If a bank subsidiary revokes its election to be taxed under Article 9-A (switching to Article 32) in the same year it has a big capital loss, can it still carry that loss back to earlier years when it was an Article 9-A taxpayer?

Plain-English summary

FSB-Properties, a wholly owned subsidiary of Flushing Savings Bank, would qualify as a "banking corporation" under Article 32's regulations, making it eligible for the Article 32 banking-corporation franchise tax. But it had instead elected, under Article 32 Regulations section 16-2.5(j)(3), to be taxed under Article 9-A (the general business-corporation franchise tax). For taxable year 1990 it incurred a substantial capital loss, and was weighing whether to revoke that Article 9-A election for 1990 -- which, under the regulation, is done simply by filing an Article 32 return instead. Revoking would make it an Article 32 taxpayer for 1990. It asked whether, if it revoked, it could still carry that 1990 capital loss back to earlier years when it had been an Article 9-A taxpayer.

The answer is yes, conditionally. Two scenarios:

• No revocation -- FSB-Properties stays an Article 9-A taxpayer for 1990, and the loss carries back to prior Article 9-A years under the ordinary Article 9-A carryback rules (which mirror IRC section 1212).
• Revocation -- FSB-Properties becomes an Article 32 taxpayer for 1990. It may still carry the capital loss back to the earlier Article 9-A years, but only if it meets all of the requirements of Article 9-A Regulations Subpart 3-7 governing capital-loss carrybacks. Critically, the loss must be recomputed as if FSB-Properties had been an Article 9-A taxpayer all along -- meaning it must sort the loss into subsidiary capital, investment capital, and/or business capital, so the carryback offsets the matching category of income in the earlier Article 9-A years.

What this means for you

Bank subsidiaries with an Article 9-A/Article 32 election

Switching your tax article (via the section 16-2.5(j)(3) election/revocation mechanism) doesn't automatically forfeit capital-loss carrybacks to years filed under the other article -- but it does require extra work: you must requalify the loss under the destination article's specific carryback rules and recategorize it by capital type.

Accountants and tax professionals

The core mechanic here is that Article 9-A and Article 32 both track IRC section 1212 for carryback/carryforward periods, but each article has its own capital-classification scheme (subsidiary/investment/business capital for 9-A). A cross-article carryback requires translating the loss into the destination article's categories, not just applying the raw federal number.

Timing your election revocation

Because the election is revoked simply by filing a return under the other article, the choice of which article to file under for a loss year can meaningfully affect what carryback options remain available -- worth modeling both scenarios before filing.

Common questions

Q: Does revoking an Article 9-A election forfeit a capital loss carryback to 9-A years?
A: No, not automatically -- but the taxpayer must meet all of Article 9-A's own carryback requirements and recompute the loss as if it had stayed an Article 9-A taxpayer.

Q: How is the election between Article 9-A and Article 32 made and revoked?
A: Under section 16-2.5(j)(3) of the Article 32 Regulations, the election is made by filing an Article 9-A return, and revoked by filing an Article 32 return.

Q: Do Article 9-A and Article 32 use the same capital-loss carryback period?
A: Both track IRC section 1212's carryback/carryforward periods, but each article requires the loss to be computed under its own rules and capital-classification system.

Citations and references

Statutes and regulations:

• Article 32 Regulations section 16-2.5(j)(3) (Article 9-A/Article 32 election and revocation)
• Article 32 Regulations section 18-2.5(b) (Article 32 net capital loss carryback)
• Business Corporation Franchise Tax (Article 9-A) Regulations section 3-7.1 (Article 9-A net capital loss carryback)
• IRC section 1212 (capital loss carryback/carryforward)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a92_5c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92 (5) C
Corporation Tax
February 27, 1992

STATE OF NEW YORK
C0MMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C911016C

