Does a New York mutual savings bank's conversion to stock form -- a federal tax-free 'F reorganization' -- also qualify as a tax-free reorganization for New York's bank franchise tax under Article 32?

Date note: the source PDF prints "January 5, 1985" in the document header and "DATED: January 9, 1985" at sign-off, but the Petition itself wasn't received until December 3, 1985 -- so an opinion dated earlier in 1985 is impossible. This is evidently a typo in the original document (the year should read "1986," consistent with this ruling's TSB-A-86 numbering and its place in the sequence right before the similarly dated TSB-A-86(4)C of January 22, 1986). issued_date above is set to 1986-01-09, correcting only the year to match the printed day/month and the documented petition timeline; the day/month are taken verbatim from the sign-off line.

Plain-English summary

Home and City Savings Bank, a New York State chartered mutual savings bank, contemplated converting to a New York State chartered stock savings bank. Under Banking Board General Regulations section 86.4(c), the converting institution doesn't terminate its corporate existence -- it simultaneously becomes a stock-form institution, retaining all its property, rights, powers, franchises, debts, liabilities, and deposits, as a straight continuation of the same legal entity. The bank determined its conversion would constitute a federal tax-free "F reorganization" under IRC section 368(a)(1)(F) (per Rev. Rul. 80-105), with no gain or loss recognized federally by either the bank or the converted bank.

The Department confirmed this federal tax-free treatment carries through directly to New York's Article 32 bank franchise tax, since Article 32 has no modification provision specifically addressing section 368(a)(1)(F) reorganizations -- so the reorganization is treated the same way for New York purposes as it is federally. Because the bank doesn't cease exercising its franchise or cease being subject to Article 32 tax as a result of the conversion, its taxable year doesn't end on the effective date -- the pre-conversion stub period simply rolls into the taxable year of the converted bank, citing the Department's own prior ruling to the same effect for East River Savings Bank (TSB-A-85(9)C).

This ruling is essentially identical in substance and template language to three companion mutual-to-stock conversion rulings issued to other New York savings banks around the same period: TSB-A-86(9)C (North Side Savings Bank), TSB-A-86(10)C (Skaneateles Savings Bank), and the more detailed TSB-A-86(8)C/(5)I (Rochester Community Savings Bank), which additionally addresses the personal income tax treatment of depositors receiving stock subscription rights. This is the earliest of the four by petition date.

What this means for you

Mutual savings institutions converting to stock form

If your conversion qualifies as a federal tax-free F-reorganization, New York's Article 32 franchise tax generally follows automatically, since Article 32 has no separate reorganization test of its own -- a conclusion the Department applied consistently across at least four separate 1985-86 savings bank conversions.

Common questions

Q: Does New York's bank franchise tax have its own separate test for whether a mutual-to-stock conversion is tax-free?
A: No -- Article 32 has no modification addressing IRC section 368(a)(1)(F) reorganizations, so it follows the federal determination directly.

Q: Does the bank's taxable year end when the conversion becomes effective?
A: No -- since the bank continues its corporate existence without interruption under the Banking Board's conversion regulations, its taxable year continues unbroken through the conversion.

Q: Can another bank rely on this specific ruling?
A: No. It binds the Department only for this petitioner's specific facts, though the Department reached the same result for several other converting banks in separately issued companion rulings.

Citations and references

Statutes and regulations:

• Tax Law § 1453(a), § 1455(a), § 1462(a)
• Internal Revenue Code § 368(a)(1)(F)
• Rev. Rul. 80-105
• Banking Board General Regulations § 86.4(c)
• East River Savings Bank, TSB-A-85(9)C

Related rulings:

• TSB-A-86(9)C -- North Side Savings Bank, same conversion issue and template
• TSB-A-86(10)C -- Skaneateles Savings Bank, same template
• TSB-A-86(8)C/(5)I -- Rochester Community Savings Bank, the more detailed version also covering depositor-level income tax

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a86_3c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86 (3) C
Corporation Tax
January 5, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C851203A

On December 3, 1985 a Petition for Advisory Opinion was received from Home and City
Savings Bank, 100 State Street, Albany, New York 12207.
At issue is whether the change in the form of operation of Petitioner from a New York State
mutual savings bank to a New York State stock-form savings bank will constitute a tax-free
reorganization for purposes of Article 32 of the Tax Law.
Petitioner, a New York State chartered mutual savings bank, contemplates converting from
a mutual savings bank to a New York State stock savings bank. The conversion will merely be a
change in the form of operation and as such will constitute a reorganization within the meaning of
section 368(a)(1)(F) of the Internal Revenue Code of 1954, as amended, and no gain or loss will be
recognized by Petitioner or the converted bank as a result of such conversion (Rev. Rul. 80-105,
1980-1 C.B. 78).
Pursuant to section 86.4(c) of the General Regulations of the Banking Board of the New York
State Banking Department, at the time the conversion from mutual to stock-form becomes effective,
the converting institution shall cease to be a mutual institution and shall simultaneously become a
stock-form institution, and all the property of the mutual institution shall remain as the property of
the stock-form institution. All of the rights, powers, franchises, debts, liabilities, obligations and
duties of the mutual institution shall continue as such in the stock-form institution and all deposits
therein shall remain as deposits of equal value and character of such stock-form institution. The
corporate existence of the converting mutual institution shall not terminate, and such converted
stock-form institution shall be a continuation of the mutual form institution which existed
immediately before the filing of the amended organization certificate.
Section 1455(a) of Article 32 of the Tax Law provides that the basic tax is 9 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 of the Tax Law as "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 (i) of Article 32 of the Tax Law and sections 18-2.3, 18-2.4 and 18­
2.5 of the Franchise Tax on Banking Corporations Regulations, promulgated thereunder on
December 2, 1985, provide 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
Internal Revenue Code.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

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

-2­
TSB-A-86 (3) C
Corporation Tax
January 5, 1985
Section 1462(a) of Article 32 of the Tax Law 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 theretofore filed."
Pursuant to section 1453 of Article 32 of the Tax Law, 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 Internal Revenue
Code, such reorganization would, for purposes of section 1453 of Article 32 of the Tax Law, be
treated the same as it is treated for Federal income tax purposes. For purposes of Article 32 of the
Tax Law, a taxpayer's taxable year does not change when converting from a mutual institution to a
stock-form institution if such taxpayer does not cease to exercise its franchise or cease to be subject
to tax under Article 32 of the Tax Law. East River Savings Bank, State Tax Commission Advisory
Opinion, June 18, 1985, TSB-A-85(9)C.
Accordingly, if Petitioner's change in form from a New York State chartered mutual savings
bank to a New York State chartered stock savings bank is a tax-free reorganization under section
368(a)(1)(F) of the Internal Revenue Code, such reorganization would be a tax-free reorganization
for New York State franchise tax purposes under Article 32 of the Tax Law. Also, pursuant to
section 86.4(c) of the General Regulations of the Banking Board of the New York State Banking
Department, Petitioner would not cease to exercise its franchise and the taxable year of Petitioner
would not end on the effective date of the conversion and, accordingly, the part of the taxable year
of Petitioner before the conversion would be included in the taxable year of the converted bank
following the conversion.

DATED: January 9, 1985

s/Andrew F. Marchese
Chief of Advisory Opinions

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