Withholding by a pass-through entity is not required in the following instances:

1. (1) When an entity is not required to file a federal income tax return or properly elects out of such duty;
2. (2) When a pass-through entity is making distributions of income not subject to Arkansas income tax;

3. (3)

   1. (A) When a pass-through entity is making distributions to another pass-through entity.
   2. (B) Provided however, the exception set out in this paragraph does not relieve the lower-tiered pass-through entity from the duty to withhold on distributions it makes which are not otherwise exempt;

4. (4)

   1. (A) When a pass-through entity is a publicly traded partnership, as defined by Section 7704(b) of the Internal Revenue Code (as in effect on January 1, 2005), and is treated as a partnership for purposes of the Internal Revenue Code.
   2. (B) Provided, however, that the publicly traded partnership has agreed to file an annual information return reporting the name, address, taxpayer identification number, and any other information requested by the Department of Finance and Administration of each member with an annual Arkansas income greater than five hundred dollars ($500); or
5. (5) When a distribution made by a pass-through entity has been determined not to be subject to withholding by the department.

Codification Notes: Section 7704(b) of the Internal Revenue Code is codified at 26 U.S.C. § 7704.