On October 16, 1991, a Petition for Advisory Opinion was received from FSB-Properties,
144-51 Northern Boulevard, Flushing, New York 11354.
The issue raised by Petitioner, FSB-Properties, is whether, after revoking its election to
be taxed under Article 9-A of the Tax Law (thereby subjecting itself to tax under Article 32 of
the Tax Law), it would be able to carryback a capital loss sustained in the first year it was subject
to tax under Article 32 to a previous tax year when it was subject to tax under Article 9-A.
Petitioner, a wholly-owned subsidiary of Flushing Savings Bank, is doing business in
New York and is currently subject to tax under Article 9-A of the Tax Law. Flushing Saving
Bank is a banking corporation doing business in New York State and is subject to franchise tax
under Article 32 of the Tax Law.
Petitioner is a corporation that would qualify as a banking corporation under section 16­
2.5 of the Franchise Tax on Banking Corporations Regulations (hereinafter "Article 32
Regulations") and could be subject to tax under Article 32 of the Tax Law. However, pursuant to
section 16-2.5(j)(3) of the Article 32 Regulations, Petitioner had made an election to be taxed
under Article 9-A of the Tax Law. Such section 16-2.5(j)(3) provides that "[t]he election is made
by the filing of a tax return pursuant to article 9-A of the Tax Law and revocation is made by the
filing of a tax return pursuant to article 32 of the Tax Law." For taxable year 1990, Petitioner is
considering the revocation of its election to be taxed as an Article 9-A corporation, thereby
subjecting itself to tax under Article 32 of the Tax Law. For taxable year 1990, Petitioner has
incurred a substantial capital loss.
Section 18-2.5(b) of the Article 32 Regulations provides that:
A taxpayer sustaining a net capital loss for Federal income tax purposes is
permitted to carry back or carry forward such loss to the same extent and to the
same years as is allowed under section 1212 of the Internal Revenue Code. A
corporation which files as part of a consolidated group for Federal income tax
purposes, but files on a separate basis for purposes of article 32 of the Tax Law,
must compute its net capital loss as if it were filing on a separate basis for Federal
income tax purposes.
Section 3-7.1 of the Business Corporation Franchise Tax Regulations (hereinafter
"Article 9-A Regulations") provides that:
(a) Except as provided in section 3-7.4 of this Subpart, a taxpayer
sustaining a net capital loss is permitted to carry back or carry forward such loss
to the same extent and the same years as is allowed under section 1212 of the
Internal Revenue Code. . .in computing entire net income for purposes of article

-2­
TSB-A-92 (5) C
Corporation Tax
February 27, 1992

9-A. A corporation which reports as part of a consolidated group for Federal
income tax purposes but on a separate basis for purposes of article 9-A must
compute its net capital loss and the amount of such capital loss which is allowed
as if it were filing on a separate basis for Federal income tax purposes.
(b) . . .The amount that a taxpayer may carry back or carry forward to any taxable year
may not exceed the amount of loss which may be allowed pursuant to the Internal Revenue Code.
..
If, for taxable year 1990, the revocation of the section 16-2.5(j)(3) election is not made,
Petitioner will continue to be subject to tax under Article 9-A of the Tax Law and its 1990 net
capital loss would be available for carry back to previous tax years when Petitioner was also
subject to tax under Article 9-A of the Tax Law.
If Petitioner is an Article 32 taxpayer for taxable year 1990 and it has a net capital loss
pursuant to section 18-2.5(b) of the Article 32 Regulations, Petitioner may carry back such net
capital loss to taxable years it was subject to tax under Article 9-A of the Tax Law if Petitioner
meets all of the requirements of Subpart 3-7 of the Article 9-A Regulations regarding a net
capital loss carry back. For such carry back purposes, the net capital loss must be computed as if
Petitioner had been subject to Article 9-A of the Tax Law instead of Article 32 of the Tax Law.
That is, Petitioner must determine whether the net capital loss is derived from subsidiary capital
and/or investment capital and/or business capital, respectively, so that the carry back can be
applied to subsidiary and/or investment and/or business incomes, respectively.

DATED: February 27, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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