006.05.315. SMALL BUSINESS TAX ACCOUNTING USE OF ACCRUAL BASIS and CASH BASIS ACCOUNTING METHOD...
AR ADC 006.05.315Arkansas Administrative Code
Ark. Admin. Code 006.05.315
006.05.315. SMALL BUSINESS TAX ACCOUNTING USE OF ACCRUAL BASIS and CASH BASIS ACCOUNTING METHODS
CORPORATION INCOME TAX REGULATION 3.26-51-401(a)
Pursuant to the authority vested in the Director of the Arkansas Department of Finance & Administration and in compliance therewith, the Director and Commissioner hereby promulgate the following regulation for the proper administration of the Arkansas Income Tax Act of 1929.
This regulation shall be effective ten (10) days after it has been filed by the Department of Finance and Administration with the Arkansas Secretary of State.
This regulation has been promulgated to implement and facilitate Revenue Procedure #2001-76, 2001-52 I.R.B. 613 issued by the Internal Revenue Service on December 11, 2001. Under Ark. Code Ann. § 26-51-401, Arkansas income tax returns must be prepared using the same accounting method as that used for federal income tax purposes. In order to remain consistent with federal rules on the use of accounting methods, the Director has determined that promulgation of this regulation is necessary.
a) “Qualifying Small Business Taxpayer” shall mean any taxpayer with “average annual gross receipts” of greater than $1,000,000 but less than or equal to $10,000,000 that is not prohibited from using the cash method of accounting under IRC § 448. A taxpayer's average annual gross receipts of $10,000,000 or less is determined by averaging the annual gross receipts for a three tax year period ending immediately prior to the tax year electing the cash method of accounting. Taxpayers are required to recalculate their average annual gross receipts each tax year. The election to change to the cash method of accounting may be made for tax years ending on or after December 31, 2001.
Example: The averaging is based upon the three years prior to the tax year electing the change. If electing for tax year 12/31/01, the averaging is based upon tax years 12/31/98, 12/31/99 and 12/31/00. If electing for tax year 12/31/02, the averaging is based upon tax years 12/31/99, 12/31/00 and 12/31/01. A “short” year will be considered a tax year in the averaging calculation.
b) “Eligible Trade or Business” shall mean a trade or business in which the principal business activity is described in a North American Industry Classification System (“NAICS”) code other than an ineligible NAICS code. Ineligible NAICS trades or businesses are as follows: 31 through 33 (manufacturing): 42 (wholesale trade); 44 and 45 (retail trade); 211 and 212 (mining activities); 5111 and 5122 (information industries).
A farming operation is also considered to be an ineligible trade or business. However, if a qualifying small business taxpayer is engaged in farming, the cash basis method may apply to the taxpayer's non-farming trades or businesses, if any.
b) Revenue Procedure #2001-76, 2001-52 I.R.B. 613 does not apply to farming operations. However, taxpayers engaged in the trade or business of farming may use the cash method of accounting unless the taxpayer is required to use the accrual method under IRC § 447 or is prohibited from using the cash method under IRC § 448.
The taxpayer's election of the cash method or accrual method of accounting for the Arkansas income tax return pursuant to this Regulation must be the same method of accounting and for the same tax year as that used for the taxpayer's federal income tax return.
Current with amendments received through February 15, 2024. Some sections may be more current, see credit for details.
Ark. Admin. Code 006.05.315, AR ADC 006.05.315
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