Does New York's new 1989 corporate-acquisitions tax (the "M&A Act") apply to the Kohlberg Kravis Roberts leveraged buyout of RJR Nabisco, which closed just before the law took effect, or to the internal merger and any later restructuring that followed?

Subject

Whether sections 342 to 363 of Chapter 61, Laws of 1989 (the "M&A Act") apply to RJR Nabisco, Inc. and related RJR Holdings entities as a result of the Kohlberg Kravis Roberts & Co. leveraged buyout transactions.

Plain-English summary

This is the RJR Nabisco leveraged buyout — one of the largest and most famous corporate takeovers in U.S. history. On February 9, 1989, RJR Acquisition Corporation (formed by entities controlled by Kohlberg Kravis Roberts & Co., ultimately through RJR Holdings Corp., RJR Holdings Group, Inc., and RJR Holdings Capital Corp.) acquired 74.3% of RJR Nabisco's voting stock. A follow-on merger of Acquisition into RJR Nabisco was scheduled to close April 28, 1989, which would give the Holdings entities 100% ownership. Management wanted to locate RJR Nabisco's headquarters in New York but needed assurance first that neither the stock acquisition, the merger, nor any later internal restructuring or asset disposition would trigger New York's brand-new "M&A Act" — a special tax (added as Chapter 61 of the Laws of 1989) targeting corporate acquisitions and mergers, which had been enacted just weeks earlier, on April 19, 1989.

The M&A Act's own text created a timing ambiguity: it excludes acquisitions occurring "prior to the effective date of this subdivision," but a separate provision said the Act "shall apply to taxable years beginning on and after January 1, 1989" — raising the question of whether "effective date" meant the April 19, 1989 enactment date, or the January 1, 1989 start of the applicable tax year (which would have reached back and covered the February 9 acquisition). The Department resolved the ambiguity in the taxpayers' favor: drawing on its own involvement in drafting the law, it confirmed the "effective date" means April 19, 1989, not January 1, 1989 — and said it would push for a technical correction to clarify the statutory text, though it didn't consider that correction a precondition to this interpretation. Because the February 9, 1989 stock acquisition happened before April 19, 1989, it fell outside the M&A Act's "corporate acquisition" definition entirely, regardless of tax year. Separately, the Department found the April 28, 1989 merger of Acquisition into RJR Nabisco qualified as an excluded merger — a merger within the same affiliated group (all connected through 50%-or-greater common ownership under Holdings as the parent) is carved out of the M&A Act's "corporate merger" definition. Any later stock or asset disposition, or further restructuring within the same affiliated group under the same excluded-transaction test, likewise falls outside the Act.

What this means for you

Companies involved in corporate acquisitions or restructurings around a new law's effective date

When a new tax law's text creates ambiguity between its enactment date and a broader "applicable to taxable years beginning on" clause, this ruling illustrates the Department resolving that ambiguity based on legislative intent (informed by its own drafting involvement) rather than defaulting to the earliest possible reach-back date. If your transaction falls in that gap, an advisory opinion request can settle the question rather than assuming the more taxpayer-unfavorable reading applies.

Groups restructuring after a leveraged buyout or acquisition

Mergers, consolidations, and asset dispositions occurring entirely within an affiliated group connected by 50%-or-greater common ownership can qualify as "excluded transactions" under New York's corporate-acquisitions tax framework, even in a large, multi-step reorganization like this one (stock acquisition → merger → post-merger restructuring).

Accountants and tax professionals

This is a useful precedent on statutory-ambiguity resolution: where a new tax provision's effective-date language conflicts internally, the Department looked to legislative drafting history rather than applying the provision retroactively to the start of the stated tax year. Note the ruling also flags that transactions occurring on or after April 19, 1989 (the confirmed effective date) that are NOT excluded under the affiliated-group test may still trigger M&A Act consequences for tax years beginning on or after January 1, 1989.

Common questions

Q: What was New York's "M&A Act"?
A: A New York tax provision (Chapter 61 of the Laws of 1989, adding subdivisions to Tax Law § 208) targeting certain corporate acquisitions and mergers, enacted April 19, 1989.

Q: Does a merger between corporations in the same affiliated group ever trigger the M&A Act?
A: Not if it qualifies as an "excluded" merger — here, all the entities were connected through 50%-or-greater common ownership with Holdings as the parent, meeting the statutory exclusion test.

Q: Can another company involved in a merger or acquisition around this time period rely on this ruling?
A: No. This advisory opinion binds the Department only for the taxpayer and facts presented, and cannot be relied on by anyone else.

Citations and references

Statutes and regulations:

• Tax Law § 208(15) (M&A Act, Chapter 61 § 342, definition of "corporate acquisition")
• Tax Law § 208(13) (definition of "corporate merger")
• Tax Law § 208(16) (excluded mergers within an affiliated group, 50%-ownership test)
• Chapter 61 of the Laws of 1989, § 365(m) (M&A Act effective date, April 19, 1989, and applicability to taxable years beginning on/after January 1, 1989)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a89_5c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-89 (5)C
Corporation Tax
May 9, 1989

