1.26 Ark. Code R. 51-404(b)(6)

Current through Register Vol. 49, No. 9, September, 2024

Rule 1.26-51-404(b)(6) - Interest on US Government Obligations

Interest earned on obligations of the United States or its possessions is not included in gross income.

"Obligations of the United States" means any U.S. Government obligation used to finance the national debt, such as U.S. Treasury bills, savings bonds or any other instrument acknowledged by the U.S. Secretary of the Treasury as an obligation of the United States.

These obligations must be specifically exempt from state taxation by federal law or must meet the four criteria established by Smith v. Davis, 323 U.S. 111, 89 L Ed 107, 65 S Ct 157 (1944). The requirements are that the obligations must:

1) be in writing;

2) bear specific interest;

3) bind the U.S. to pay specific sums at specific dates, and;

4) have congressional authority to pledge the full faith and credit of the United States in support of the promise to pay.

For example, interest received from the Federal National Mortgage, Government National Mortgage and Federal Home Loan Mortgage Corporation do not meet all four of the above stated requirements and therefore is not tax exempt. This is not intended to be an all inclusive list.

1.26 Ark. Code R. 51-404(b)(6)