(b) The committee shall adopt such rules and regulations as it deems 3 necessary and proper to administer this chapter and to ensure the compliance 4 of the Arkansas Tax-Deferred Tuition Savings Program with 26 U.S.C. § 529 as 5 in effect on January 1, 2007 2011. 6

(c) The committee shall have the following powers, duties, and 7 functions: 8

(1) To establish, develop, implement, and maintain the program 9 in a manner consistent with the provisions of this chapter and 26 U.S.C. § 10 529 as in effect on January 1, 2007 2011, and to obtain the benefits provided 11 by 26 U.S.C. § 529 for the program, account owners, and designated 12 beneficiaries; 13

(2) To adopt rules and regulations for the general 14 administration of the program; 15

(3) To maintain, invest, and reinvest the funds contributed into 16 the program consistent with the investment restrictions established by the 17 committee and the standard of care described in the prudent investor rule 18 presently codified as under § 24-2-610; and 19

(4)(A) To make and enter into any and all contracts, agreements, 20 or arrangements and to retain, employ, and contract for the services of 21 financial institutions, depositories, consultants, broker dealers, investment 22 advisors or managers, third-party plan administrators, and research, 23 technical, and other services necessary or desirable for carrying out the 24 purposes of this chapter. 25

(B) Contracts entered into by the committee may be for a 26 term of from one (1) to ten (10) years. 27

28

SECTION 4. Arkansas Code § 6-84-106 is amended to read as follows: 29

6-84-106. Investment direction. 30

Except as permitted in 26 U.S.C. § 529 as in effect on January 1, 2007 31 2011, no person shall have the right to direct the investment of any 32 contributions to or earnings from the Arkansas Tax-Deferred Tuition Savings 33 Program. 34

35

SECTION 5. Arkansas Code § 6-84-108(b), concerning Arkansas Tax- 36

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Deferred Tuition Savings Program account transfers, is amended to read as 1 follows: 2

(b) At the direction of an account owner, all or a portion of an 3 account may be transferred to another account of which the designated 4 beneficiary is a member of the family of the designated beneficiary of the 5 transferee account if the transferee account was created by this chapter or 6 under another qualified tuition program maintained in accordance with 26 7 U.S.C. § 529 as in effect January 1, 2007 2011. 8

9

SECTION 6. Arkansas Code § 6-84-109(b), concerning Arkansas Tax- 10 Deferred Tuition Savings Program account withdrawal reporting, is amended to 11 read as follows: 12

(b)(1) An account withdrawal paid to or for the benefit of any person 13 during any calendar year shall be reported to the person and to the Internal 14 Revenue Service. 15

(2) The report shall be made at the time required by the rules 16 of the Internal Revenue Service as in effect on January 1, 2007 2011, and 17 contain such information as is required by law. 18

19

SECTION 7. Arkansas Code § 6-84-111 is amended to read as follows: 20

6-84-111. Funds exempt from tax. 21

(a) Except as otherwise indicated in this chapter, interest, 22 dividends, and capital gains from funds invested in the Arkansas Tax-Deferred 23 Tuition Savings Program or a tax-deferred tuition savings program established 24 by another state under 26 U.S.C. § 529 as in effect on January 1, 2007 2011, 25 shall be exempt from Arkansas income taxes. 26

(b)(1) For tax years beginning on or after January 1, 2005, 27 contributions to a tuition savings account established under this program may 28 be deducted from the taxpayer's adjusted gross income for the purpose of 29 calculating Arkansas income tax under § 26-51-403(b). 30

(2) The deductible contributions shall not exceed five thousand 31 dollars ($5,000) per taxpayer in any tax year. 32

(3) Contributions to this program that have been deducted from 33 the taxpayer's adjusted gross income for prior tax years shall be subject to 34 recapture if the taxpayer: 35

(A) Makes a subsequent nonqualified withdrawal from the 36

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account; or 1

(B) Rolls the account over to a tax-deferred tuition 2 savings program established by another state or institution under 26 U.S.C. § 3 529 as in effect on January 1, 2007 2011. 4

(4) The contribution shall be recaptured by adding the amount 5 previously deducted, not to exceed the amount of the nonqualified withdrawal 6 or rollover, to the taxpayer's adjusted gross income for the tax year in 7 which the nonqualified withdrawal or rollover occurred. 8