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C890505A

On May 5, 1989, a Petition for Advisory Opinion was received from RJR Nabisco, Inc., 300
Galleria Parkway, Atlanta, Georgia 30339, RJR Holdings Corp., RJR Holdings Group, Inc. and RJR
Holdings Capital Corp.
The issue raised is whether sections 342 to 363 of Chapter 61, Laws of 1989, are applicable
to Petitioners as a result of the fact pattern set forth in a letter from Mr. J. Thomas Pearson, Senior
Vice President, RJR Nabisco, Inc., dated April 27, 1989, addressed to Mr. William F. Collins,
Deputy Commissioner and Counsel, Department of Taxation and Finance.
Facts
Mr. Pearson's letter states:
On February 9, 1989, R J R A c q u i s i t i o n C o r p o r a t i o n
("Acquisition") acquired 74.3Z of the common (voting) stock of RJR
Nabisco, Inc. ("RJRN"). Acquisition is a wholly-owned subsidiary of
RJR Holdings Capital Corp. ("Capital"), which is a wholly-owned
subsidiary of RJR Holdings Group, Inc. ("Group"), which is a wholly­
owned subsidiary of RJR Holdings Corp. ("Holdings"), a corporation
controlled by partnerships managed by Kohlberg Kravis Roberts &
Co. Under an Agreement and Plan of Merger, dated as of November
30, 1988 and amended as of April 3, 1989, Acquisition is scheduled
to merge with and into RJRN on April 28, 1989, as a result of which
Holdings, Group and Capital will own 100% of RJRN's common
stock. Subsequent to the merger, there may be restructurings of
business units, including the sale or disposition of certain RJRN
assets.
Management desires to locate the headquarters of RJRN and
certain of its affiliates in New York State. Before doing so, however,
management requests assurance that Holdings, Group, Capital, RJRN
amid its subsidiaries (collectively referred to as the "RJRN Group")
are not subject to Sections 342 to 363 of Chapter 61, the Laws of
1989 (the "M&A Act").
Section 342 of the M&A Act (which adds subdivision 15 to
Section 208 of the Tax Law) defines a "corporate acquisition" subject
to the provisions of the M&A Act as excluding an acquisition that
occurred prior to the effective date of subdivision 15. Section 365
provides that the M&A Act shall take effect immediately (upon
enactment -- April 19, 1989). However, Section 365(m) states that
TP-9 (9/88)

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TSB-A-89 (5)C
Corporation Tax
May 9, 1989

Section 342 to 363 of the M&A Act "shall apply to taxable years
beginning on and after January 1, 1989."
. . . .
Because of the importance of this issue to the RJP. N Group
in its decision as to the location of its corporate headquarters, we
respectfully request your written opinion that Sections 342 to 363 of
the M&A Act do not apply:
1)

to the acquisition of 74.3% of RJRN's
common stock by Acquisition on February 9,
1989;

2)

to the contemplated merger on April 28, 1989
of Acquisition with and into RJRN; and

3)

to any corporate restructuring within, or
subsidiary or asset disposition by, the RJRN
Group subsequent to the merger.

. . . .
Discussion
In accordance with section 365(m) of Chapter 61, which was enacted on April 19, 1989, the
M&A Act takes effect on that date and applies to taxable years beginning on or after January 1, 1989.
By its terms, the M&A Act does not apply to corporate acquisitions, as defined in subdivision
15 of section 208 of the Tax Law (Act section 342), occurring "prior to the effective date of this
subdivision". In this context, there is understandable confusion as to whether "the effective date of
this subdivision" is (i) April 19, 1989 or (ii) taxable years beginning on or after January 1, 1989.
Based upon our significant involvement in the drafting process, we are convinced that the legislative
intent of the effective date reference in subdivision 15 is April 19, 1989, and the Department will
administer the M&A Act accordingly. We also will urge a technical correction of the M&A Act for
the sole purpose of clarifying this provision, i.e., we do not consider such an amendment a condition
precedent to the interpretation proffered in this opinion. In light of our interpretation, the acquisition
of 74.3% of RJRN common stock on February 9, 1989 was not a "corporate acquisition" within the
meaning of subdivision 15 of section 208 of the Tax Law regardless of the taxable year in which it
occurred, and the acquisition therefore is not within the purview of the M&A Act.
The M&A Act also does not apply to corporate mergers defined in subdivision 13 of section
208 of the Tax Law if the merger is excluded under subdivision 16 thereof (Act section 342). As
applied to Petitioners, we would construe the affiliated group under paragraph (b) of such
subdivision to consist of the chain of corporations having Holdings as the common parent and

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TSB-A-89 (5)C
Corporation Tax
May 9, 1989

including Group, Capital, Acquisition and RJRN. Since the corporations in the chain meet the
prescribed 50% ownership tests under such paragraph (b), the April 28, 1989 merger of Acquisition
and RJRN would be an excluded merger and therefore not a "corporate merger" within the purview
of the M&A Act.
Conclusion
Under the above analysis, the M&A Act does not apply to Petitioners as a result of the
February 9, 1989 acquisition or the April 28, 1989 merger. Any subsequent disposition of the stock
of a subsidiary acquired as a result of such acquisition, and any subsequent disposition of the assets
of such a subsidiary, would not bring Petitioners within the purview of the M&A Act. Any
subsequent restructuring among Petitioners involving a corporate acquisition, a corporate merger or
a corporate consolidation, where such transaction is an excluded transaction within the meaning of
subdivision 16 of section 208 of the Tax Law, would also not bring Petitioners within the purview
of the M&A Act. However, corporate mergers, corporate consolidations or corporate acquisitions
(as defined in subdivisions 13, 14 and 15 of section 208 of the Tax Law, respectively), occurring on
or after April 19, 1989, unless excluded under subdivision 16 of section 208 of the Tax Law, may
engender tax consequences under the M&A Act with respect to taxable years beginning on or after
January 1, 1989.

DATED: May 9, 1989

s/FRANK J. PUCCIA
Director
Technical Services

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