(a) Exchange of property for like property — Arkansas Code § 26-51-412(a).

1. (1) For purposes of corporation income tax, no gain or loss shall be recognized in an exchange of property for like property of a similar value.

2. (2)

   1. (A) If property held for productive use in a trade or business or for investment is exchanged solely for property of like kind to be held either for productive use in a trade or business or for investment, no gain or loss is recognized.
   2. (B) Such property does not include stock in trade or other property held primarily for sale, nor:

(i) Stocks;

1. (ii) Bonds;

   1. (iii) Notes;

      1. (iv) Certificates of trust;
      2. (v) Beneficial interests;
      3. (vi) Other securities; or
      4. (vii) Evidence of indebtedness.

2. (3)

   1. (A) The words "like kind" have reference to the nature or character of the property and not its grade or quality.
   2. (B) Therefore, no gain or loss is realized by a taxpayer, other than a dealer, from the exchange of real estate for other real estate.
   3. (C) However, one (1) kind or class of property may not be exchanged for property of a different kind or class, such as real estate for personal property.

3. (4) A dealer is one who:

   1. (A) Regularly buys and sells securities to customers in the ordinary course of business; and
   2. (B) Treats such securities as inventory.
4. (5) If common or preferred stock in a corporation is exchanged solely for the same category or type of stock in the same corporation, no gain or loss shall be recognized.

5. (6)

   1. (A) If property is transferred to a corporation by one (1) or more parties solely in exchange for stock or securities in such corporation and, immediately after the exchange, such parties are in control of the corporation, no gain or loss shall be recognized.
   2. (B) When more than one (1) party is involved in the transfer to the corporation and the amount of stock and securities received by each is substantially in proportion to their interest in the property prior to the exchange, no gain or loss will be recognized.
6. (7) If property is exchanged for stock and cash or other property, gain, but not loss, will be recognized to the extent of the cash or fair market value of the other property received.

(b) Exchange of property for property not of like kind — Arkansas Code § 26-51-412(a).

1. (1) When property is exchanged for other property not of a like kind, the property received in exchange shall be treated as the equivalent of cash up to the amount of its fair market value for the purpose of determining gain or loss.
2. (2) If no market exists in which all of the property so received can be disposed of at the time of exchange for a reasonably certain and definite price in cash, the exchange shall be considered a conversion of assets from one (1) form to another form, and no gain or loss shall be deemed to arise.

3. (3) The property received in exchange shall be taken into the records of the taxpayer at the same cost or assessed value as the property which was exchanged, including additions and minus any allowable depreciation and depletion.

   1. (c) Dividends paid in the form of securities or other property — Arkansas Code § 26-51-412(a).
4. (1) Dividends paid in securities (other than the corporation's own stock) or other property in which the earnings of a corporation have been invested are income to the shareholders in the amount of the market value of such property.
5. (2) When a corporation declares a dividend payable in the stock of another corporation, setting aside the stock to be distributed and notifying its shareholders of its action, the income attributable to the recipients of such stock is its market value at the time the dividends become payable.

6. (3) Scrip dividends are subject to tax in the year in which the warrants are issued.

   1. (d) Property acquired as a result of an involuntary conversion — Arkansas Code § 26-51-412(a).

7. (1) In the case of property acquired as a result of an involuntary conversion, the basis of the property shall be the same as that of the property so converted with the following adjustments:

   1. (A) Decreased in the amount of any money received by the taxpayer that was not expended;
   2. (B) Increased in the amount of the gain; and

   3. (C)

      1. (i) Decreased in the amount of loss to the taxpayer recognized upon such conversion applicable to the year in which the conversion was made.
      2. (ii) See 26 CAR § 130-119(w).

8. (2)

   1. (A) In any case where the taxpayer elects to replace or restore the converted property but it is not feasible to do so immediately, the taxpayer may obtain permission to establish a replacement fund in which part or all of the compensation received shall be held, without any deduction for the payment of a mortgage.
   2. (B) The taxpayer should apply to the Department of Finance and Administration for permission to establish a replacement fund.

   3. (C) The application should:

      1. (i) Recite all the facts relating to the transaction; and
      2. (ii) Declare that the taxpayer will proceed as quickly as possible to replace or restore such property.
   4. (D) The taxpayer will be required to furnish a surety bond in an amount not to exceed double the estimated additional income taxes that would be payable if no replacement fund were established.
   5. (E) The estimated additional taxes for the amount of which the taxpayer is required to furnish security should be computed at the rates at which the taxpayer would normally be required to pay.
   6. (F) Only surety companies will be approved as sureties.
   7. (G) The application should be executed in triplicate, so that the department, the taxpayer, and the surety or depository may each have a copy.

(e) Basis of stock received for property — Arkansas Code § 26-51-412(b).