(c)(1) Qualified withdrawals from a tuition savings account 9 established under this program or a tax-deferred tuition savings program 10 established by another state under 26 U.S.C. § 529 as in effect on January 1, 11 2007 2011, will be exempt from Arkansas income tax with respect to the 12 designated beneficiary's income. 13

(2)(A) Nonqualified withdrawals from a tuition savings account 14 established under this program or a tax-deferred tuition savings program 15 established by another state under 26 U.S.C. § 529 as in effect on January 1, 16 2007 2011, will be subject to Arkansas income tax. 17

(B) The nonqualified withdrawal will be taxable to the 18 party, account owner, or designated beneficiary who actually makes the 19 withdrawal. 20

(d) Any earnings on the contribution that are included in the refund 21 will be subject to Arkansas income tax if an account owner receives a refund 22 of contributions to a tuition savings account established under this program 23 or a tax-deferred tuition savings program established by another state under 24 26 U.S.C. § 529 as in effect on January 1, 2007 2011, because of either: 25

(1) The death or disability of the designated beneficiary; or 26

(2) A scholarship, allowance, or payment described in 26 U.S.C. 27 § 135(d)(1)(B) or (C) as in effect on January 1, 2007 2011, received by the 28 designated beneficiary. 29

30

SECTION 8. Arkansas Code § 6-84-113 is amended to read as follows: 31

6-84-113. Liberal construction. 32

This chapter shall be liberally construed to comply with the 33 requirements of 26 U.S.C. § 529 as in effect on January 1, 2007 2011. 34

35

SECTION 9. Arkansas Code § 26-51-404(a)(4), concerning scholarships, 36

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fellowships, grants, and stipends, is amended to read as follows: 1

(4) Section 117 of the Internal Revenue Code of 1986, as in 2 effect on January 1, 2003 2011, regarding the taxability of scholarships, 3 fellowships, grants, and stipends, is adopted for the purpose of clarifying 4 and calculating Arkansas income tax liability. 5

6

SECTION 10. Arkansas Code § 26-51-404(b)(10), concerning the exclusion 7 of discharge of indebtedness from gross income, is amended to read as 8 follows: 9

(10) Sections 108 and 1017 of the Internal Revenue Code of 1986, 10 as in effect on January 1, 2009 2011, regarding income from the discharge of 11 indebtedness, are adopted for the purpose of computing Arkansas income tax 12 liability; 13

14

SECTION 11. Arkansas Code § 26-51-404(b)(11), concerning the exclusion 15 from gross income of health flexible spending account contributions, is 16 amended to read as follows: 17

(11) Section 125 of the Internal Revenue Code of 1986, in effect 18 on January 1, 2009 2011, is adopted in computing amounts excludible from 19 gross income under the Income Tax Act of 1929, § 26-51-101 et seq., for 20 payments received under a cafeteria plan; 21

22

SECTION 12. Arkansas Code § 26-51-404(b)(14), concerning the exclusion 23 from gross income of disability and health plan payments, is amended to read 24 as follows: 25

(14) Sections 104-106 of the Internal Revenue Code of 1986, as 26 in effect on January 1, 1999, regarding the exclusion from income of 27 disability and health plan payments, are adopted for the purpose of computing 28 Arkansas income tax liability; The following sections of the Internal Revenue 29 Code of 1986 regarding the exclusion from income of disability and health 30 plan payments, are adopted for the purpose of computing Arkansas income tax 31 liability: 32

(A) Sections 104 and 106 as in effect on January 1, 2011; 33 and 34

(B) Section 105 as in effect on March 30, 2010; 35

36

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SECTION 13. Arkansas Code § 26-51-404(b)(20), concerning the exclusion 1 from gross income for employees whose education expenses were paid by an 2 employer, is amended to read as follows: 3

(20) Section 127 of the Internal Revenue Code of 1986, as in 4 effect on January 1, 2003 2011, regarding the exclusion from gross income for 5 employees whose education expenses were paid by an employer, is adopted for 6 the purpose of computing Arkansas income tax liability; 7

8

SECTION 14. Arkansas Code § 26-51-404(b)(25), concerning the exclusion 9 from gross income of employment-related adoption assistance benefits, is 10 amended to read as follows: 11

(25) Section 137 of the Internal Revenue Code of 1986, as in 12 effect on January 1, 2003 2011, regarding the exclusion from gross income of 13 benefits received under an employer's adoption assistance program, is adopted 14 for the purpose of computing Arkansas income tax liability; 15

