Would R Bank recognize New Hampshire business profits when it converted from a mutual savings bank to a stock savings bank?

Plain-English summary

R Bank proposed converting from a New Hampshire mutual savings bank to a stock savings bank to raise capital. Its petition reported an IRS letter ruling treating the conversion as an IRC § 368(a)(1)(F) reorganization, with no gain or loss to the old or new bank.

The Department followed that treatment for New Hampshire business profits tax (BPT). It ruled that the conversion produced no gross business profits and thus no taxable business profits on which BPT could be assessed under RSA 77-A:2. The decision addressed the conversion itself, not the converted bank's future earnings or other taxes.

What this means for you

For this bank, a qualifying federal reorganization did not create New Hampshire BPT income merely from changing to stock form. The source describes an IRS letter dated May 18, 1982, but does not reproduce the letter in the extracted ruling text.

Common questions

Q: Did the conversion create gross business profits?
A: No. The Department ruled that the conversion was not recognized in gross business profits.

Q: Why did the federal ruling matter?
A: The Department applied the reported IRC § 368(a)(1)(F) nonrecognition treatment when determining New Hampshire BPT profits.

Q: Did the ruling decide future BPT on the stock bank's operations? A: No. It addressed only profits arising from the described conversion.

Q: May another bank rely on this ruling?
A: No. The official archive limits declaratory rulings to the petitioner and represented facts.

Citations and source limits

The ruling applies RSA 77-A:1, III(a) and IV and RSA 77-A:2, with apportionment and deduction definitions in RSA 77-A:3 and :4. It relies on the petition's account of an IRS nonrecognition ruling under IRC § 368(a)(1)(F). The PDF labels “DOC #2078, Effective June 15, 1982” but gives no separate issue date; the May 18 date belongs to the IRS letter.

Source

• Official archive: New Hampshire declaratory rulings
• Official PDF: DOC #2078

Original ruling text

In The Matter of the Petition of the "R" Bank,

A Mutual Savings Bank
for a Declaratory Ruling

DOC #2078, Effective June 15, 1982

Pursuant to RSA 541-A:1, I-b and Rev 104.04, New Hampshire Code of Administrative Rules, The "R" Bank, a state-chartered mutual savings bank (hereinafter referred to as "bank") having its principal place of business in ............, New Hampshire has petitioned the New Hampshire Department of Revenue Administration for a declaratory ruling with respect to the New Hampshire Business Profit Tax consequences of a proposed conversion of the "Bank" from a state-chartered mutual savings bank into a state-chartered stock savings bank, (hereinafter referred to as "Stock Bank"). Through its attorneys- in-fact and counsel, the Petitioners represent the following:

1. The purpose of the Plan of Conversion, submitted with the petition for declaratory ruling, is to
   facilitate the raising of capital for growth and expansion and in that regard it is proposed that the "Bank" be converted into a state-chartered stock savings bank, "Stock Bank".

2. The Internal Revenue Service has indicated by ruling letter dates May 18, 1982, a copy of which is
   submitted with the petition for declaratory ruling, that this conversion of "Bank" from a mutual savings bank to a stock savings bank will constitute a reorganization within the meaning of section 368 (a) (1) (F) of the Internal Revenue Code, and no gain or loss will be recognized to "Bank" or "Stock Bank" as a result of the conversion. "Bank" and "Stock Bank" will each be a "party to a reorganization" within the meaning of section 368 (b).

In connection with the transaction described in the Petition, and related documents appended thereto, the Petitioner requests a declaratory ruling be issued as to the following matter:

1. Inasmuch as the conversion of Bank into Stock Bank will constitute a reorganization within the
   meaning of section 368 (a) (1) (F) of the Internal Revenue Code of 1954, as amended, such conversion will not be reflected in "gross business profits" as defined in N.H. RSA 77-A:1 (III), and therefore, will not be subject in any respect to the tax imposed under RSA 77-A:2 and related provisions.

In view of the foregoing representation and specifically based thereon, the Department of Revenue Administration states the following:

1. N.H. RSA 77-A:1 (III) (a) defines "gross business profits", in the case of a corporation (as is
   applicable in this matter) as the amount shown or which would be shown on a separate federal corporation income tax return as taxable income before net operating loss and special deductions.

2. N.H. RSA 77-A:1 (IV) defines "taxable business profits" as "gross business profits" reduced by the
   method of apportionment provided in RSA 77-A:3 and deductions allowable under RSA 77-A:4.

3. N.H. RSA 77-A:2 provides for the imposition of a tax on the "taxable business profits" of every
   business organization.

Wherefore, under the specific circumstances represented and in conformity with the statutes, rules and regulations cited herein, the Department of Revenue Administration hereby rules that:

(a) The conversion of The "R" Bank from a state-chartered mutual savings bank to a state-chartered stock savings bank qualified, by reason of a letter ruling from the Internal Revenue Service as a reorganization eligible for non-recognition treatment under section 368 (a) (1) (F) of the Internal Revenue Code of 1954, as amended will be recognized in the same manner for purposes of taxation under Chapter 77-A, the Business Profits Tax Law.

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(b) The conversion will not result in the recognition of any "gross business profits" as defined under N.H. RSA 77-A:1 (III)(a) and any resultant taxable business profits" as defined under N.H. RSA 77- A:1 (IV) on which a tax imposed under RSA 77-A:2 can be assessed.

Lloyd M. Price, Commissioner