1. (a) Generally — Arkansas Code § 26-51-805.

   1. (1) If two (2) or more members of a federal consolidated group file an Arkansas consolidated return, all members that have income from sources within Arkansas must join in the filing of the Arkansas consolidated return.
   2. (2) If a corporation is acquired by a parent corporation that has members that file a consolidated Arkansas return, the acquired corporation must join in the filing of the Arkansas consolidated return.
   3. (3) If members of an Arkansas consolidated group are acquired by a new parent corporation, they may elect to file separate returns if the acquiring parent has no members that file an Arkansas consolidated return.

2. (b) Eligible members — Arkansas Code § 26-51-805(a)(1).

   1. (1) All eligible members of a federal affiliated group that join in the filing of a federal consolidated income tax return may elect to file an Arkansas consolidated income tax return.
   2. (2) However, only those eligible members that have gross income from sources within Arkansas may join in the filing of an Arkansas consolidated income tax return.
   3. (3) A member of a consolidated group that joins or leaves the group during a tax year must compute its Arkansas taxable income based on the period for which it was a member of the group.

3. (c) Change of ownership — Arkansas Code § 26-51-805(d)(1). If a corporation has a change of ownership under I.R.C. § 1501 et seq., it must submit a statement outlining the specific changes of ownership that qualify to file a federal consolidated return under I.R.C. § 1501 et seq., with the:

   1. (1) Separate returns of any affected members; and
   2. (2) Consolidated return of the remaining members, if applicable.

4. (d) Allocation of tax credits — Arkansas Code § 26-51-805(e).

   1. (1) If any member of a consolidated group has an income tax credit, the credit may be applied to the group's consolidated income, regardless of whether or not the member earning the credit had taxable income.

   2. (2)

      1. (A) If a member of a consolidated group that earns a credit leaves the group, the credit will first be applied to the last consolidated return in which the member participated.
      2. (B) Any remaining balance will be applied to the next return of the member that earned the credit.
   3. (3) If a corporation with an income tax credit merges into another corporation, the credit may be claimed by the surviving corporation only when the ownership of both the acquired and acquiring corporations is substantially the same and at least eighty percent (80%) of the voting stock is owned by the same person or, prior to the acquisition, the acquiring corporation owned at least eighty percent (80%) of the voting stock of the acquired corporation.

5. (e) Separate computation of taxable income or loss — Arkansas Code § 26-51-805(f).

   1. (1)

      1. (A) Corporations filing a consolidated return and that select filing status 4 must complete a separate Form AR1100CT for each member with gross income from sources within Arkansas (including an Arkansas Schedule A if multistate).
      2. (B) These separate returns should reflect taxable income before any allowable intercompany eliminations and adjustments.
      3. (C) Each member's separate Form AR1100CT must be consolidated on a group Form AR1100CT, which should also reflect taxable income before any allowable intercompany eliminations and adjustments.
      4. (D) In addition, a complete copy of the federal return must be attached.
      5. (E) A schedule listing each allowable intercompany elimination and adjustment, identifying the entity by FEIN to which it applies, must be submitted if this information is not clearly shown in the federal return.
   2. (2) Income tax will be computed on the Arkansas consolidated taxable income reported on the group Form AR1100CT.

   3. (3)

      1. (A) Contribution limitations are computed on a separate corporation basis.
      2. (B) In the case of multistate corporations, the contribution limitation is computed based on the total apportionable income as shown on Arkansas Schedule A, Part A, of Form AR1100CT.

   4. (4)

      1. (A) In place of a separate Form AR1100CT for each member of the consolidated group, the taxpayer may submit a schedule showing the separate calculation of income.
      2. (B) However, each corporation shown on the schedule must be identified by an FEIN and corporate name. Example 1: The taxpayer uses the cash basis of reporting income.