16

SECTION 15. Arkansas Code § 26-51-409(a), concerning small business 17 corporations, is amended to read as follows: 18

(a) Subchapter S of the Internal Revenue Code of 1986, as in effect on 19 January 1, 2009 2011, regarding small business corporations, is adopted for 20 the purpose of computing Arkansas income tax liability. 21

22

SECTION 16. Arkansas Code § 26-51-414(a), concerning deferred 23 compensation plans, is amended to read as follows: 24

(a)(1) Sections 72, 219, 401-404, 406-416, and 457 of the Internal 25 Revenue Code of 1986, as in effect on January 1, 2009, relating to annuities, 26 retirement savings, and employee benefit plans, respectively, are adopted for 27 the purpose of computing Arkansas income tax liability, except Arkansas 28 capital gains treatment and the Arkansas tax rates shall apply. The 29 following sections relating to annuities, retirement savings, and employee 30 benefit plans are adopted for the purpose of computing Arkansas income tax 31 liability, except Arkansas capital gains treatment and the Arkansas tax rates 32 shall apply: 33

(A) Sections 72, 219, 402-404, 406-416, and 457 of the Internal 34 Revenue Code of 1986, as in effect on January 1, 2011; 35

(B) Section 401 of the Internal Revenue Code of 1986, as in 36

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effect on March 30, 2010. 1

(2) The requirements for filing a joint return under § 2 219(c)(1)(A) of the Internal Revenue Code of 1986 shall not apply. 3

4

SECTION 17. Arkansas Code § 26-51-414(b), concerning the application 5 of Arkansas income tax to Roth individual retirement accounts, is amended to 6 read as follows: 7

(b) Section 408A of the Internal Revenue Code of 1986, as in effect on 8 January 1, 1999 2010, relating to Roth individual retirement accounts, is 9 adopted for the purpose of computing Arkansas income tax liability with the 10 following exceptions:, except with regard to adjusted gross income under 26 11 U.S.C. § 408A(c)(3), which shall be determined in the same manner as under § 12 26-51-403(b). 13

(1) (A) Sections 408A(d)(3)(A)(iii) and 408A(d)(3)(E) are not 14 adopted. 15

(B) All income from and tax attributable to distributions from a 16 non-Roth individual retirement account to a Roth individual retirement 17 account prior to January 1, 1999, shall be reported for tax year 1998, and 18 the tax may be paid over a four-year period as permitted by the Director of 19 the Department of Finance and Administration; and 20

(2) Adjusted gross income under § 408A(c)(3) shall be determined in 21 the same manner as under § 26-51-403(b). 22

23

SECTION 18. Arkansas Code § 26-51-415, concerning deductions for 24 interest expenses, is amended to read as follows: 25

Section 163 of the Internal Revenue Code of 1986, as in effect on 26 January 1, 2009 2011, regarding deductions for interest expenses, is adopted 27 for the purpose of computing Arkansas income tax liability. 28

29

SECTION 19. Arkansas Code § 26-51-419(a)(1), concerning deductions for 30 charitable contributions, is amended to read as follows: 31

(a)(1)(A) Section 170 of the Internal Revenue Code of 1986, as in 32 effect on January 1, 2009 2011, regarding deductions for charitable 33 contributions, is adopted for the purpose of computing Arkansas income tax 34 liability. 35

(B) This adoption is for taxable years beginning on or after 36

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January 1, 2009 2011, and will have no does not have an effect on tax years 1 before its adoption. 2

3

SECTION 20. Arkansas Code § 26-51-423(a)(1), concerning business 4 expense deductions to adjusted gross income, is amended to read as follows: 5

(1) Business Expenses. All of § 162, except subsection (n), of 6 the Internal Revenue Code of 1986, as in effect on January 1, 2009, March 30, 7 2010, regarding trade or business expenses, is adopted for the purpose of 8 computing Arkansas income tax liability; 9

10

SECTION 21. Arkansas Code § 26-51-423(a)(2), concerning medical and 11 dental expense deductions to adjusted gross income, is amended to read as 12 follows: 13

(2) Medical and Dental Expenses. Section 213 of the Internal 14 Revenue Code of 1986, as in effect on January 1, 1997 2011, is adopted in 15 computing the medical and dental expense deduction under the state income tax 16 law; 17

