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006.05.307-26-51-401. TAX YEAR - ACCOUNTING METHOD

AR ADC 006.05.307-26-51-401Arkansas Administrative Code

West's Arkansas Administrative Code
Title 006. Department of Finance and Administration
Division 05. Division of Revenues
Rule 307. Comprehensive Individual Income Tax Regulations (Refs & Annos)
Ark. Admin. Code 006.05.307-26-51-401
006.05.307-26-51-401. TAX YEAR - ACCOUNTING METHOD
1.26-51-401(a) Method of Accounting
It is recognized that no uniform method of accounting can be prescribed for all taxpayers, and the law contemplates that each taxpayer shall adopt such forms and systems of accounting as are in his judgment best suited to his purpose. Arkansas taxpayers must use the same accounting method as that used for federal income tax purposes.
Each taxpayer is required by law to make an income tax return reflecting his true and correct income. Therefore, adequate accounting records and source documents must be retained to justify that the filed income tax returns are a true and correct accounting of the taxpayers transactions for each tax year. As a general rule, the accounting records and source documents should be retained for a minimum of six (6) years.
The essential elements are as follows:
(1) In all cases in which the production, purchase or sale of merchandise of any kind is an income-producing factor, inventories of the merchandise on hand (including finished goods, work in process, raw materials, and supplies) should be taken at the beginning and end of the year and used in computing the net income for the tax year.
(2) Expenditures made during the tax year should be properly classified as between capital and expense; that is to say, expenditures for items of plant, equipment, etc., which have a useful life extending substantially beyond the tax year should be charged to a capital account and not to an expense account; and
(3) In any case in which the cost of capital assets is being recovered through deductions for wear and tear, depletion or obsolescence, any expenditure (other than ordinary repairs) made to restore the property or prolong its useful life should be added to the property account or charged against the appropriate reserve and not to current expenses.
2.26-51-401(a) Method of Accounting
Approved standard methods of accounting will ordinarily be regarded as clearly reflecting income. A method of accounting will not, however, be regarded as clearly reflecting income unless all items of gross income and all deductions are treated with reasonable consistency. All items of gross income subject to taxation shall be included in the gross income for the tax year in which they are received by the taxpayer, and deductions taken accordingly, unless in order to clearly reflect income such amounts are to be properly accounted for as of a different period. Refer to 1.26-51-403(b). For instance, in a case where it is necessary to use an inventory, no other accounting method in regard to purchases and sales will correctly reflect income except the accrual method. A taxpayer is deemed to have received items of gross income which have been credited to or set apart for him without restriction. On the other hand, appreciation in value of property is not an accrual of income to a taxpayer prior to the realization of such appreciation through sale or conversion of the property.
The true income, computed under the Income Tax Act of 1929, and where the taxpayer keeps books of account, in accordance with the method of accounting regularly employed in keeping such books (provided the method so used is properly applicable in determining the net income of the taxpayer for purposes of taxation) shall in all cases be entered on the income tax return.
1.26-51-401(b) Change in Method of Accounting
If for any reason the basis of reporting income subject to tax is changed, the taxpayer shall attach to his income tax return a copy of the Internal Revenue Service certification or approval of the change in accounting method.
Current with amendments received through August 15, 2023. Some sections may be more current, see credit for details.
Ark. Admin. Code 006.05.307-26-51-401, AR ADC 006.05.307-26-51-401
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