When a New York mutual savings bank converts to a FEDERALLY chartered stock savings bank (crossing from state to federal charter, not staying state-chartered), is the conversion still tax-free for New York bank franchise tax, and does the bank's change in regulatory charter affect its New York filing obligations?

Plain-English summary

Goldome Bank for Savings, a New York State chartered mutual savings bank, planned a two-step conversion: first from a state-chartered mutual bank to a FEDERALLY chartered mutual savings bank, and then from federal mutual form to federal STOCK form. This differs from the more common mid-1980s conversions in this Department's rulings (like the Rochester Community, Binghamton, and Apple Bank rulings), which stayed within the New York State charter the whole time. For federal tax purposes, Goldome had already determined the conversion qualifies as a tax-free "F reorganization" under IRC section 368(a)(1)(F), triggering the now-familiar list of favorable federal consequences: no gain/loss to the bank or converted bank; carryover basis and tacked holding periods for assets; no gain/loss to depositors on receiving new deposit accounts, liquidation-account interests, or nontransferable stock subscription rights (or on exercising them); continuity of tax attributes under IRC section 381; and continuation of bad-debt reserves without required restoration to income.

On whether the reorganization itself triggers New York tax, the answer tracks the Department's other conversion rulings: Article 32's entire net income definition starts from federal taxable income, and its modification provisions (Tax Law § 1453(b) through (h)) have nothing addressing an IRC section 368(a)(1)(F) reorganization, so the federal tax-free treatment carries straight through to New York franchise tax.

But the state-to-federal charter crossing creates a New York-specific wrinkle the same-state conversions don't have. Because Goldome will actually change from a NEW YORK STATE charter to a FEDERAL charter, it will, at that moment, cease to exercise its New York State corporate franchise -- triggering Tax Law § 1462(a)'s requirement that a taxpayer ceasing to exercise its franchise file a return "on the date of such cessation." If that cessation date isn't the last day of Goldome's federal taxable year (and it generally won't be, since the mutual-to-stock step happens later within the same federal year), Goldome must file TWO short-period New York returns to cover that one federal taxable year: one for the period up through the charter-change date, and one for the period after it through the end of the federal year -- even though only a single federal return covers that whole year. This doesn't apply to purely same-state mutual-to-stock conversions, where the bank never ceases to exercise its New York franchise at all.

What this means for you

Mutual savings institutions converting to a FEDERAL stock charter (not staying state-chartered)

Even though your reorganization is tax-free for New York franchise tax purposes just like a same-state conversion, budget for an extra compliance step: crossing from a state to a federal charter mid-year means you'll need to file two short-period New York returns for that federal taxable year, not one. Watch your charter-change date closely, since it sets the split point.

Accountants and tax professionals handling multi-step bank reorganizations

Don't assume every mutual-to-stock conversion follows the identical filing pattern -- a conversion that also changes the bank's chartering authority (state to federal, or vice versa) can trigger a franchise-cessation filing requirement under § 1462(a) that a same-charter conversion (like the Rochester Community, Binghamton, or Apple Bank rulings) does not.

Common questions

Q: Is a mutual-to-stock conversion still tax-free for New York if the bank also switches from a state to a federal charter?
A: Yes, the reorganization itself remains tax-free for Article 32 purposes, following the same federal-conformity reasoning as a same-charter conversion.

Q: Does Goldome need to file more than one New York return for the year of conversion?
A: Yes -- because the state-to-federal charter change means Goldome ceases to exercise its New York franchise mid-year, it must file two short-period New York returns for that single federal taxable year, unlike a same-state conversion.

Q: Can a bank get an extension for these short-period returns?
A: Tax Law § 1462(c) allows the Tax Commission to grant a reasonable filing extension for good cause, though this Opinion doesn't guarantee one will be granted.

Q: Can another bank rely on this Opinion?
A: No. It binds the Department only as to Goldome's own facts and cannot be relied upon by another institution, even in an identical two-step state-to-federal conversion.

Citations and references

Statutes and regulations:

• Tax Law § 1453(a), § 1453(b)-(h), § 1453(j), § 1455(a), § 1462(a), § 1462(c)
• Internal Revenue Code § 368(a)(1)(F), § 368(b), § 1032(a), § 362(b), § 1223(2), § 1223(6), § 354(a), § 305(a), § 358(a)(1), § 381, § 381(c)(4), § 593(e), § 316
• Rev. Rul. 80-105; Rev. Rul. 56-572; Rev. Rul. 57-276; Rev. Rul. 68-475

Related rulings:

• TSB-A-85(21)C, TSB-A-85(22)C, (7)I, TSB-A-86(8)C, (5)I -- same-state mutual-to-stock conversions without the charter-crossing short-period-return issue

