26 CAR Part 132 — Small Business Tax Accounting Use of Accrual Basis and Cash Basis Accounting Methods

Chapter I

Subchapter E

Subpart 1

26 CAR § 132-101 Purpose {#sec-26-car-132-101 omnilex-key=us-ar-regs-official--title-26-part-132--26 CAR § 132-101}

26 CAR § 132-101. Purpose.

(a) This part has been promulgated to implement and facilitate Rev. Proc. 01-76, 2001-52 I.R.B. 613, issued by the Internal Revenue Service on December 26, 2001.

(b) Under Arkansas Code § 26-51-401, Arkansas income tax returns must be prepared using the same accounting method as that used for federal income tax purposes.

(c) In order to remain consistent with federal rules on the use of accounting methods, the Secretary of the Department of Finance and Administration has determined that promulgation of this rule is necessary.

26 CAR § 132-102 Definitions {#sec-26-car-132-102 omnilex-key=us-ar-regs-official--title-26-part-132--26 CAR § 132-102}

26 CAR § 132-102. Definitions.

As used in this part:

(1)(A) "Eligible trade or business" shall mean a trade or business in which the principal business activity is described in a North American Industry Classification System (NAICS) code other than an ineligible NAICS code.

(B) Ineligible NAICS trades or businesses are as follows:

(i) Codes 31 – 33 (manufacturing):

(ii) Code 42 (wholesale trade);

(iii) Codes 44 and 45 (retail trade);

(iv) Codes 211 and 212 (mining activities); and

(v) Codes 5111 and 5122 (information industries).

(C)(i) A farming operation is also considered to be an ineligible trade or business.

(ii) However, if a qualifying small business taxpayer is engaged in farming, the cash basis method may apply to the taxpayer's nonfarming trades or businesses, if any; and

(2)(A) "Qualifying small business taxpayer" shall mean any taxpayer with "average annual gross receipts" of greater than one million dollars ($1,000,000) but less than or equal to ten million dollars ($10,000,000) that is not prohibited from using the cash method of accounting under I.R.C. § 448.

(B)(i) A taxpayer's average annual gross receipts of ten million dollars ($10,000,000) or less is determined by averaging the annual gross receipts for a period of three (3) tax years ending immediately prior to the tax year electing the cash method of accounting.

(ii) Taxpayers are required to recalculate their average annual gross receipts each tax year.

(iii) The election to change to the cash method of accounting may be made for tax years ending on or after December 31, 2001.

Example: The averaging is based upon the three (3) years prior to the tax year electing the change. If electing for tax year 12/31/01, the averaging is based upon tax years 12/31/98, 12/31/99, and 12/31/00. If electing for tax year 12/31/02, the averaging is based upon tax years 12/31/99, 12/31/00, and 12/31/01. A "short" year will be considered a tax year in the averaging calculation.

History

• Codification Notes: I.R.C. § 448 can be found codified at 26 U.S.C. § 448. Authorities: Arkansas Code § 26-18-301; Arkansas Code § 26-51-104

26 CAR § 132-103 Cash basis accounting for small businesses {#sec-26-car-132-103 omnilex-key=us-ar-regs-official--title-26-part-132--26 CAR § 132-103}

26 CAR § 132-103. Cash basis accounting for small businesses.

(a) Qualifying small business taxpayers engaged in an eligible trade or business may use the cash receipts and disbursements method of accounting ("cash method") rather than the accrual method of accounting for tax years ending on or after December 31, 2001.

(b)(1) Rev. Proc. 01-76, 2001-52 I.R.B. 613, does not apply to farming operations.

(2) However, taxpayers engaged in the trade or business of farming may use the cash method of accounting unless the taxpayer is:

(A) Required to use the accrual method under I.R.C. § 447; or

(B) Prohibited from using the cash method under I.R.C. § 448.

(c)(1) Rev. Proc. 01-76, 2001-52 I.R.B. 613, does not apply to a taxpayer with average annual gross receipts of one million dollars ($1,000,000) or less.

(2) However, such taxpayers may use the cash method of accounting if authorized to do so under Rev. Proc. 01-10, 2001-2 I.R.B. 272.

History

• Codification Notes: I.R.C. § 447 can be found codified at 26 U.S.C. § 447.I.R.C. § 448 can be found codified at 26 U.S.C. § 448. Authorities: Arkansas Code § 26-18-301; Arkansas Code § 26-51-104

26 CAR § 132-104 Method of accounting {#sec-26-car-132-104 omnilex-key=us-ar-regs-official--title-26-part-132--26 CAR § 132-104}

26 CAR § 132-104. Method of accounting.

The taxpayer's election of the cash method or accrual method of accounting for the Arkansas income tax return pursuant to this part must be the same method of accounting and for the same tax year as that used for the taxpayer's federal income tax return.

26 CAR § 132-105 Questions {#sec-26-car-132-105 omnilex-key=us-ar-regs-official--title-26-part-132--26 CAR § 132-105}

26 CAR § 132-105. Questions.

Questions or requests for additional information on the use of accounting methods by Arkansas taxpayers should be directed to:

Department of Finance and Administration

Revenue Division

Corporation Income Tax Section

P.O. Box 919

Little Rock, AR 72203-0919

(501) 682-4775

FAX (501) 682-7114