Arkansas to Follow Federal S Corporation Treatment for Tax Years Beginning in 2018

In March 2017, the Arkansas Governor signed HB 1563, amending Arkansas Code §26-51-409(b), concerning the administration of federal subchapter S corporations. Under the current law, federal subchapter S corporations may elect to file as subchapter S corporations for Arkansas income tax purposes only by filing a separate state election.

The amended law, effective for tax years beginning on or after January 1, 2018, provides that a corporation is treated as a subchapter S corporation for Arkansas income tax purposes if the corporation has elected subchapter S treatment for federal income tax purposes for the same year. An election made under subchapter S of the Internal Revenue Code, 26 U.S.C. §1361 et seq., for federal income tax purposes is deemed to have been made for Arkansas income tax purposes. Accordingly, a corporation that has elected to be treated as a subchapter S corporation for federal income tax purposes cannot elect to be treated as a subchapter C corporation for Arkansas income tax purposes.

When filing an Arkansas subchapter S income tax return for tax years beginning on or after January 1, 2018, a corporation must provide a complete copy of its federal subchapter S income tax return filed with the Internal Revenue Service for that taxable year.  

For questions about these law changes or other state and local tax matters, please contact us.