Date note: The document header and sign-off line both read within days of each other -- header "July 8, 1985," sign-off "DATED: July 1, 1985," a seven-day gap consistent with internal signing before the header/publication date; issued_date uses the header date without correction.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1985.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a85_13c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85 (13) C
Corporation Tax
July 8, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C831021A

On October 21, 1983 a Petition for Advisory Opinion was received from Goldome Bank for
Savings, One Fountain Plaza, Buffalo, New York 14203.
At issue is the tax treatment under Article 32 of the Tax Law of a proposed reorganization
of Petitioner where, for federal income tax purposes:

1. The change in the form of operation of Petitioner from a state mutual savings bank to a
   federal stock savings bank will constitute a reorganization within the meaning of section
   368(a)(1)(F) of the Internal Revenue Code of 1954 (hereinafter IRC), and no gain or loss will be
   recognized to Petitioner as a result of such conversion (Rev. Rul. 80-105, 1980-1 C.B. 78).
   Petitioner and the converted bank will be a "party to a reorganization" within the meaning of section
   368(b) of the IRC.
2. No gain or loss will be recognized to the converted bank on the receipt of money in
   exchange for the conversion stock (section 1032(a) of the IRC).
3. The assets of Petitioner will have the same basis in the hands of the converted bank as in
   the hands of Petitioner immediately prior to the conversion (section 362(b) of the IRC).
4. The holding period of the assets of Petitioner to be received by the converted bank will
   include the period during which the assets were held by the bank prior to the conversion (section
   1223(2) of the IRC).
5. No gain or loss will be recognized by the eligible account holders, or other members upon
   the issuance to them of deposit accounts in the converted bank in the same dollar amount as their
   deposit accounts in Petitioner plus interests in the liquidation account of the converted bank in
   exchange for their deposit accounts in the bank (section 354(a) of the IRC).
6. No gain or loss will be recognized by the eligible account holders, or other members upon
   the distribution to them of the nontransferable subscription rights to purchase shares of stock in the
   converted bank (section 305(a) of the IRC).
7. The basis of the deposit accounts in the converted bank received by the account holders
   of Petitioner will be the same as the basis of their deposit accounts in Petitioner surrendered in
   exchange therefor (section 358(a)(1) of the IRC). The basis of the interests in the liquidation account
   of the converted bank received by the eligible account holders will be zero. The basis of the
   nontransferable subscription rights will be zero (sections 1.307-1 and 1.307-2 of the Treasury
   Regulations). The basis for the common stock of the converted bank to its shareholders will be the
   purchase price thereof (section 1012 of the IRC). The shareholder's holding period will commence
   upon the exercise of the subscription (section 1223(6) of the IRC).
   RODERICK G. W. CHU, COMMISSIONER
   TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

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TSB-A-85 (13) C
Corporation Tax
July 8, 1985

8. No taxable income will be realized by the eligible account holders or other members as
   a result of the exercise of the nontransferable subscription rights (Rev. Rul. 56-572, 1956-2 C.B.
   182).
9. For purposes of section 381 of the IRC, the converted bank will be treated as if there had
   been no reorganization. Accordingly, the taxable year of Petitioner will not end on the effective date
   of the conversion, and the tax attributes of Petitioner will be taken into account by the converted
   bank as if there had been no reorganization (section 1.381(b)-(1)(a)(2) of the Treasury Regulations).
   The part of the taxable year of Petitioner before the conversion will be included in the taxable year
   of the converted bank after the conversion (Rev. Rul. 57-276, 1957-1 C.B. 126).
10. Pursuant to the provisions of section 381(c)(4) of the IRC and section 1.381(c)(4)­
    1(a)(1)(ii) of the Treasury Regulations, the converted bank will succeed to and take into account,
    immediately after the reorganization the dollar amounts of those accounts of Petitioner which
    represent bad debts reserves in respect of which Petitioner has taken a bad debt deduction for taxable
    years ending on or before the date of the transfer. The bad debt reserves will not be required to be
    restored to gross income of Petitioner for the taxable year of the transfer, and such bad debt reserves
    will have the same character in the hands of the converted bank as they would have had in the hands
    of Petitioner if no distribution or transfer had occurred.
11. Regardless of book entries made for the creation of the liquidation account, the
    conversion will not diminish the accumulated earnings and profits of the converted bank available
    for the subsequent distribution of dividends within the meaning of section 316 of the IRC (section
    1.312-11(b) and (c) of the Treasury Regulations). The creation of the liquidation account on the
    records of the converted bank will have no effect on its taxable income, deductions for addition to
    reserves for bad debts under section 593 of the IRC, or distributions to shareholders under section
    593(e) of the IRC. (Rev. Rul. 68-475, 1968-2 C.B. 259).
    Petitioner is a state chartered savings bank organized in mutual form. Petitioner contemplates
    converting from a mutual to a stock form of organization subsequent to conversion from a state to
    a federally chartered mutual savings bank. The Board of Directors will continue the policies and
    business operations of Petitioner under the federal stock charter on the same basis as before the
    conversion. All pending actions and other judicial proceedings to which Petitioner is a party will not
    abate or be discontinued by reason of the conversion but will continue in the same manner as if the
    conversion had not taken place. Each account holder will have a deposit account in the converted
    bank in the same dollar amount and upon the same terms and conditions (other than voting and
    liquidation rights) as prior to the conversion. For federal income tax purposes, Petitioner will
    continue to file all tax returns under existing identification numbers and upon the same reporting
    dates or reporting periods as is required of Petitioner prior to the conversion.