1. (1) During the initial start-up of a corporation, the stock or securities of the corporation exchanged for real or personal property transferred to the corporation shall be deemed to have the same value or cost as the property so transferred, and no gain or loss shall arise from the transaction.

2. (2)

   1. (A) The cost or value of the property transferred (adjusted as to depreciation and depletion) shall be entered in the records of the taxpayer as the purchase price of its stock in the corporation and a record of such cost must be maintained.
   2. (B) Gain or loss in future sales of such stock shall be measured by the difference between the individual cost per share determined as above to the selling price of such stock.

(f) Reorganization, merger, and consolidation — Arkansas Code § 26-51-412(c).

1. (1) A "merger" or "consolidation" includes:

   1. (A) The acquisition by one (1) corporation of a majority of the voting stock and a majority of the total number of shares of all other classes of stock of another corporation, or substantially all the property of another corporation;
   2. (B) A transfer by one (1) corporation of all or a part of its assets to another corporation if, immediately after the transfer, the transferor, its stockholders, or both are in control of the corporation to which the assets are transferred;
   3. (C) A recapitalization; or
   4. (D) A mere change in identity, form, or place of organization, however effected.
2. (2) The term "a party to a reorganization", as used in Arkansas Code § 26-51-412, includes a corporation resulting from a reorganization and includes both corporations in the case of an acquisition by one (1) corporation of at least a majority of the voting stock of another corporation.

3. (3) A person is, or two (2) or more persons are, "in control" of a corporation within the meaning of Arkansas Code § 26-51-412 when owning at least:

   1. (A) Eighty percent (80%) of the voting stock; and
   2. (B) Eighty percent (80%) of the total number of shares of all other classes of stock of the corporation.

(g) Exchange of property in a reorganization — Arkansas Code § 26-51-412(c). No gain or loss shall be recognized if, pursuant to a reorganization plan:

1. (1) Stock or securities in a corporation are exchanged solely for stock or securities in the same corporation or in another party to the reorganization; or
2. (2) A party to a reorganization exchanges property solely for stock or securities in another party to the reorganization.

(h) Exchange of property in a reorganization — Arkansas Code § 26-51-412(c).

1. (1)

   1. (A) Pursuant to a reorganization plan, if stock or securities in a corporation are exchanged for stock or securities in the same corporation or in another party to the reorganization including other property or money as well, any gain to the recipient shall be recognized in an amount not to exceed the sum of the money and the fair market value of the other property.
   2. (B) No loss from such an exchange will be recognized.

2. (2)

   1. (A) Pursuant to a reorganization plan, if property is exchanged by a party to the reorganization for stock or securities in another party to the reorganization, including other property or money as well, if the other property or money received by the corporation is distributed by it pursuant to the reorganization plan, no gain to the corporation will be recognized.
   2. (B) If the other property or money received by the corporation is not distributed by it pursuant to the plan of reorganization, any gain to the corporation from the exchange will be recognized in an amount not to exceed the sum of the money and the fair market value of the other property so received.

   3. (C) In either case, no loss from the exchange will be recognized.

      1. (i) Securities received in a reorganization — Arkansas Code § 26-51-412(c). If, without any surrender of his or her stock or securities, a shareholder of a party to a reorganization receives stock or securities in such corporation or in another party to the reorganization pursuant to a reorganization plan, no gain to the shareholder will be recognized.

(j) Securities received in a reorganization — Basis — Arkansas Code § 26-51-412(c).

1. (1)

   1. (A) In the case of stock or securities acquired by a shareholder in connection with the transactions described in subsection (h) of this section, the cost or assessed value of the stock upon which the distribution was made shall be apportioned between such stock and the stock or securities distributed to the shareholder.
   2. (B) The basis of each share will be the quotient (or result) of the cost or assessed value of the old shares of stock divided by the total number of the old and new shares.

2. (2)

   1. (A) When the stock distributed in a reorganization is materially different from the stock upon which the distribution is made, the cost or other basis of the old shares of stock shall be divided between such old stock and the new stock in proportion to the respective values of each class of stock, old and new, at the time the new shares of stock are distributed.
   2. (B) The basis of each share of stock will be the quotient (or result) of the cost or other basis of the class with which such share belongs, divided by the number of shares in the class.

3. (3) When the stock upon which a distribution in reorganization is made was purchased at different times and prices, and the identity of the lots cannot be determined:

   1. (A) Any sale of the original stock will be charged to the earliest purchases of such stock (see 26 CAR § 130-120(b)); and
   2. (B) Any sale of the stock distributed in the reorganization will be presumed to have been made from the stock distributed upon the earliest purchased stock.
4. (4) Where the stock upon which a distribution in reorganization is made was purchased at different times and prices, and the stock distributed in the reorganization cannot be identified as having been distributed upon any particular lot of such stock, then any sale of the stock distributed in the reorganization will be presumed to have been made from the stock distributed upon the earliest purchased stock.