Did Florida follow federal tax-free treatment for a savings association's reorganization into a stock association under a mutual holding company?

Plain-English summary

Florida answered all 16 requested corporate-income-tax rulings in the affirmative, assuming the transactions qualified for the stated federal tax-free treatment.

The savings association planned a multi-step charter exchange and reorganization that would leave a stock savings association under a mutual holding company, with up to 49.9% of the stock offered to minority shareholders.

Florida began with federal taxable income and used federal tax terms unless state law required otherwise. Because the transaction was assumed to qualify under Internal Revenue Code sections 368(a)(1)(F) and 351, and no Florida adjustment applied, the Department followed the federal no-gain/no-loss, transferred-basis, and tacked-holding-period treatment described in the request.

The separate intangible-tax result was not tax-free for every owner. Each Florida-resident stockholder remained liable for intangible tax on the stockholder's shares unless a specific exemption applied.

What this means for you

The ruling depended on a long set of factual representations and on successful federal qualification. Its Florida corporate-income result followed the federal computation; the stockholder intangible-tax obligation was analyzed separately.

Common questions

Q: Did Florida recognize gain on the association exchange?
A: No, assuming the federal F reorganization qualified and no Florida adjustment applied.

Q: Did Florida recognize gain on the section 351 exchange?
A: No, on the stated federal qualification and facts.

Q: Did bases and holding periods carry over?
A: Yes, as described in the 16 requested rulings.

Q: Were Florida-resident stockholders exempt from intangible tax?
A: No blanket exemption was granted. They remained liable on their shares unless specifically exempt by law.

Citations and references

• Fla. Stat. §§ 220.43(1) and 220.03(2)(c) — federal taxable income and federal definitions
• I.R.C. §§ 351 and 368(a)(1)(F) — exchange and reorganization provisions assumed in the ruling
• Fla. Stat. §§ 199.052 and 199.103 — intangible-tax reporting and stock valuation
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C1-005

Original ruling text

May 11, 1995

Re: Technical Assistance Advisement No. 95(C)1-005
Corporate Income Tax, Chapter 220, F.S., and Intangible
Tax, Chapter 199, F.S.
Reorganization from Mutual Holding Co. to Stock Holding Co.

Dear :

Your request for a technical assistance advisement on
behalf of XX (hereinafter the "Association"); XX (hereinafter
referred to as "XX"), a Federally-chartered mutual holding
company; and XX (the "Stock Association"), a Federally-chartered
stock savings association, has been referred to me for a
response. This response to your request constitutes a Technical
Assistance Advisement under Chapter 12-11, Florida
Administrative Code, and is issued to you under the authority of
s. 213.22, Florida Statutes.

Based on the facts and circumstances of your specific
situation presented, the Department answers all the requested
advisements in the affirmative. Furthermore, each stockholder
of XX (the "Stock Association") residing in Florida will be
liable for all intangible tax due on their shares of stock.

FACTS PRESENTED BY TAXPAYER'S REPRESENTATIVE

XX, (the "Association"), proposes an exchange of the
charter of the Association for a Federal stock savings
association charter to become the Stock Association in a
transaction (the "Association Exchange") followed by a merger of
an interim savings association second-tier subsidiary
("Interim") with and into Stock Association for the purpose of
establishing a mutual holding company of the Association (to be
known as "XX"). The stockholders of the Stock Association will
exchange their Stock Association common stock for membership
interests in XX. The proposed transactions are being
effectuated for the purpose of reorganizing the Association into
a mutual holding company. The proposed transactions

collectively are referred to herein as the "Reorganization".

On November 8, 1994, the Board of Directors of the
Association adopted the Plan of Reorganization from Mutual
Savings Association to XX and Stock Issuance Plan (the "Plan of
Reorganization" or "Plan"). Pursuant to the Plan, the
Association will be affected by the following steps, each of
which will be completed contemporaneously.

1. Association will organize a wholly owned subsidiary
   (Interim). Interim will be organized on an interim basis as
   a stock savings association.
2. Interim will organize a stock savings association
   (Transitory) as a wholly owned subsidiary.
3. The following events will occur simultaneously: Association
   will exchange its charter for that of a federally chartered
   stock savings association (becoming Stock Association).
   Transitory will merge with and into Stock Association with
   Stock Association surviving and Interim obtaining the stock
   of Stock Association. Interim will cancel its outstanding
   stock and exchange its charter for that of a federally
   chartered mutual holding company (becoming XX), the members
   of which will be the former members of Association
   immediately before this transaction. As a result, Stock
   Association, formerly Association, will be the wholly-owned
   subsidiary of XX, a mutual entity in which the former
   members of Association will hold ownership interests
   comparable to those they previously held in Association.
4. Stock Association will offer up to 49.9 percent of its
   stock for sale in a public offering. The stock will be
   offered in descending order of priority to account holders
   and other members, employee stock benefit plans, and
   certain members of the general public. XX will own a
   majority of the Stock Association stock as long as XX
   remains in existence.