         	FEIN #Corp A	FEIN #Corp B	Eliminating Entry	Federal Return Total
         Total Income	$100,000	$200,000	-0-	$300,000
         Total Deduction w/o contribution	(105,000)	(125,000)	-0-	(230,000)
         Contributions	5,000	10,000	(8,000)	7,000
         AR State Taxes (prior year)	1,000	500	--	--
         Apport. Factor	100.000000%	10.000000%

         CONTRIBUTION LIMITATION CALCULATION
         Income	$100,000	$200,000
         Deductions	(105,000)	(125,000)
         Taxes	1,000	500
         	($4,000)	$75,500
         Contribution Limit	-0-	$75,500 X 10% =	$7,550
         TAXABLE INCOME CALCULATION
         Income	$100,000	$200,000
         Deductions	*(104,000)	**(132,050)
         	($4,000)	$67,950
         AR Consolidated Taxable Income	($4,000)	$6,795
         Apport. Factor	100.000000%	10.000000%
         AR Taxable Income	($4,000)	$6,795
         AR Consolidated Taxable Income	($4,000)	+ $6,795 =	$2,795

         *$105,000 - $1,000 Ark. Income Tax + $-0- contributions **$125,000 - $500 Ark. Income Tax + $7,550 contributions Corporation A and B file a consolidated return for federal and state tax purposes. The contribution deduction is calculated on a consolidated basis for federal income tax purposes and would be seven thousand dollars ($7,000). The contribution deduction is calculated on an individual corporation basis for state income tax purposes and would be seven thousand five hundred fifty dollars ($7,550) as calculated above. The calculation is computed prior to apportioning. Any nondeductible amount can be carried forward for up to five (5) years. Example 2:

         Corp X	Corp Y Corp Z	Federal Return Total
         Total Income $100,000	$1,000,000 $500,000	$1,600,000
         Total Deductions 111,000	900,000 520,000	1,530,000
         Fed. Taxable Inc. (11,000)	100,000 ( 20,000)	69,000
         Apport. Factor 100.000000%	10.000000% 50.000000%
         Contributions 500	5,000 1,000	6,500
         CORP X AR1100CT
         Total Income	$ 100,000
         Less: Total Deductions	(110,500)
         Arkansas Taxable Income	($ 10,500)
         CORP Y AR1100CT
         Federal Taxable and Apportionable Income	$ 100,000
         Times: Apport. Factor Arkansas Taxable Income	X 10.000000%$ 10,000
         CORP Z AR1100CT
         Federal Taxable Income Plus: Contributions perFederal Return not Deductible in Arkansas	($ 20,000) + 1,000
         Apportionable Income Times: Apport. Factor Arkansas Taxable Income	($ 19,000)X 50.000000%($ 9,500)

         Consolidated Arkansas Taxable Income ($ 10,000) ARKANSAS NET OPERATING LOSS Corp X Corp Y Corp Z Total Ark Taxable Income (Loss) ($ 10,500) $ 10,000 ($ 9,500) ($ 10,000) Offset Income & Losses $ 5,250 ($ 10,000) ($ 4,750) -0- Ark. Net Operating Loss ($ 5,250) -0- ($ 4,750) ($ 10,000) Corporation X and its subsidiaries file an Arkansas consolidated return. For federal income tax purposes, the group had taxable income and deducted all contributions in the current year. However, for Arkansas income tax purposes, the two (2) members with losses were unable to deduct contributions because each member must calculate its taxable income separately. Corporation Y is able to deduct contributions because it had income, even though the group has a loss for Arkansas purposes. The unused contributions may be carried forward for up to five (5) years.

6. (f) Separate computation of taxable income or loss — Arkansas Code § 26-51-805(f).

   1. (1) A consolidated net operating loss (NOL) carryover shall be allowed as a deduction from gross income on the consolidated return of an affiliated group under the following rules:

      1. (A)

7. (i) Consolidated NOL carryover shall consist of any consolidated net operating losses (as determined under subdivision (f)(1)(C) of this section) of the group plus any net operating losses incurred by members of the group in separate return years (as defined in subdivision (f)(1)(D) of this section) that may be carried over under the provisions of Arkansas Code § 26-51-427.

