News from Arkansas on nonconforming state tax code - increased EGTRRA

[Dave Baker]

Here is the text of a recent release from the Arkansas tax authorities, about the EGTRRA mismatch between the Internal Revenue Code and Arkansas' tax code. Thanks to attorney Tom Overbey for the contribution! -- Dave Baker

-----------------

RECENT FEDERAL INCOME TAX LAW CHANGES AFFECTING ARKANSAS INCOME TAX LAW ON IRA'S, EDUCATION IRA'S, PENSION, AND DEFERRED COMPENSATION PLANS

Congress recently amended several provisions of federal income tax law creating new rules for IRA's, pension plans, and deferred compensation plans. These changes occurred following adjournment of the 2001 Arkansas General Assembly. Many of the federal code sections that were amended have previously been incorporated into Arkansas tax law. These changes have created differences between current federal and state law concerning IRA's, education IRA's, pension plans, and deferred compensation plans. Arkansas cannot automatically adopt these federal law changes without action by the General Assembly. The Department of Finance and Administration (DFA) anticipates that the General Assembly will retroactively adopt these provisions early during the 2003 legislative session. As a result, DFA has developed the following plan to address these recent federal tax law changes:

. Draft the 2002 state income tax forms and instructions to accommodate the retroactive adoption of these recent federal law changes affecting IRA's, education IRA's, pension plans, and deferred compensation plans, early in the 2003 legislative session;

. Institute an aggressive taxpayer education program explaining the differences between current federal and state law;

. Inform taxpayers and tax professionals that the 2003 General Assembly may adopt these federal law changes retroactively early in the 2003 legislative session;

. Encourage taxpayers and tax professionals to refrain from filing their 2002 tax returns until the General Assembly has addressed these federal law changes;

. DFA will prepare a bill that can be pre-filed and be ready for consideration early in the 2003 legislative session to adopt these federal IRA, education IRA, pension, and deferred compensation changes;

. If the General Assembly determines that certain provisions of the new federal law should not be adopted retroactively, DFA will abate interest and penalty assessed against taxpayers who followed the federal law changes when preparing their return.

------------------

Tom Overbey

Overbey, Graham & Strigel, PLC

Pavilion Centre, Suite 240

8315 Cantrell Road

Little Rock, Arkansas 72227-2423

Little Rock: 501-664-8105, Ext. 108

Fayetteville: 501-442-3554

Cell: 501-258-1610

Fax: 501-219-2993

Email: toverbey@ogslaw.com