2.26 Ark. Code R. 51-436(2)
Passive activity credits can only be used to offset taxes allocable to income from passive activities. A working interest in oil or gas property which the taxpayer holds either directly or through an entity that does not limit his liability is not a passive activity. However, if the taxpayer has any loss for any tax year from such an interest, then any net income from the property for any later tax year is treated as income that is not from a passive activity, notwithstanding that the activity may otherwise have become passive with respect to the taxpayer. IRC Sec. 469(c)(3)(B).
The 1996 Act provides that if, under the above rule, the net income from a working interest in an oil or gas property is treated as income that is not from a passive activity for any tax year, then any credits attributable to the property for that year are not treated as credits from a passive activity. The credits are treated as not from a passive activity even for a tax year in which the activity is no longer treated as not being a passive activity (i.e., the activity has become passive with respect to the taxpayer).
2.26 Ark. Code R. 51-436(2)