code
Ark. Admin. Code 006.05.307-26-51-102
A person appointed by the court to administer (that is, manage or take charge of) the estate, including liabilities, of a decedent.
A trust designed for the benefit of a class or the public generally. Charitable trusts are essentially different from private trusts in that the beneficiaries of a charitable trust are uncertain. A charitable remainder trust consists of assets which are paid over to the trust after the expiration of a life estate or intermediate estates and designated for charitable purposes.
1.26-51-102(5) Corporate Characteristics
Whether an organization (including an unincorporated entity like a partnership, LLC, or trust) will be taxed as a corporation depends on how many of these corporate characteristics it has:
• an objective to carry on a business and divide the gain from it,
• continuity of life,
• centralized management,
• liability limited to the organization's assets, and
• free transferability of interests. IRC Reg. 301.7701-2(a)(1)
If an entity has more corporate than noncorporate characteristics, it is treated as a corporation (association taxable as a corporation). IRC Reg. 301.7701-2(a)(3)
The degree, quantity, nature and extent of interest which a person has in real estate and all other personal property of whatever kind. With respect to a decedent, the total property of whatever kind that is owned by a decedent prior to the distribution of that property in accordance with the terms of a will, or, when there is no will, by the laws of inheritance in the state of domicile of the decedent.
3.26-51-102 Estate Taxability
Estate Tax Extension -- AY321E
Estate Tax Return -- AY321
Fiduciary Return -- AR1002
Estate income is normally taxed to the estate itself if retained by the estate, or to the distributee, if distributed. Thus, if the fiduciary (that is, executor or administrator) passes on income to the distributee, the estate deducts the distributed income which then becomes taxable to the distributee. What would be gross income in the hands of an individual is gross income when received by an estate -- dividends, interest, rents, royalties, capital gains, ordinary gains, etc. IRC Reg. 1.641(a)-2. Gross income includes income accumulated or held for future distribution under the terms of a will or trust, income that is currently distributable, income received by a deceased's estate during administration or settlement, and income that, in the fiduciary's discretion, may be either accumulated or distributed. IRC Sec. 641(a). Deductions and credits allowed to estates are basically those allowed to individuals. An estate's status as a separate taxpayer exists only during the period of administration and settlement of the estate. IRC Sec. 641(a)(3). This period starts with the deceased's death and generally extends for the entire time actually required to perform the ordinary duties of administration, such as collecting assets and paying legacies and debts. If estate administration is unduly prolonged, the IRS considers the estate terminated for tax purposes after expiration of a reasonable period (considering the estate's assets) for performance by the executor of all the duties of administration. IRC Reg. 1.641(b)-3(a).
A person appointed by a testator to carry out the directions and requests in his will, and to dispose of the property according to his testamentary provisions after his death. The executor would also be responsible for disposing of the estate's debts and other liabilities.
Fiduciary Return -- AR1002
Extension of Time -- AR1055
A person having a duty, created by his undertaking, to act primarily for another's benefit in matters connected with such undertaking. A fiduciary relationship is considered one of trust and confidence. A fiduciary has a legal responsibility to act in the beneficiary's (or beneficiaries') best interest. The term “fiduciary” means a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity for any other person. IRC Sec. 7701(a)(6). A trustee, for example, possesses a fiduciary responsibility to the beneficiaries of a trust to follow the terms of the trust and the requirements of applicable state law.
A trust whereby the grantor retains control over the income or corpus (trust property) or both, to such an extent that the grantor will be treated as the owner of the property and its income for income tax purposes. The general result is that the income from a grantor trust is taxable to the grantor, as “owner” of the trust, and not to the fiduciary. In determining whether a trust is a grantor trust, the grantor's degree of control over the trust must be analyzed.
If a grantor is considered to be the owner of the entire trust, the grantor computes his own personal income tax by taking into account all trust income, deductions and credits as though the trust did not exist. However, where a grantor is treated as owner solely because of his interest in trust income, the grantor takes into account only his share of trust items that would be reported by a current income beneficiary. IRC Reg. 1.671-3.
The grantor of a trust is treated as its “owner” and is generally taxed on its income if:
*b) The trust income is distributed actually or constructively to the grantor or the grantor's spouse;
*c) The trust income is held or accumulated for future distribution to the grantor or the grantor's spouse;
*d) The trust income is applied to pay premiums on life insurance policies taken out on the life of the grantor or the grantor's spouse.
