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 - Obligations of The United States or its Possessions

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, e.g., U.S. Treasury bills, or any other instrument acknowledged by the U.S. Secretary of Treasury as an obligation of the United States.

These obligations must be specifically exempt from state taxation by United States Laws or must meet the four criteria established by Smith v. Davis, 323 U.S. 111, 114 (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.

As an 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 is not tax exempt. This is not intended to be an all inclusive list.

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