   1. (ii) However, an NOL incurred by a member corporation in a separate return limitation year (as defined in subdivision (f)(1)(E) of this section) shall be subject to the limitation set forth in subdivision (f)(1)(B) of this section;

      1. (B) With respect to the limitation on NOL carryovers from separate return limitation years, in the case of an NOL of a member of the group carried forward from a separate return limitation year, the amount of the NOL allowed to be carried to the consolidated return shall not exceed:

         1. (i) The income of the member corporation that incurred the loss computed for the consolidated year; minus
         2. (ii) The net operating losses attributable to such member which may be carried to the consolidated year arising in tax years prior to the separate return limitation year;

      2. (C)

         1. (i) The consolidated NOL shall:
8. (a) (a) Include the separate net income or loss of each member corporation separately apportioned or allocated to Arkansas; and

9. (b) (b) Be subject to the NOL adjustments set forth in Arkansas Code § 26-51-427.

   1. (ii) NOL deductions shall not be taken into account in computing separate net income or loss;

      1. (D) "Separate return year" as used in this part means a tax year of a corporation for which it files a separate return or for which it joins in the filing of a consolidated return by another group;

      2. (E)

         1. (i) "Separate return limitation year" as used in this part means any separate return year of a corporation that was not a member of a group for each day of the tax year.
         2. (ii) However, a "separate return limitation year" does not apply in the case of a common parent for a consolidated year or to the separate return year of a predecessor of any member if such predecessor was a member of the group for each day of the tax year;

      3. (F)

         1. (i) If a consolidated NOL can carry forward to a separate return year of a corporation that was a member of an affiliated group in the year in which the loss arose, then the portion of the NOL attributable to such corporation shall be:
10. (a) (a) Apportioned to such corporation under the provisions of subdivision (f)(1)(G) of this section; and

11. (b) (b) An NOL carryover to such separate return year.

    1. (ii) However, such portions shall not be included in the consolidated NOL carryovers to the equivalent consolidated return year;

       1. (G) The portion of a consolidated NOL attributable to a member of a group is the consolidated NOL multiplied by a fraction, the numerator of which is the separate NOL of such corporation, and the denominator of which is the sum of the separate net operating losses of all members of the group in the year in which such losses were incurred;

       2. (H)

          1. (i) If a corporation ceases to be a member during a consolidated return year, any consolidated NOL carryover from a prior tax year must first be carried to such consolidated return year even though all or a portion of the consolidated NOL giving rise to the carryover is attributable to the corporation that ceases to be a member.
          2. (ii) To the extent not absorbed in such consolidated return year, the portion of the consolidated NOL attributable to the corporation ceasing to be a member shall then be carried to the corporation's first separate return year; and

       3. (I)

          1. (i) Complete schedules must be submitted for all net operating losses carried forward to or from consolidated returns.
          2. (ii) Schedules must contain information to substantiate which corporations incurred net operating losses and the age of the net operating losses.
          3. (iii) Schedules must also account for all nontaxable income for which adjustments are required to be made to an NOL carryover pursuant to subdivisions (f)(1)(A) and (C) of this section and Arkansas Code § 26-51-427.

    2. (2)

       1. (A) The separate taxable income or loss of each member must first be determined as required by Arkansas Code § 26-51-805(f) and subdivision (f)(1)(C) of this section.
       2. (B) The separate loss of each member is divided by the total losses of all members during the tax year and is then multiplied by the consolidated net loss.
       3. (C) The resulting NOL shall then be subject to nontaxable income and adjustments as set forth in Arkansas Code § 26-51-427.

       4. (D)

          1. (i) Add backs should be applied to each member of the group separately.
          2. (ii) If a member with positive income has nontaxable income, no add back is necessary since that member will have no NOL carry forward.

    3. (3)

       1. (A) A separate return limitation year, as defined in subdivision (f)(1)(E) of this section, is a year in which the corporation was not eligible to file a consolidated return with the rest of the group.
       2. (B) Net operating losses from a separate return limitation year may not offset income of the entire group but may only be used to offset income of the member that has the separate return limitation year in accordance with subdivision (f)(1)(B) of this section.

    4. (4)

       1. (A) A separate return year is different from a separate return limitation year.
       2. (B) A separate return year, as defined in subdivision (f)(1)(D) of this section, is a year in which a corporation was eligible to file a consolidated return with the rest of the group but did not do so.
       3. (C) Net operating losses from separate return years may offset income of the entire group in accordance with subdivision (f)(1)(A) of this section.