18

SECTION 22. Arkansas Code § 26-51-423(a)(4), concerning moving expense 19 deductions to adjusted gross income, is amended to read as follows: 20

(4) Moving Expenses. Section 217 of the Internal Revenue Code 21 of 1986, as in effect on January 1, 1995 2011, regarding the deduction of 22 moving expenses, is adopted for the purpose of computing Arkansas income tax 23 liability. 24

25

SECTION 23. Arkansas Code § 26-51-423(d), concerning the deduction of 26 interest paid on qualified education loans to adjusted gross income, is 27 amended to read as follows: 28

(d) Section 221 of the Internal Revenue Code of 1986, as in effect on 29 January 1, 2003 2011, regarding the deduction of interest paid on qualified 30 education loans, is adopted for the purpose of computing Arkansas income tax 31 liability. 32

33

SECTION 24. Arkansas Code § 26-51-423(e), concerning the deduction of 34 costs incurred for the cleanup of hazardous substances to adjusted gross 35 income, is amended to read as follows: 36

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(e) Section 198 of the Internal Revenue Code of 1986, as in effect on 1 January 1, 2009 2011, regarding the deduction of costs paid or incurred for 2 the cleanup of certain hazardous substances, is adopted for the purpose of 3 computing Arkansas income tax liability. 4

5

SECTION 25. Arkansas Code § 26-51-429(b), concerning the deduction of 6 oil and gas well depletion allowance to adjusted gross income, is amended to 7 read as follows: 8

(b) In computing the depletion allowance deduction allowed by this 9 section for oil and gas wells, the provisions of § 613 of the Internal 10 Revenue Code of 1986 shall not be are not in effect, but instead the 11 computation of the amount of the depletion deduction shall be is controlled 12 by the provisions of § 613A of the Internal Revenue Code of 1986, as in 13 effect on January 1, 2009 2011, which are adopted as part of the state income 14 tax law. 15

16

SECTION 26. Arkansas Code § 26-51-436(3), concerning luxury 17 automobiles and other property, is amended to read as follows: 18

(3) Subsections (a), (b), (c), and (d) of § 280F of the Internal 19 Revenue Code of 1986, as in effect on January 1, 1999 2011, regarding 20 investment tax credit and depreciation for luxury automobiles and other 21 property, is adopted for purposes of computing Arkansas income tax liability; 22

23

SECTION 27. Arkansas Code § 26-51-436(4), concerning limits on 24 itemized deductions, is amended to read as follows: 25

(4) Section 68 of the Internal Revenue Code of 1986, as in 26 effect on January 1, 2009 2011, is adopted to limit itemized deductions; 27

28

SECTION 28. Arkansas Code § 26-51-436(5), concerning limits on 29 deductions for medical savings account contributions, is amended to read as 30 follows: 31

(5) Section 220 of the Internal Revenue Code of 1986, as in 32 effect on January 1, 2005 2011, regarding the deductibility from income of 33 contributions made to a medical savings account by the taxpayer or the 34 taxpayer's employer, is adopted for the purpose of computing Arkansas income 35 tax liability; 36

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1

SECTION 29. Arkansas Code § 26-51-440(a)(1), concerning regulated 2 investment companies, real estate investment trusts, and financial asset 3 securitization investment trusts, is amended to read as follows: 4

(a)(1) Subchapter M of the Internal Revenue Code of 1986, as in effect 5 on January 1, 2009 2011, relating to regulated investment companies, real 6 estate investment trusts, and financial asset securitization investment 7 trusts, is adopted for the purpose of computing Arkansas income tax liability 8 and shall govern all corporations that are registered as investment companies 9 under the Investment Company Act of 1940, 15 U.S.C. § 80a-1 et seq., as in 10 effect on January 1, 2009 2011. 11

12

SECTION 30. Arkansas Code § 26-51-445 is amended to read as follows: 13 26-51-445. Adoption expenses. 14

(a) Section 23 of the Internal Revenue Code of 1986, 26 U.S.C. § 23, 15 as in effect on January 1, 2003, and Section 36C of the Internal Revenue Code 16 of 1986, as in effect on January 1, 2011, is are adopted for purposes of 17 determining the allowable credit for adoption-related fees, costs, and 18 expenses paid or incurred by a taxpayer. 19

(b)(1) The amount of credit allowed against Arkansas income tax due 20 shall be is twenty percent (20%) of the federal credit as calculated pursuant 21 to under 26 U.S.C. § 23 and § 36C. 22