See IRC Sec. 671 et seq.
*The income is not taxable to the grantor if the application of the income to any of these purposes requires the approval of an adverse party (such as a beneficiary).
Limited Liability Companies (LLC's) are owned and in some cases managed by members who are not personally liable for the LLC's debts or obligations. The IRS may classify an LLC as a partnership if it lacks a preponderance of “corporate characteristics” (see definition), resulting in the flow-through of tax attributes to the LLC's members under the partnership tax rules. In Arkansas, LLC's are created and governed pursuant to the Small Business Entity Tax Pass Through Act, ACA 4-32-101 et seq. An LLC can be created by one or more persons by filing Articles of Organization with the Arkansas Secretary of State. Property may be acquired, held and conveyed in the name of the LLC and such property would belong to the LLC, not its members. Pursuant to ACA 4-32-1313, every LLC having two (2) or more members must file an income tax return for each taxable year as required for every partnership by ACA 26-51-802. The income and expenses of every LLC having only one (1) member must be reported on the member's individual income tax return.
1.26-51-102(4) Limited Partnership
A limited partnership is a partnership with two classes of partners: general partners, who may participate in the management of the partnership's business and who have unlimited liability for the partnership's obligations; and limited partners, who may not participate in management, and whose liability is limited to the amount of their capital contribution.
Partnership Return -- AR1050
Extension of Time -- AR1055
A “partnership” includes a syndicate, group, pool, joint venture or other unincorporated organization through, or by means of which, any business, financial operation or venture is carried on if it is not, within the meaning of the IRC, a corporation, trust or estate. IRC Sec. 761(a). A partnership exists when two or more persons join in carrying on a trade or business, with each person contributing either money, property, labor or skill. The partnership agreement doesn't have to be written, it can be oral. IRC Sec. 761(c); Reg. 1.761-1(c). A joint undertaking merely to share expenses isn't a partnership. IRC Reg. 1.761-1(a). Partnerships are treated as a conduit or “pass-through entity” and are, therefore, not subject to taxation. The various items of partnership income, gains and losses, etc. flow through to the individual partners and are reported on their individual income tax returns. Moreover, every domestic or foreign partnership doing business within Arkansas or which has received income from sources within Arkansas (regardless of the amount), shall file an Arkansas partnership return.
3.26-51-102(4) Publicly Traded Partnership (PTP)
A publicly traded partnership (PTP) is taxable as a corporation. IRC Sec. 7704(a). A partnership is a publicly traded partnership if interests in the partnership either: (1) are traded on an established securities market, or (2) are readily tradable on a secondary market or its substantial equivalent. IRC Sec. 7704(b). However, a publicly traded partnership won't be treated as a corporation if, for each tax year beginning after 1987, at least 90% of its gross income is specified passive-type income, and certain other requirements are met. IRC Sec. 7704(c). Certain existing partnerships that were publicly traded partnerships on December 17, 1987, won't be treated as corporations until tax years beginning after 1997.
Any natural person domiciled in the State of Arkansas or any other person who maintains a permanent place of abode within Arkansas and spends in the aggregate more than six (6) months of the tax year within Arkansas.
2.26-51-102(9) Residency Determination
A three pronged test, as set forth below, is used to determine whether or not a person is a resident of Arkansas. Satisfaction of any one prong is sufficient to establish residency.
a) any person domiciled in the state of Arkansas. Domicile is comprised of an act coupled with an intent. A domicile is acquired by (1) physical presence at a place coinciding with (2) the state of mind (that is, intent) of regarding the place as a permanent home. A domicile arises instantaneously when these two facts occur. Every person must have one domicile but can have no more than one domicile, regardless of how many residences a person may have at any given time. A domicile, once established, continues until a new domicile of choice is legally established. An established domicile does not end by lack of physical presence alone nor by mental intent alone. The old domicile must be abandoned with the intention not to return to it. If one moves to a new location but intends to stay there only for a limited period of time (no matter how long), the domicile does not become the new location but rather remains unchanged.
b) any person who maintains a permanent place of abode within Arkansas and spends in the aggregate more than six (6) months of the year within Arkansas. Place of abode means a place where a person has established a permanent home, even though such person may be absent therefrom[sic] for a long period of time. A temporary home or residence would not be considered a place of abode, as there must be at least some degree of permanence. In addition, a person must actually spend more than six months of the tax year in Arkansas to fall within the scope of this provision. A person who has spent either less than six months or exactly six months in Arkansas would not fall within the scope of this provision.