    5. (5)

       1. (A) The NOL of the corporation ceasing to be a member is first applied to the final consolidated return in which it participates.
       2. (B) Any remaining NOL is then carried to that corporation's separate returns in subsequent years or is subject to separate return limitation year restrictions if it joins another consolidated group. Example 1: Calculation of NOLs within a consolidated group:

          Parent Corporation A	Corporation B	Corporation C	Corporation D	Total
          12/94 NTI (Loss) $ 5,168.00 Total Income $6,975.00	($ 5,198.00)÷($36,559.00)= .1422	($31,361.00)÷($36,559.00)= .8578	$1,807.00	($29,584.00
          Total Losses ( 36,559.00) Group Loss ($29,584.00)	X(29,584.00)	X(29,584.00)
          NOL Carry Forward -0-	(4,207.00)	(25,377.00)	-0-	(29,584.00)
          12/94 NOL Claimed 12/95	2,292.00	13,826.00		16,118.00
          New NOL Carry Forward to 12/96	(1,915.00)	(11,551.00)	-0-	(13,466.00)
          Allocation of NOL	(4,207.00)÷(29,584.00)= .1422X 16.118 (2,292.00	(25,377.00)÷(29,584.00)= .8578X 16.118 (13,826.00)
          12/95 NTI (Loss) 1,236.00	(2,035.00)	5,692.00	11,225.00	16,118.00
          NOL Allowed -0-	(2,292.00)	(13,826.00)	-0-	(16,118.00)
          Taxable Income 1,236.00	(4,327.00)	(8,134.00)	11,225.00	-0-

          12/94 FORMULA: (Entity Loss ÷ Total Loss) X Group Loss = NOL carry forward per entity. 12/95 FORMULA: (Entity Loss ÷ Group NOL) X NTI for current year = Amt. claimed from entity with available NOL. Example 2: Common parent: Corporation A was a single entity through 1994 and formed a consolidated group when Corporation B was incorporated in 1995. Corporation B was never a part of another group nor did it ever file by itself. Corporation A's 1993 and 1994 NOL is used to offset the 1996 consolidated income from both A and B. The remaining balance of Corporation A's 1994 NOL carry forward is thirty-six thousand four hundred dollars ($36,400) ($40,000 less $3,600) and may be used by the consolidated group subject to the five-year NOL carry forward provision stated in Arkansas Code § 26-51-427. This example assumes there are no nontaxable income adjustments for the loss years of 1993, 1994, and 1995.

          1993 NTI (Loss)	A ($5,000)	B--	Consolidated Total--
          1994 NTI (Loss)	(40,000)	--	--
          1995 NTI (Loss)	(7,000)	(3,000)	(10,000)
          1996 NTI Before NOL	600	8,000	8,600
          A's NOL Allowed from 1993	(5,000)	--	(5,000)
          A's NOL Allowed from 1994	(3,600)	--	(3,600)
          1996 NTI			-0-

          Example 3: Separate return year: Corporation A and B are members of a federal consolidated group that filed separate Arkansas returns for 12/94 and 12/95 and a consolidated Arkansas return in 12/96. The 12/94 and 12/95 years are separate return years. A B Consolidated Total

          12/94 Separate Arkansas Returns Filed	($ 5,000)	($ 2,000)	--
          12/95 Separate Arkansas Returns Filed	3,000	( 3,000)	--
          12/94 NOL Claimed in 12/95	(3,000)	-0-	--
          12/95 Taxable Income	-0-	( 3,000)	--
          12/96 Consolidated Arkansas
          Return Filed	3,000	3,000	6,000
          Taxable Income Before NOL
          12/94 NOL Claimed in 12/96	(2,000)	(2,000)	(4,000)
          12/95 NOL Claimed in 12/96 from Corp. B	-0-	( 2,000)	(2,000)
          12/96 Taxable Income	1,000	( 1,000)	-0-

          Example 4: Separate return limitation year: Corporation A and B filed as separate entities through 1994. On January 1, 1995, Corporation A bought one hundred percent (100%) of Corporation B. The NOL of Corporation B is limited by the separate return limitation year restrictions and can only offset its own income. This example assumes there are no nontaxable income adjustments for the loss years. A B Consolidated Total

