United States

Arkansas: Legal Ruling Addresses Treatment of Excess Inclusion Income

Dec 18, 2017
From KPMG TaxWatch

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In a recent legal ruling, the Arkansas Office of Revenue Legal Counsel addressed whether Arkansas adopts the federal excess inclusion income rules that apply to holders of REMICs. For federal purposes, REMIC excess inclusion income operates as a minimum, or floor, imposed on the calculation of federal taxable income after NOLs and special deductions. Arkansas, unlike certain states, does not adopt all of the Internal Revenue Code, but conforms only to certain sections. However, Arkansas has adopted Subchapter M of the Internal Revenue Code, which includes IRC § 860- 860E, the provisions addressing REMICs. Because Arkansas has adopted IRC Subchapter M in its entirety, the legal ruling concluded that excess inclusion income must be included and reported for Arkansas income tax purposes. The next question addressed was how to apply the excess inclusion income rules, which are computed at the consolidated group level for federal purposes, in Arkansas. Because there is no guidance in Arkansas and even taxpayers filing an Arkansas consolidated return are required to calculate their income separately, the ruling concluded that excess inclusion income should  be recognized on a separate entity basis for Arkansas purposes. Please contact Jennifer Knickel at 214-840-2055 with questions on this legal ruling. 

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.