It is the taxpayers' intent that the transactions,
described in step 3 above, be treated as, in substance, the
conversion of the Association to stock form followed by the
contribution of Association/then Stock Association by its owners
to XX in exchange for mutual ownership interests in XX.

Further, the taxpayer intends that the conversion of Association
to Stock form be treated as a reorganization described in
Section 368(a)(1)(F) of the Internal Revenue Code (also
sometimes referred to herein as the "Association Conversion"),
and that the contribution of Association/then Stock Association
by its owners to XX in exchange for mutual ownership interests
in XX be treated as a transfer of property solely in exchange
for stock described in Code Section 351 (also sometimes referred
to herein as the "351 Transaction").

At the conclusion of these steps the former members of the
Association will own all of the XX by virtue of their membership
interests in the XX, and XX will own all the outstanding stock
of Stock Association. These transactions are referred to herein
collectively as the "Reorganization." The Reorganization and
Plan are subject to Office of Thrift Supervision (OTS) approval.

Contemporaneously with the Reorganization, as set forth
above in step 4, the opportunity to purchase up to 49.9% of the
common stock of the Stock Association will be offered in a stock
offering (the "Offering") pursuant to regulations of the OTS, to
depositors and borrowers of the Association; the Association's
tax-qualified employee stock benefit plan(s); and members of the
community pursuant to priorities established by the board of
directors of the Association. Any remaining shares may be
offered to the public at the sole discretion of the board of
directors. These persons are collectively referred to herein as
the "Minority Shareholders." The common stock will be sold in
the Offering on a best efforts basis by a registered brokerdealer. The common stock issued in the Offering will be sold at
a total price equal to the estimated pro forma market value of
such common stock, based upon an independent valuation. The
aggregate amount of outstanding common stock owned or controlled
by persons other than the XX at the close of the proposed
Offering will be less than 50% of the Stock Association's total
outstanding common stock. As of the date of the Reorganization,
the common stock issued to the XX and minority shareholders by
the Stock Association will be the only issued and outstanding
shares of capital stock of the Stock Association. The Offering
will not be made if market conditions dictate against such
offering or regulatory approvals cannot be obtained.

Following the completion of the Reorganization, all
depositors who had membership or liquidation rights with respect
to the Association will continue to have such rights solely with
respect to the XX so long as they continue to hold deposit
accounts with the Stock Association. In addition, all persons
who become depositors of the Stock Association subsequent to the
Reorganization will have such membership and liquidation rights
with respect to the XX. Borrower members at the time of the
Reorganization will have the same membership rights in the XX
that they had in the Association, immediately prior to the
Reorganization, so long as their existing borrowings remain
outstanding. Borrowers will not receive membership rights in
connection with new borrowings made after the Reorganization.

Following the approval of the Plan of Reorganization by the
OTS, a special meeting of members of the Association to approve
the Plan of Reorganization will be scheduled in accordance with
the Association's Bylaws. An affirmative vote of not less than
a majority of the votes of members of the Association is
required for approval of the Plan of Reorganization.

Following the Reorganization, Stock Association will have
the power to issue shares of capital stock (including common and
preferred stock) to persons other than the XX. So long as the
XX is in existence, however, it must own a majority of the
voting stock of Stock Association. Stock Association may issue
any amount of non-voting stock to persons other than the XX. No
such non-voting stock will be issued as of the date of the
Reorganization. In the future the XX may elect to convert to
stock form, but it currently has no plan to do so.

In connection with the Reorganization, the following
representations have been made:

With respect to the exchange of the Association's charter
for a stock bank charter pursuant to the Association
Exchange:

a. To the best of the knowledge and belief of the taxpayer,
the exchange of the Association's charter for a Federal

stock savings association will qualify as a reorganization
under Section 368(a)(1)(F) of the Code.
b. The fair market value of the Stock Association stock
constructively received by the members of the Association
in exchange for their equity interest in the Association
will be approximately equal to the fair market value of the
equity interest in the Association constructively
surrendered in the exchange.
c. There is no plan or intention by the members of the
Association, to sell, exchange, or otherwise dispose of any
of the shares of Stock Association stock constructively
received in the Association Exchange, other than as
described herein. Following the transaction, the Stock
Association may sell up to 49.9% of its authorized but
unissued shares to depositors and borrowers of the Stock
Association, and to members of the general public.
d. Immediately following the consummation of the Association
Exchange, the members of the Association will own all of
the outstanding Stock Association stock and will own such
stock solely by reason of their ownership of all of the
equity interests in Association immediately prior to the
Association Exchange.
e. Stock Association has no plan or intention to issue
additional shares of its stock following the Association
Exchange, except as set forth in the Plan. Pursuant to the
Plan, Stock Association has applied for approval from the
Office of Thrift Supervision to issue additional shares of
common stock to depositors, borrowers, and members of the
general public in a public offering. At any time, the
Stock Association's Board of Directors may elect not to
consummate the Offering if it determines conditions are not
favorable. If the Stock Association issues additional
shares to Minority Shareholders, the additional shares
issued will not exceed 49.9% of the total number of shares
authorized and outstanding.
f. Immediately following consummation of the Association
Exchange, Stock Association will possess the same assets
and liabilities, except for assets used to pay expenses
incurred in connection with the Association Exchange, as
those possessed by Association immediately prior to the
Association Exchange. Assets used to pay expenses, will,