          1993 NTI (Loss)	($ 5,000)	($10,000)	--
          1994 NTI (Loss)	( 2,000)	( 10,000)	--
          1995 NTI (Loss)	10,000	( 1,000)		9,000

          A's NOL Allowed from 1993 ( 5,000) -- (5,000)

          A's NOL Allowed from 1994 Net Taxable Income	( 2,000)	--	(2,000)
          (for the 1995 tax year)	$ 3,000	($ 1,000)	$2,000
          1996 NTI	5,000	2,000	7,000
          B's NOL Allowed from 1993	-0-	(2,000)	(2,000)
          Net Taxable Income	$5,000	-0-	$ 5,000
          1997 NTI	2,000	5,000	7,000
          B's NOL Allowed from 1993	-0-	(5,000)	(5,000)
          Net Taxable Income	$ 2,000	-0-	$ 2,000
          1998 NTI (Loss)(No NOL available since B has a loss)	5,000	(2,000)	$3,000
          B's NOL Carry forward for 1999 1993 (Loss)		Expired
          1994 (Loss)		(10,000)*

          * (Subject to SEPARATE RETURN LIMITATION YEAR RULE - Can only offset "B" corporation income.) Example 5: Nontaxable add back: Corporation A has five thousand dollars ($5,000) of nontaxable interest income.

          	A	B	Total
          1993 NTI (Loss)	($ 10,000)	$ 2,000	($8,000)
          Corporation B Income	2,000	( 2,000)	--
          *Nontaxable Add-back	5,000	-0-	5,000

          NOL Carry forward ($ 3,000) - 0- ($ 3,000) Corporation A has six thousand dollars ($6,000) of nontaxable interest income, but the add back is limited to the loss of the entity earning nontaxable income. 1994 NTI (Loss) ($ 5,000) ($ 3,000) ($8,000) *Nontaxable Add-Back 5,000 -0- 5,000 NOL Carry forward -0- ($ 3,000) ($3,000) Example 6: Member leaving group: Corporations A, B, and C filed as a consolidated group through 12/95. On January 1, 1996, Corporation C was sold to Corporation D, and the NOL of Corporation C is taken to the new group (but limited to SRLY). Corporation D has no NOL carryover.

          1993 NTI (Loss)	A($ 5,000)	B$ 2,000	C($ 1,000)	Total($ 4,000)
          Gains $2,000 Losses ( 6,000)	÷		÷
          Net Loss ($ 4,000) NOL	( 6,000)=.8333X( 4,000)($ 3,333)	-0-	( 6,000)=.1667X( 4,000)($ 667)	($ 4,000)
          Allocation of 1993 NOL to 1994	.8333		.1667
          	X( 2,000)($ 1,667)		X( 2,000)($ 333)
          1994 NTI (Loss)	1,000	($ 3,000)	$ 4,000	$ 2,000
          NOL From 1993	( 1,667)		( 333)	($2,000)
          	($ 667)	($ 3,000)	$ 3,667	-0-
          1995 NTI (Loss)	($ 5,000)	($ 4,000)	($ 1,000)	($10,000)

          	A	B	C		D
          NOL Carryover Summary: 1993			($ 1,666)	-0-	($ 334)		-0-
          1994			-0-	-0-	-0-		-0-
          1995			($ 5,000)	($ 4,000)	($ 1,000)		-0-
          	A	B	Total	C	D	Total
          1996 NTI (Loss)	10,000	5,000	15,000	( 2,000)	5,000	3,000
          NOL AllowedFrom 1993	( 1,666)	-0-	( 1,666)	SRLY	-0-
          From 1994	( 5,000)	( 4,000)	( 9,000)	SRLY	-0-
          	3,334	1,000	4,334	( 2,000)	5,000	3,000
          1997 NTI (Loss)NOL AllowedFrom 1993	1,000 -0-	( 500) -0-	500 -0-	3,000 Expired	( 1,000) -0-	2,000 -0-
          From 1995	-0-	-0-	-0-	( 1,000)	-0-	( 1,000)
          	1,000	( 500)	500	2,000	( 1,000)	1,000

Codification Notes: I.R.C. § 1501 et seq., is codified at 26 U.S.C. § 1501 et seq.