Deductions — Net operating loss (NOL) — Arkansas Code § 26-51-427

# (a)

NOL adjustments beyond statutory limits — Arkansas Code § 26-51-427.

# (1)

The fact that the statutory period for assessment or refund of income taxes for the year in which the loss was sustained has expired does not prevent the making of adjustments necessary to correct the NOL deduction.

# (2)

The NOL may be increased or decreased by any such adjustment.
Example: Corporation took a nondeductible expense in 1993. This was not detected until a return claiming a NOL was filed in 1997.
Tax Year 1993
As Filed
As Corrected
NTI as reported by taxpayer
$(15,000)
$(15,000)
Add back: Nondeductible Expense
- -
20,000
Corrected Net Taxable Income
- -
$ 5,000
Tax Year 1997
NTI as reported by taxpayer
$25,000
$25,000
NOL claimed by taxpayer
(15,000)
- -
NOL available from 1993
- -
- 0 -
Net Taxable Income as filed
$10,000
- -
Corrected Net Taxable Income
- -
$25,000
The 1993 tax year is outside the statute of limitations and cannot be assessed. However, the NOL for 1993 can be adjusted to the allowed or disallowed amount.

# (b)

NOL carryover due to merger — Arkansas Code § 26-51-427(3)(D).

# (1)

In the case of a merger between two (2) corporations that are owned by the same entity and that same entity owns at least eighty percent (80%) of the voting stock of each corporation, the formula for establishing that the assets of the merged corporation (that is, the corporation going out of existence) are still producing income is as follows:
Original Cost of Merged Assets
—————————————— X Total Income
Original Cost of All Assets

# (2)

The carryover losses will be allowed only in those cases where the assets of the corporation going out of existence earn sufficient profits apportionable to Arkansas under the Uniform Division of Income for Tax Purposes Act, Arkansas Code § 26-51-701 et seq., in the post-merger period to absorb the carryover losses claimed by the surviving corporation.

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