1. (a) Income generally — Arkansas Code § 26-51-403(b).

   1. (1) Each year's return should be completed in itself, and taxpayers are expected to make every reasonable effort to ascertain the facts necessary to make a correct return.
   2. (2) The expenses of one (1) year cannot be used to reduce the income of a subsequent year.

   3. (3)

      1. (A) A taxpayer has the right to deduct all authorized allowances, and it follows that if he or she does not within any year deduct certain of his or her expenses, losses, interest, taxes, or other charges, he or she cannot deduct them from the income of the next or any succeeding year.
      2. (B) It is recognized, however, that particularly in a going business of any magnitude, there are certain overlapping items of both income and deductions, and so long as these overlapping items do not materially distort the income they may be included in the year in which the taxpayer, pursuant to a consistent policy, takes them into his or her accounts.
   4. (4) Judgments or other binding adjudications, such as decisions of referees and boards of review under workers’ compensation laws, on account of damages for patent infringement, personal injuries, or other causes, are deductible from gross income when the claim is so adjudicated or paid, unless taken under other methods of accounting that clearly reflect the correct deduction, less any amount of such damages as may have been compensated for by insurance or otherwise.

   5. (5) If, subsequent to its occurrence, however, a taxpayer first ascertains the amount of a loss sustained during a prior taxable year that has not been deducted from gross income, he or she may:

      1. (A) Render an amended return for such preceding taxable year including such amount of loss in the deductions from gross income; and
      2. (B) File a claim for refund of the excess tax paid by reason of the failure to deduct such loss on the original return.
   6. (6) A loss from theft or embezzlement occurring in one (1) year and discovered in another year is ordinarily deductible for the year in which sustained.

2. (b) Long-term intergenerational trusts — Arkansas Code § 26-51-403(b).

   1. (1)

      1. (A) A long-term intergenerational trust is a trust established for an individual under the age of eighteen (18).
      2. (B) The purpose of the trust is to provide tax-deferred growth of funds for the minor's retirement.
      3. (C) The trustee must be a resident of Arkansas and cannot distribute any of the trust's funds to the beneficiary until the beneficiary reaches the age of fifty-five (55).
      4. (D) Up to four thousand dollars ($4,000) per year can be contributed to the trust.
   2. (2) Contributions. Contributions to the trust are taken as an adjustment (that is, subtracted) from the contributor's gross income for purposes of calculating the contributor's adjusted gross income.
   3. (3) Earnings. Income tax on trust earnings is deferred until such time that the earnings are distributed to the trust's beneficiaries.

   4. (4) Distributions.

      1. (A) All distributions from the trust, whether principal, earnings, or a combination thereof, are taxable to the beneficiary who receives them.
      2. (B) Prior to August 1, 1997, distributions of trust principal were not taxable, while distributions of trust earnings were taxable.
      3. (C) All distributions from long-term intergenerational security trusts are taxable pursuant to Arkansas Code § 28-72-505(a)(1).

3. (c) Border city tax exemption — Texarkana — Arkansas Code § 26-51-403(b)(14).

   1. (1) Under certain circumstances, as set forth below in 26 CAR § 100-121(c)(2) – (c)(9), the income of residents of Texarkana, Arkansas, and Texarkana, Texas, which would normally be subject to Arkansas income tax, will be exempt from Arkansas income tax due to Arkansas’s border city tax exemption as established by Arkansas Code § 26-52-602.

   2. (2) Definitions. The following words shall have, when used in this part, the following meanings:

      1. (A) “Individual taxpayer” means a natural person;
      2. (B) “Texarkana, Arkansas, resident” means an individual who maintains a place of abode within the city limits of Texarkana, Arkansas; and
      3. (C) “Texarkana, Texas, resident” means an individual who maintains a place of abode within the city limits of Texarkana, Texas.
   3. (3) Texarkana, Arkansas, residents are exempt from the Arkansas income tax on income received while a bona fide resident of Texarkana, Arkansas, but they shall be required to file an Arkansas income tax return.
   4. (4) Texarkana, Texas, residents are subject to the Arkansas income tax on taxable income earned in Arkansas, other than income earned in Texarkana, Arkansas.
   5. (5) All other residents of Texas, other than those residents of Texarkana, Texas, are subject to the Arkansas income tax on taxable income earned in Arkansas, including Texarkana, Arkansas.
   6. (6) Texarkana, Arkansas, residents are subject to the Arkansas income tax on taxable income earned in Arkansas while a resident of any city other than Texarkana, Arkansas.

   7. (7)

      1. (A) Employers shall verify to the State of Arkansas the residency of those employees on whom they do not withhold Arkansas income tax.
      2. (B) Employees shall file the Employee's Withholding Exemption Certificate with the employer if the employee is claiming a Texarkana, Arkansas, residency exemption or a Texarkana, Texas, residency exemption for income earned in Texarkana, Arkansas.
      3. (C) The employer shall keep this certificate with his or her records, under the penalty of being liable for any taxes not properly withheld on his or her employees.
      4. (D) Employers shall also list the names and addresses of all employees during the course of the quarterly tax period or at the time a report is due from the employer.
   8. (8) Information furnished by the employee to the employer shall include the physical location of the employee if his or her mailing address is different from his or her residence address.
   9. (9) An individual taxpayer who is claiming an exemption from Arkansas income tax because of a Texarkana, Arkansas, or a Texarkana, Texas, residence shall verify to the State of Arkansas that he or she is indeed a bona fide resident of Texarkana, Arkansas, or Texarkana, Texas, in a manner that is acceptable to the State of Arkansas.

Codification Notes: Subsection (c) of this section as promulgated prior to codification into the Code of Arkansas Rules provided as follows: "The Commissioner of Revenues of the State of Arkansas, pursuant to the authority vested in him by Act 118 of 1929, and Act 132 of 1965, with the approval of the Governor, does hereby promulgate the following rules for the orderly administration of Act 48 of 1977, as amended by Act 177 of 1977." "The effective date of this rule shall be January 1, 1978." This section as promulgated prior to codification into the Code of Arkansas Rules of 2024 contained a footnote to subdivision (c)(7) of this section as follows: "*Withholding forms associated with this exemption are: AR-4EC (TX) -- Texarkana employee's withholding exemption certificate. AR-TX -- Completed by employer and provided to employee, shows wages paid during the preceding tax year that are exempt from Arkansas income tax because of the border city exemption. AR-3Q-Tex -- Completed by employer. All of the employees' Form AR-TXs (a copy of one for each employee) are attached to the AR-3Q-Tex form and sent in to the Withholding Unit."