Did a federally tax-free savings-bank reorganization create Florida corporate income tax?

Subject

Tax Free Reorganization

Plain-English summary

The proposed savings-bank reorganization produced no Florida corporate income-tax base attributable to the transaction so long as it produced zero federal taxable income and no Florida adjustment applied. The same conditional result applied to the intended Internal Revenue Code section 351 stock exchange.

The plan used interim entities to convert a mutual savings bank into a stock savings bank owned by a federal mutual holding company. Florida had not separately enacted the federal section 351 provisions described in the ruling, but the Department relied on Florida's use of federal taxable income as the starting point and its adoption of comparable federal tax meanings.

What this means for you

The Florida result followed the federal result; it was not an independent state-law approval of tax-free treatment. If the federal transaction produced taxable income or a Florida-specific adjustment applied, the state result could differ.

Common questions

Was the reorganization automatically tax-free in Florida? Only conditionally. The ruling required zero federal taxable income and no Florida adjustment.

Did the section 351 exchange create a Florida tax base? Not on those same conditions.

Did the ruling approve the transaction for federal tax purposes? No. It assumed the stated federal result and explained the Florida consequence.

Citations and references

• Fla. Stat. §§ 220.43(1), 220.03(2)(c), and 213.22
• I.R.C. § 351

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94C1-006

Original ruling text

Oct 04, 1994

Re: Technical Assistance Advisement No. 94(C)1-006
Corporate Income Tax; Tax Free Reorganization
XXX a federally-chartered mutual savings association (EIN:
XX), XXX a federal-chartered mutual holding company, (EIN:
XX) and XXX, a federally-chartered stock savings
association (EIN: XX)

Dear :

Your request for a technical assistance advisement on
behalf of XXX (the "Bank"), XXX ("MHC") and XXX (the "Stock
Bank") has been referred to this office for a response.

ISSUE

With respect to both the Bank Exchange and the s. 351,
I.R.C. transaction you requested a ruling as to the income tax
consequences under the Florida Income Tax Code ("Florida Tax
Code").

STATEMENT OF FACTS

The facts that you have provided are as follows:

1) On March 31, 1994, the board of directors of the Bank
adopted a Plan of Reorganization from Savings Bank to
Holding Company and Stock Issuance Plan. Pursuant to the
Plan, the Bank will effect the "Reorganization" as follows:

(a) The bank will organize an interim stock holding company
("Interim One");

(b) Interim One organizes an interim stock savings bank
("Interim Two") as a wholly-owned subsidiary;

(c) The Bank exchanges its charter for a stock savings bank
charter to become the Bank (the "Bank Exchange") and, at

the same time, Interim One cancels its outstanding shares
of stock and exchanges its charter for a federal mutual
holding company charter to become the Holding Company (the
"MHC Exchange"). Simultaneously with the charter exchanges,
Interim Two merges with and into Bank. As part of the Plan
of Reorganization, all of the initially issued stock of
Bank is transferred to the Company in exchange for
membership interest in the Company in a transaction
intending to qualify under Section 351 of the Code (the
"351 Transaction").

At the conclusion of these steps the former members of the
Bank will own all of the Company by virtue of their
membership interest in the Company and Company will own all
the outstanding stock of Bank. These transactions are
referred to herein collectively as the "Reorganization."
The Reorganization and Plan are subject to Office of Thrift
Supervision approval.

DISCUSSION OF LAW

Section 220.43(1), F.S., states:

"To the extent not inconsistent with the provisions of this
code or forms or regulations prescribed by the department,
each taxpayer making a return under this code shall take
into account the items of income, deduction, and exclusion
on such return in the same manner and amounts as reflected
in such taxpayer's federal income tax return for the same
taxable year."

Section 220.03(2)(c), F.S., provides that any term used in the
Florida Tax Code has the same meaning as when used in a
comparable context in the Internal Revenue Code and other
statutes of the United States relating to federal income taxes,
as such code and statutes are in effect on January 1, 1993.

Florida has not specifically adopted provisions similar to those
of Internal Revenue Code section 351 dealing with the tax-free
exchange of assets and liabilities for stock and the
corresponding tax treatment of the parties to the exchange.

However, since the terms used in the Florida Income Tax Code
generally have the same meaning as when used in the Internal
Revenue Code, the result to the parties to the exchange should
be the same for Florida state tax purposes as if Florida had
specifically adopted Code section 351 and the corresponding
affected Code sections. The starting point for Florida taxable
income is Federal taxable income.

CONCLUSION

Therefore, based on the reasons outlined above, if a
particular transaction would lead to $0 federal taxable income
that same transaction would lead to $0 Florida taxable income
assuming no Florida adjustments apply. Since under these
provisions of the Florida Income Tax Code no adjustments to
federal taxable income are required by reason of the
Reorganization, the Bank's Florida corporate income tax base
attributable to the Reorganization will be $0 so long as the
Bank's federal taxable income attributable to the Reorganization
is $0. Likewise, since no adjustments to federal taxable income
are required by reason of the 351 Transaction, the Bank's
Florida corporate income tax base attributable to the 351
Transaction will be $0 so long as the MHC's federal taxable
income attributable to the 351 Transaction is $0.

This response constitutes a technical assistance advisement
under s. 213.22, F.S., which is binding on the department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response and your request
are public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the department

before disclosure. In an effort to protect confidential
information, we request you notify the undersigned in writing
within 15 days of any deletions you wish made to the request or
this response.

Sincerely,

Paul J. Munyon
Taxpayer Assistant
Statutory Compliance Section

PJM/kk
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