Place of abode and residence are considered to mean roughly the same thing. However, domicile and residence are not considered to be synonymous. Residence denotes only an act (the act of residing), while domicile denotes an act (the act of residing) coupled with the intent that the residence be a permanent home. The distinction between domicile and place of abode is that although a person can have several homes (or places of abode) at one time, only one of those homes can be the person's domicile. The home that the person intends or considers to be their permanent home (as in home base) would be the domicile.
c) In situations where it is not clear if the requirements of either domicile (a) or place of abode (b) have been met, a residency determination can only be made after thoroughly reviewing the facts on a case by case basis. When reviewing the facts, the Supreme Court of Arkansas has held that we are not bound to accept a taxpayer's claims of intent when the circumstances point to a contrary conclusion. Furthermore, when acts are inconsistent with a taxpayer's declarations, the acts will control, and our conclusions regarding residency should be based on the facts and circumstances proved. The following factors should be reviewed in making a residency determination:
* Address used on federal income tax returns;
* Address used on telephone, utility and commercial documents;
* Address used on voter registration;
* Address used on driver's license, hunting and fishing license;
* Address used on motor vehicle, boat and trailer registration;
* Address used on real and personal property tax documents;
* Address used on county and other tax assessments;
* Address on governmental documents, such as military records. With respect to military records, the Leave and Earning Statement is a very important document;
* If the Taxpayer has a spouse, the spouse's address on such things as drivers license, voter registration, vehicle registration, etc. should be checked out;
* Employer and withholding information, nature of Taxpayer's employment (traveling salesperson, etc);
* Location of Taxpayer. How often and for how long is Taxpayer present at the locations at issue;
* Location of immediate family, such as spouse and children;
* Length of time in Arkansas of Taxpayer and immediate family;
* Community affiliations, such as club memberships, church, bank accounts, etc.;
* Absence of factors in other states.
A trust in which the settlor (that is, grantor or creator of the trust) reserves the right to revoke the trust. The settlor would be considered to be the “owner” of such a trust. Therefore, revocable trusts may be treated as grantor trusts under certain circumstances. IRC Sec. 671 et seq.; Reg. 1.676(a).
Any arrangement whereby property is transferred with the intention that it be administered by a trustee for anothers benefit. A trust can be created for any purpose which is not illegal and which is not against public policy. The essential elements of a trust are a designated beneficiary and trustee, a fund or other property sufficiently identified to enable title to pass to the trustee, and actual delivery to the trustee with the intention of passing title to the trustee. A fiduciary relationship exists between the trustee and beneficiary.
9.26-51-102 Trust Taxability
Fiduciary Return -- AR1002
Extension of Time -- AR1055
Trust income is normally taxed to the trust itself if retained by the trust, or to the beneficiary, if distributed. Thus, if the fiduciary (that is, trustee) passes on income to the beneficiary, the trust deducts the distributed income which then becomes taxable to the beneficiary. What would be gross income in the hands of an individual is gross income when received by a trust -- dividends, interest, rents, royalties, capital gains, ordinary gains, etc. IRC Reg. 1.641(a)-2. Gross income includes income accumulated or held for future distribution under the terms of a trust, income that is currently distributable, and income that, in the fiduciary's discretion, may be either accumulated or distributed. IRC Sec. 641(a). A “trust” is taxed as a corporation if it has been created or used during the tax period to carry on a business and it has corporate characteristics such as centralized management, continuity of existence, limited liability, etc. IRC Reg. 301.7701-4(b). Deductions and credits allowed to trusts are basically those allowed to individuals. When a trust terminates, it ends as a separate tax entity and no longer reports gross income or claims deductions, credits, etc. IRC Reg. 1.641(b)-3(d). Though the duration of a trust may depend on the occurrence of a particular event under the trust instrument, e.g., the life beneficiary reaching a specified age, for tax purposes the trust will nevertheless continue for a reasonable period beyond this time to allow for the orderly completion of administration. IRC Reg. 1.641(b)-3(b).
Person who holds legal title to property in trust for the benefit of another person or people (that is, the beneficiaries). A trustee is one who is appointed, or required by law, to execute a trust.
Current with amendments received through August 15, 2023. Some sections may be more current, see credit for details.
Ark. Admin. Code 006.05.307-26-51-102, AR ADC 006.05.307-26-51-102
|End of Document|