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?

Plain-English summary

North Side 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. On the net-operating-loss question specifically, New York's own permanent modification barring any NOL deduction (section 1453(b)(3)) means the bank's entire net income computation isn't affected by whatever NOL deduction might be allowable federally -- making it immaterial whether federal IRC section 382(a) or (b) would otherwise limit the converted bank's NOL carryovers. Finally, 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.

This ruling is essentially identical in substance and template language to two companion 1986 rulings issued to other New York mutual savings banks converting the same way: 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.

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. Remember New York's permanent NOL disallowance under section 1453(b)(3) applies regardless of your conversion, so federal NOL-carryover limitation questions under IRC section 382 are often simply irrelevant to your New York tax computation.

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 other converting banks in separately issued companion rulings.

Citations and references

Statutes and regulations:

• Tax Law § 1453(a), § 1453(b)(3), § 1455(a), § 1462(a)
• Internal Revenue Code § 368(a)(1)(F), § 382(a), § 382(b)
• Rev. Rul. 80-105
• Banking Board General Regulations § 86.4(c)

Related rulings:

• TSB-A-86(10)C -- Skaneateles Savings Bank, same conversion issue and 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_9c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86 (9) C
Corporation Tax
April 25, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C860307A

On March 7, 1986, a Petition for Advisory Opinion was received from North Side Savings
Bank, 185 West 231st Street, Bronx, New York 10463.
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 the Tax Law provides that the basic tax is 9 percent of the taxpayer's
entire net income, or portion thereof allocated to New York State, for the taxable year or part thereof.
Entire net income is defined in section 1453(a) 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."

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

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

-2­
TSB-A-86 (9) C
Corporation Tax
April 25, 1986

Section 1453(b) through (i) 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
of 1954, as amended. Therefore, for New York State franchise tax purposes, such reorganization
would be treated the same as it is treated for Federal income tax purposes.
The modification provided in section 1453(b)(3) of the Tax Law states that any net operating
loss deduction for the taxable year allowable for Federal income tax purposes is not allowable when
computing entire net income pursuant to section 1453 of the Tax Law. Thus, when computing entire
net income, a taxpayer must add the amount of any net operating loss deduction that is allowable for
Federal income tax purposes to the entire taxable income required to be reported for Federal income
tax purposes (Federal taxable income).
Section 1462(a) 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 1462 (a) 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.
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 of 1954, as amended, such reorganization would be a tax­
free reorganization for New York State franchise tax purposes under Article 32 of the Tax Law.
Also, since a net operating loss deduction is not allowable for New York State franchise tax purposes
pursuant to section 1453(b)(3) thereof, the entire net income of Petitioner is not affected when a net
operating loss deduction is allowable for Federal income tax purposes. It is immaterial whether
section 382(a) or (b) of the Internal Revenue Code of 1954, as amended, regarding the net operating
loss carryovers available to the converted bank for Federal income tax purposes becomes operative
as a result of the reorganization.

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TSB-A-86 (9) C
Corporation Tax
April 25, 1986

Finally, 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: April 25, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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