XII. TAX LAW

A. ARKANSAS TAX PROCEDURE ACT. A.C.A. § 26-18-101 et seq.

 

1. Judicial relief for taxpayer. After the issuance and service on the taxpayer of the notice and demand for payment of a deficiency in tax established by an audit determination that is not protested by the taxpayer under A.C.A. § 26-18-403, or a final determination of the hearing officer or the director under A.C.A. § 26-18-405, a taxpayer may seek judicial relief from the final determination by either: (1) within one (1) year of the date of the final assessment, paying the entire amount of state tax due, for any taxable period or periods covered by the final assessment and filing suit to recover that amount within one (1) year of the date of payment. The director may proceed with collection activities, including the filing of a certificate of indebtedness as authorized under A.C.A. § 26-18-701, within thirty (30) days of the issuance of the final assessment for any assessed but unpaid state taxes, penalties, or interest owed by the taxpayer for other taxable periods covered by the final assessment, while the suit for refund is being pursued by the taxpayer for other taxable periods covered by the final assessment; or (2) within thirty (30) days of the issuance and service on the taxpayer of the notice and demand for payment, filing with the director a bond in double the amount of the tax deficiency due and by filing suit within thirty (30) days thereafter to stay the effect of the director's determination. A.C.A. § 26-18-406(a) (Repl. 1997 & Supp. 2001).

 

2. Time limitations for assessments.

 

a. In general. Except as otherwise provided in this chapter, no assessment of any tax levied under the state tax law shall be made after the expiration of three (3) years from the date the return was required to be filed or the date the return was filed, whichever period expires later. The Director of the Department of Finance and Administration shall not begin court proceedings after the expiration of the three-year period unless there has been a previous assessment for the collection of the tax. A.C.A. § 26-18­306(a) (Repl. 1997 & Supp. 2001).

 

b. Assessment after correction by Internal Revenue Service. If there is any additional state tax due from the taxpayer because of the correction by the Internal Revenue Service, any additional state tax must be assessed by the director within one (1) year of the filing of the amended Arkansas income tax return by the taxpayer. However, in the instance of a taxpayer who fails to notify the director of the correction as required by this subsection, no assessment of additional state tax due from the taxpayer because of the correction by the Internal Revenue Service shall be made by the director after the expiration of eight (8) years from the date the return was required to be filed or the date the return was filed, whichever period expires later. If the assessment made by the Internal Revenue Service is appealed by the taxpayer, the director shall have three (3)

years from the date of the final Internal Revenue Service assessment or date of payment of the federal assessment by the taxpayer, whichever of the two (2) periods expires later, in which to make an assessment. A.C.A. § 26-18-306(b)(2) (Repl. 1997 & Supp. 2001).

 

c. Agreement to extension of period in which assessment is to be filed. Where, before the expiration of the time prescribed for the assessment of the tax or of extensions thereof consented to in writing, both the director and the taxpayer have consented in writing to an assessment after that time, then the tax may be assessed at any time prior to the expiration of time agreed upon. When the time to file a claim for a refund has not expired at the time the extension agreement is entered into, the agreement shall automatically extend the period in which a refund may be allowed or a claim for a refund may be filed to the final date agreed to in the agreement, plus sixty (60) days. A.C.A..§ 26-18-306(d) (Repl. 1997 & Supp. 2001).

 

d. Taxpayer understates tax due or underreports net taxable income. If a taxpayer understates a state tax due by an amount equal to or greater than twenty-five percent (25%) in any return or report or in the case of an income tax, if the taxpayer underreports net taxable income by twenty-five percent (25%) or more, the director may assess the tax due or begin an action in court for the collection thereof at any time prior to the expiration of six (6) years after the return was required to be filed or the date the return was filed, whichever period expires later. A.C.A. § 26-18-306(e) (Repl. 1997 & Supp. 2001).

 

e. Fraudulent return or failure to file a report. In the case of a fraudulent return or failure to file a report or return required under any state tax law, the director may compute, determine, and assess the estimated amount of tax due from any information in his possession or may begin an action in court for the collection of the tax without assessment, at any time. A.C.A. § 26-18-306(f) (Rep!. 1997 & Supp. 2001).

 

3. Time limitations for collection. Where the assessment of any tax imposed by any state law has been made within the period of limitation properly applicable thereto, the tax may be collected by levy or proceeding in court, but only if the levy is made or the proceeding is begun within ten (10) years after the date of the assessment of the tax. A.C.A. § 26-18­306(h) (Repl. 1997 & Supp. 2001).

 

4. Time limitations for credit or refund. An amended return or verified claim for credit or refund of an overpayment of any state tax for which the taxpayer is required to file a return shall be filed by the taxpayer within three (3) years from the time the return was filed or two (2) years from the time the tax was paid, whichever of the periods expires the later. Any taxpayer who fails to file a return, underreports his income by twenty-five percent (25%) or more, or fails to notify the director of any change or correction by the Internal Revenue Service in the taxpayer's taxable income, shall not be entitled to file an amended return or verified claim for credit or refund after the expiration of three (3) years from the date the original return or notification of change was originally due. A.C.A. § 26-18-306(1) (Repl. 1997 & Supp. 2001). The taxpayer may seek judicial relief under the provisions of