(2) The amount of the credit that may be used by a taxpayer for a 23 taxable year may not exceed the amount of income tax otherwise due. 24

25

SECTION 31. Arkansas Code § 26-51-448(a), concerning educational 26 individual retirement accounts, is amended to read as follows: 27

(a) Section 530 of the Internal Revenue Code of 1986, as in effect on 28 January 1, 2009 2011, relating to educational individual retirement accounts, 29 is adopted for the purposes of computing Arkansas income tax liability. 30

31

SECTION 32. Arkansas Code § 26-51-453(a), concerning deductions for 32 contributions to health savings accounts, is amended to read as follows: 33

(a) Subsections (a)-(d), (e)(2), (f), and (g) of § 223 of the Internal 34 Revenue Code of 1986, as in effect on January 1, 2007 2011, regarding a 35 deduction from income for amounts deposited to health savings accounts, is 36

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adopted for purposes of computing Arkansas income tax liability. 1

2

SECTION 33. Arkansas Code § 26-51-502(b)(1), concerning the credit for 3 household and dependent care services, is amended to read as follows: 4

(b)(1) Section 21 of the Internal Revenue Code of 1986, as in effect 5 on January 1, 2007 2011, is adopted for purposes of determining the allowable 6 credit under the Income Tax Act of 1929, § 26-51-101 et seq., for household 7 and dependent care services necessary for gainful employment. 8

9

SECTION 34. Arkansas Code § 26-51-815(a)(1), concerning the 10 computation of capital gains and losses, is amended to read as follows: 11

(a)(1)(A) To the extent they apply to capital gains and losses 12 realized or incurred during income years beginning after December 31, 1996, 13 26 U.S.C. §§ 1211-1237 and 1239-1257 as in effect on January 1, 2007 2011, 14 and the regulations of the Secretary of the Treasury promulgated under 26 15 U.S.C. §§ 1211-1237 and 1239-1257 as in effect on January 1, 2007 2011, are 16 adopted for the purpose of computing tax liability under the Income Tax Act 17 of 1929, § 26-51-101 et seq. 18

(B) However, the provisions of this section shall not apply to a C 19 corporation as defined in 26 U.S.C. § 1361, as in effect on January 1, 1997 20 2011. 21

22

SECTION 35. Arkansas Code § 26-51-1702, concerning the allowance and 23 calculation of the low income housing tax credit, is amended to add an 24 additional subdivision (g) to read as follows: 25

(g)(1) A grant payment made under Section 1602 of the American 26 Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5, is excluded from 27 gross income if the grant payment is made in lieu of a federal low income 28 housing tax credit. 29

(2) The grant recipient shall comply with the requirements of 30 this subchapter in the same manner as if the grant recipient had received a 31 federal low income housing tax credit. 32

33

SECTION 36. EFFECTIVE DATE. Subdivision (14)(B) of Section 12, 34 subdivision (a)(1)(B) of Section 16, Section 17, Section 20, and Section 35 35 shall be effective for tax years beginning on and after January 1, 2010. 36

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Sections 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, subdivision (14)(A) of Section 1 12, Sections 13, 14, 15, subdivisions (a)(1)(A) and (a)(2) of Section 16, 2 Sections 18, 19 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, and 34 3 shall be effective for tax years beginning on and after January 1, 2011. 4

5

SECTION 37. EMERGENCY CLAUSE. It is found and determined by the 6 General Assembly of the State of Arkansas that certain recent amendments to 7 the Internal Revenue Code have not been adopted into Arkansas’s income tax 8 law; that these inconsistencies make it difficult for Arkansas taxpayers and 9 their tax preparers to report and remit the correct amount of Arkansas income 10 tax; and that this act is immediately necessary to facilitate the orderly 11 administration of Arkansas’s income tax laws. Therefore, an emergency is 12 declared to exist and this act being immediately necessary for the 13 preservation of the public peace, health, and safety shall become effective 14 on: 15

(1) The date of its approval by the Governor; 16

(2) If the bill is neither approved nor vetoed by the Governor, 17 the expiration of the period of time during which the Governor may veto the 18 bill; or 19

(3) If the bill is vetoed by the Governor and the veto is 20 overridden, the date the last house overrides the veto.

21

22

/s/Teague 23

24

25 APPROVED: 03/30/2011 26

27

28

29

30

31

32

33

34

35

36