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006.05.307-26-51-405. PARTNERSHIP INCOME

AR ADC 006.05.307-26-51-405Arkansas 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 006.05.307-26-51-405
006.05.307-26-51-405. PARTNERSHIP INCOME
1.26-51-405 Partnership Income Generally -- Example
Partnership income must be allocated to the state where it was actually earned. All partnership income from activities carried on within Arkansas shall be allocated to Arkansas. For example, a partnership comprised of two (2) partners earned $100,000.00 during the tax year. One partner resides in Arkansas and the other in Louisiana. $30,000.00 of the partnership's income is allocable to activity carried on in Arkansas by, or on behalf of, the partnership. Each partner's distributive share of the partnership's income is 50%. Therefore, the Arkansas based partner would report $15,000.00 in gross income on his resident Arkansas individual income tax return and the Louisiana based partner would report $15,00.00 in gross income on his nonresident Arkansas individual income tax return.
Because a portion of the partnership's income was allocable to Arkansas, the partners will need to file a partnership tax return (AR1050) with the State of Arkansas.
2.26-51-405 Partnership Composite Return
Before the Department will allow a composite individual income tax return (“block filing”), certain conditions must be agreed to. Those conditions are as follows:
1. The Revenue Division must be provided with the names of all relevant partners.
2. Each composite or block return must be filed in the name of the partnership and the partner that signs the return will be responsible for any assessments or deficiencies incurred by the return. This requirement does not relieve any of the partners from their personal liability in any way.
3. The total net taxable income in Arkansas must be reported on form AR1000. Tax will be computed at a flat 7% tax rate.
4. Partners who become or are residents of Arkansas, or who have income or losses from Arkansas sources other than from the partnership, will be excluded from the block filing. Only those partners who must file Arkansas non-resident individual income tax returns as a result of their interest in the partnership will be included in the proposed block filing.
5. The agreement to allow composite or block filing will be reviewed annually and the agreement is revocable at the option of the Revenue Division. Permission to file a composite return must be obtained from an Individual Income Tax Section Manager before such a return is filed.
1.26-51-405(a) Partnerships
A partnership must keep records showing the participation of the partners, the interest owned by them, duties performed and services rendered in the operation of the business. A partnership as such is not subject to taxation but it must make a return of income, which return properly reflects the net income for each partner. Individuals carrying on business in partnership are taxable upon their distributive shares of the net income of such partnerships, whether distributed or not, and are required to include such distributive shares in their individual returns.
2.26-51-405(a) Distributive Share of Partnership Income
The distributive share of the net income of the partnership which a partner is required to include in his return is his proportionate share of the net income of the partnership, either:
(a) For the taxable year upon the basis of which the partner's net income is computed, or
(b) If the partner's net income is computed upon the basis of a taxable year different from that upon the basis of which the net income of the partnership is computed, for the taxable year of the partnership ending within the taxable year upon the basis of which the partner's net income is computed.
Amounts earned and distributed to a partner by a partnership after the end of its taxable year and before the end of his corresponding taxable year should be accounted for both by the partnership and by the partner in their returns for their next succeeding taxable year. Where the results of partnership operation is a net loss, the loss will be divisible by the partners in the same proportion as net income would have been divisible (or, if the partnership agreement provides for the division of a loss in a manner different from the division of a gain, in the manner so provided), and may be taken by the individual partners in their returns of income.
Current with amendments received through August 15, 2023. Some sections may be more current, see credit for details.
Ark. Admin. Code 006.05.307-26-51-405, AR ADC 006.05.307-26-51-405
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