§ 26-51-423 - Arkansas Statutes

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Implementing FIN 48: Uncertain Tax Positions and Related Party Expense Add-Back Provisions

26-51-423. Deductions -- Expenses.

(a) In computing net income, there shall be allowed as deductions the following expenses:

(1) Business expenses. All of 162, except subsection (n), of the Internal Revenue Code of 1986, as in effect on January 1, 2009, regarding trade or business expenses, is adopted for the purpose of computing Arkansas income tax liability;

(2) Medical and dental expenses. Section 213 of the Internal Revenue Code of 1986, as in effect on January 1, 1997, is adopted in computing the medical and dental expense deduction under the state income tax law;

(3) Travel expenses. In determining travel expenses deductible as a business expense in computing net income as provided under subdivision (a)(1) of this section, the deduction for vehicle miles shall be determined by the Director of the Department of Finance and Administration under his or her regulatory authority in 26-18-301; and

(4) Moving expenses. Section 217 of the Internal Revenue Code of 1986, as in effect on January 1, 1995, regarding the deduction of moving expenses, is adopted for the purpose of computing Arkansas income tax liability.

(b) Section 274 of the Internal Revenue Code of 1986, as in effect on January 1, 2007, regarding the deductions of expenses for entertainment, amusement, recreation, business meals, travel, et cetera, is adopted for the purpose of computing Arkansas income tax liability.

(c) (1) An individual who is self-employed shall be allowed a deduction equal to the applicable percentage as set forth in 162(l)(1)(B) of the Internal Revenue Code of 1986, as in effect on January 1, 1999, of the amount paid during the taxable year for insurance which constitutes medical care for the taxpayer, his or her spouse, and his or her dependents.

(2) (A) No deduction shall be allowed under this subsection to the extent that the amount of the deduction exceeds the taxpayer's earned income derived by the taxpayer from the trade or business with respect to which the plan providing the medical care coverage is established.

(B) This subsection shall not apply to any taxpayer who is eligible to participate in any subsidized health plan maintained by any employer of the taxpayer or the spouse of the taxpayer.

(3) Any amount paid by the taxpayer for insurance to which this subsection applies shall not be taken into account in computing the amount allowable to the taxpayer as a deduction under subdivision (a)(2) of this section.

(d) Section 221 of the Internal Revenue Code of 1986, as in effect on January 1, 2003, regarding the deduction of interest paid on qualified education loans, is adopted for the purpose of computing Arkansas income tax liability.

(e) Section 198 of the Internal Revenue Code of 1986, as in effect on January 1, 2009, regarding the deduction of costs paid or incurred for the cleanup of certain hazardous substances, is adopted for the purpose of computing Arkansas income tax liability.

(f) Section 190 of the Internal Revenue Code of 1986, as in effect on January 1, 2001, regarding the deduction of costs paid or incurred to improve access to vehicles and facilities for handicapped and elderly persons, is adopted for the purpose of computing Arkansas income tax liability.

(g) (1) A deduction pursuant to subdivision (a)(1) of this section for interest or intangible-related expenses paid by the taxpayer to a related party shall be allowed only if:

(A) The interest or intangible-related income received by the related party is subject to income tax imposed by the State of Arkansas, another state, or a foreign government that has entered into a comprehensive income tax treaty with the United States;

(B) The interest or intangible-related income received by the related party was received pursuant to:

(i) An "arm's length" contract or at an "arm's length" rate of interest; and

(ii) A transaction not intended to avoid the payment of Arkansas income tax otherwise due;

(C) The taxpayer and the director enter into a written agreement prior to the due date of the taxpayer's Arkansas income tax return:

(i) Authorizing the taxpayer to take the deduction for the tax year at issue; or

(ii) Requiring the use of an alternative method of income apportionment by the taxpayer for the tax year at issue; or

(D) During the taxable year, the related party recipient of interest or intangible related income, in a location not described in subdivision (g)(1)(A) of this section, a "non-tax location":

(i) Operates an active trade or business in the non-tax location;

(ii) Has a minimum of fifty (50) full-time-equivalent employees in the non-tax location;

(iii) Owns real or tangible personal property with a fair market value in excess of one million dollars ($1,000,000) located in the non-tax location; and

(iv) Has revenues generated from sources within the non-tax location in excess of one million dollars ($1,000,000).

(2) "Related party" means a related party as defined by 267 of the Internal Revenue Code of 1986, as in effect on January 1, 2003.

(h) Section 194 of the Internal Revenue Code of 1986, as in effect on January 1, 2007, regarding the amortization of qualified reforestation expenses, is adopted for the purpose of computing Arkansas income tax liability.