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TSB-A-85 (13) C
Corporation Tax
July 8, 1985

Section 1455(a) of Article 32 provides that the basic tax is 12 percent of the taxpayer's entire
net income, or the portion thereof allocated to New York State, for the taxable year or part thereof.
Entire net income is defined in section 1453(a) of Article 32 as follows:
"Entire net income means total net income from all sources which
shall be the same as the entire taxable income which the taxpayer is
required to report to the United States treasury department, except as
hereinafter provided."
Section 1453(b) through (h) provides for the modifications required by section 1453(a).
However, there is no modification for a transaction treated as a reorganization pursuant to section
368(a)(1)(F) of the IRC.
The only regulations promulgated, to date, in accordance with section 1453 of Article 32
pertain to the modification for international banking facilities which is not herein at issue.
The regulations promulgated in accordance with Articles 9-B and 9-C, the predecessor to
Article 32, apply only to the extent that such regulations conform with the provisions of Article 32
and only in the absence of regulations promulgated in accordance with Article 32. In a letter to
Commerce Clearing House, Inc., dated February 26, 1973, the Director of the Corporation Tax
Bureau made the following statement:
"Inasmuch as the provisions of Article 32 conform with Articles 9-B and 9-C,
except in areas of privilege period and Federal conformity regulations issued under
Articles 9-B and 9-C remain applicable except when they are in conflict with the
provisions of Article 32. Federal taxable income is the starting point in computing
entire net income and therefore Federal regulations applicable to such computation
will be followed."
Section 1462(a) of Article 32 states, in part:
"Every taxpayer . . . shall annually on or before the fifteenth day of the third month
following the close of each of its taxable years transmit to the tax commission a
return . . . and every taxpayer which ceases to exercise its franchise or to be subject
to the tax imposed by this article shall transmit to the tax commission a return on the
date of such cessation or at such other time as the tax commission may require
covering each year or period for which no return was thereto- fore filed."
Section 1462(c) of Article 32 states, in part;
"The tax commission may grant a reasonable extension of time for filing returns
wherever good cause exists. . . ."

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TSB-A-85 (13) C
Corporation Tax
July 8, 1985

Section 1453(j) states:
" If the period covered by a return under this article is other than the period covered
by the return to the United States treasury department, entire net income shall be
determined by multiplying the taxable income reported to such department (as
adjusted pursuant to the provisions of this article) by the number of calendar months
or major parts thereof covered by the return under this article and dividing by the
number of calendar months or major parts thereof covered by the return to such
department. If it shall appear that such method of determining entire net income does
not properly reflect the taxpayer's income during the period covered by the return
under this article, the tax commission shall be authorized in its discretion to
determine such entire net income solely on the basis of the taxpayer's income during
the period covered by its return under this article."
Pursuant to section 1453 of Article 32, entire net income is computed by starting with federal
taxable income and making the modifications required by such section. Since there is no
modification for a reorganization under section 368(a)(1)(F) of the IRC, such reorganization would,
for purposes of section 1453 of Article 32, be treated the same as it was treated for federal income
tax purposes. However, pursuant to section 1462(a) of Article 32, a taxpayer which ceases to
exercise its franchise is required to file a return on the date of cessation unless, pursuant to section
1462(c), the taxpayer is granted an extension of time for filing such return. If the date of cessation
is not the last day of its taxable year for federal income tax purposes, the taxpayer is required to file
two short period returns for purposes of Article 32, even though only one return is required for
federal income tax purposes.
Accordingly, if Petitioner's change in form from a New York State chartered mutual savings
bank to a federally chartered stock savings bank is a tax-free reorganization under section
368(a)(1)(F) of the IRC such reorganization would be a tax-free reorganization for New York State
franchise tax purposes under Article 32. Except that, for the federal taxable year Petitioner changes
from a New York State chartered mutual savings bank to a federally chartered mutual savings bank,
Petitioner will cease to exercise its New York State franchise and two short period returns are
required for New York State franchise tax purposes even though only one return is required for
federal income tax purposes. A short period return is required for the period from the beginning of
its federal taxable year up to and including the day Petitioner ceases to exercise its franchise and a
short period return is required for the period from the day following the cessation to the end of its
federal taxable year.

DATED: July 1, 1985

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth herein.