in the aggregate, constitute less than one percent of the
net assets of Association. Members of the Association will
not have dissenters rights in connection with the
Reorganization. Also there will be no property distributed
to any shareholder in connection with this Association
Exchange and no distributions other than the regular
distributions (i.e., interest credited to accounts).
Additionally cash, as raised in the Offering, may be held
by the Stock Association immediately following consummation
of this transaction.
g. At the time of the Association Exchange, Association will
not have outstanding any warrants, options, convertible
securities, or any other type of right pursuant to which
any person could acquire stock of Association.
h. Stock Association has no plan or intention to reacquire any
of its stock issued in the Association Exchange.
i. Stock Association has no plan or intention to sell or
otherwise dispose of any of the assets of Association
acquired in the Association Exchange, except for
dispositions made in the ordinary course of business.
j. The liabilities of Association assumed by Stock Association
plus the liabilities, if any, to which the transferred
assets are subject were incurred by Association in the
ordinary course of its business and are associated with the
assets transferred.
k. Following the Association Exchange, Stock Association will
continue the historic business of Association or use a
significant portion of Association's historic business
assets in a business.
l. The shareholders will pay their respective expenses, if
any, incurred in connection with the Association Exchange.
m. Association is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Internal Revenue Code.

With respect to transfer of Stock Association stock to XX
for membership interests (the "351 Transaction"):

n. No stock or securities will be issued for services rendered
to or for the benefit of the XX in connection with the 351
Transaction, and no stock or securities will be issued for

indebtedness of the XX that is not evidenced by a security,
or for interest on indebtedness of the XX which accrued on
or after the beginning of the holding period for the debt.
o. None of the assets to be transferred were received by the
Stock Association shareholders as part of a plan of
liquidation of another corporation.
p. The property to be transferred to the XX will not include
accounts receivable, loans receivable, or commissions.
Solely stock of Stock Association will be transferred.
q. None of the stock to be transferred is "Section 306 stock"
within the meaning of Section 306(c) of the Code.
r. The Stock Association shareholders did not incur any
acquisition indebtedness with respect to stock of Stock
Association that is part of the property being transferred
to the XX.
s. The transfer is not the result of the solicitation by a
promoter, broker, or investment firm.
t. The Stock Association shareholders will not retain any
right or continuing interest in the property being
transferred to the XX.
u. The adjusted basis and the fair market value of the assets
to be transferred to XX by Stock Association shareholders
will, in each instance, equal or exceed the sum of the
liabilities to be assumed by XX plus the liabilities to
which the transferred assets are subject.
v. The XX will assume no liabilities of the Stock Association
shareholders in connection with the 351 Transaction.
w. There is no indebtedness between the XX and Stock
Association shareholders, and there will be no indebtedness
created as a result of the 351 Transaction.
x. The transfers and exchanges will occur pursuant to the Plan
which was agreed upon before the 351 Transaction and under
which the rights of the parties are defined.
y. All exchanges will occur on approximately the same date.
z. There is no plan or intention on the part of the XX to
redeem or otherwise reacquire any stock or securities to be
issued in the 351 Transaction.
aa. Taking into account any issuance of additional shares of
XX's equity, any issuance of stock for services, the
exercise of any stock rights, warrants or subscriptions; a
public offering of stock; and the sale, exchange, transfer

by gift, or other disposition of any equity of the XX to be
received in the 351 Transaction, the Stock Association
shareholders will be in "control" of XX within the meaning
of Section 368(c) of the Code.
bb. The Stock Association shareholders will receive only
membership interests of XX approximately equal to the fair
market value of the property transferred to XX.
cc. XX will remain in existence and retain and use the property
transferred to it in a trade or business.
dd. There is no plan or intention by XX to dispose of the
transferred property other than in the normal course of
business operations.
ee. Each of the parties to the 351 Transaction will pay its own
expenses, if any, incurred in connection with the proposed
transaction.
ff. XX will not be an investment company within the meaning of
Section 351(e)(1), I.R.C., and Section 1.351-1(c)(1)(ii) of
the Income Tax Regulations.
gg. The Stock Association shareholders are not under the
jurisdiction of a court in a Title 11 or similar case
(within the meaning of Section 368(a)(3)(A) of the Code)
and the equity interests in XX received in the Exchange
will not be used to satisfy any indebtedness.
hh. XX will not be a "personal service corporation" within the
meaning of Section 269A of the Code.
ii. The Association is not a "loss corporation" within the
meaning of Section 382(k) of the Code.
jj. To the best of the knowledge and belief of the taxpayer,
the Stock Association Stockholders' exchange of their stock
in the Stock Association for membership interests in XX
qualifies as an exchange of property for Stock within the
meaning of Section 351 of the Code.

