An Administrative Law Judge (ALJ) ruled that the calculation of a taxpayer’s Arkansas net operating loss (NOL) carryforward must be adjusted to include the taxpayer’s IRC Sec. 965 income excluded from Arkansas taxable income. Although IRC Sec. 965 income is not subject to tax in Arkansas, state law requires nontaxable income to be added to a taxpayer’s gross income when measuring an Arkansas NOL carryforward.
The takeaway: This decision should serve as a reminder to Arkansas taxpayers that their state NOLs must include additions related to nontaxable income in the year the NOL is generated.