SUMMARY OF REQUESTED ADVISEMENTS

With respect to the Association Exchange

1. Assuming that the transaction qualifies as a tax-free
   reorganization for purposes of Section 368(a)(1)(F) of the
   Internal Revenue Code, the transaction will constitute a
   tax-free reorganization for purposes of Florida law.

2. No gain or loss will be recognized by Association under
Florida law upon the transfer of its assets to Stock
Association solely in exchange for shares of Stock
Association stock and the assumption by Stock Association
of the liabilities of Association.

3. Under Florida law, no gain or loss will be recognized by
   Stock Association upon the receipt of the assets of
   Association in exchange for shares of Association common
   stock.
4. Under Florida law, Stock Association's holding period in
   the assets received from Association will include the
   period during which such assets were held by the
   Association.
5. Under Florida law, Stock Association's basis in the assets
   of Association will be the same as the basis of such assets
   in the hands of Association immediately prior to the
   proposed transaction.
6. Under Florida law, Association members will recognize no
   gain or loss upon the constructive receipt of Stock
   Association common stock solely in exchange for their
   membership interests in Association.
7. Under Florida law, the basis of the Stock Association
   common stock to be constructively received by the
   Association's members will be the same as their basis in
   their membership interests in the Association surrendered
   in exchange therefore.
8. The holding period of the Stock Association common stock
   constructively received by the members of the Association
   will include the period during which the Association held
   their membership interests, provided that the membership
   interests were held as capital assets on the date of the
   exchange.

With respect to the 351 Transaction:

9. Assuming that the transaction qualifies as a tax-free
   exchange of property by the Stock Association stockholders
   "stock" (i.e., the membership interests) in the XX pursuant
   to Section 351 of the Internal Revenue Code, the
   transaction will constitute a tax-free exchange of property
   for stock under Florida law.

10. Stock Association's stockholders will recognize no gain or
loss upon the transfer of the Stock Association stock they
constructively received in the Association Exchange solely
in exchange for membership interests in the XX.

11. Stock Association stockholder's basis in the membership
    interests in XX received in the transaction will be the
    same as the basis of the property transferred in exchange
    therefore, reduced by the sum of the liabilities assumed
    by, or to which assets transferred are taken subject.
12. Stock Association stockholder's holding period for the
    membership interests in XX received in the transaction will
    include the period during which the property exchanged was
    held by Stock Association stockholders, provided that such
    property was a capital asset on the date of the exchange.
13. XX will recognize no gain or loss upon the receipt of
    property from Stock Association Stockholders in exchange
    for membership interests in the XX.
14. XX's basis in the property received from Stock Association
    Stockholders will be the same as the basis of such property
    in the hands of Stock Association Stockholders immediately
    prior to the transaction.
15. XX's holding period for the property received from Stock
    Association's stockholders will include the period during
    which such property was held by Stock Association
    stockholders.
16. Stock Association stockholders will recognize no gain or
    loss solely by reason of the transaction.

DEPARTMENTAL RESPONSE

Corporate Income Tax

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, 1994.

Florida has not specifically adopted provisions similar to those
of Code Section 368 dealing with tax-free reorganizations or
Section 351 dealing with the tax-free exchange of assets and
liabilities for stock and 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 Sections 368 and 351
and the corresponding affected Code sections. The starting
point for Florida taxable income is Federal taxable income.

Therefore, 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 Association's franchise tax base
attributable to the Reorganization will be $0 so long as the
Association's Federal taxable income attributable to the
Reorganization is $0.

Accordingly, the responses outlined in the Summary of
Requested Advisements are all answered in the affirmative.

Intangible Tax

Section 199.052, F.S., requires every person who owns taxable
intangible property to report and pay the tax on all intangible
property having a taxable situs in this state. Under s.
199.103, F.S., stock of a corporation is valued at fair market
value at the close of business on the last business day of the
previous calendar year. Applying these statutes to the
situation described above, each stockholder residing in Florida

will be liable for all intangible tax due on their shares of
stock, including those shares held by the XX, unless
specifically exempted by law.

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
based 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 the confidentiality
of such information, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

Bruce H. Williams
Technical Assistant
Statutory Compliance Section

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