East River Savings Bank's mutual-to-stock conversion was already ruled tax-free for New York franchise tax purposes -- does it also matter, for New York purposes, whether IRC section 382(b) limits the converted bank's federal net operating loss carryovers as a result of the reorganization?

Plain-English summary

This is a MODIFIED Advisory Opinion: on June 11, 1985, the Department issued an original Advisory Opinion to East River Savings Bank, TSB-A-85(9)C, on the New York Article 32 franchise tax treatment of its proposed mutual-to-stock conversion (the same general pattern of ruling seen in this Department's many other mid-1980s savings bank conversion opinions). That original opinion is modified here by appending a discussion of one additional issue it hadn't addressed: whether it matters, for New York purposes, that the conversion might trigger IRC section 382(b) -- a federal rule that can limit a corporation's net operating loss carryovers following certain ownership changes.

Petitioner stated that, for federal purposes, its conversion wouldn't cause section 382(b) to reduce the converted bank's federal NOL carryovers. The Department didn't need to resolve that federal question either way, because it doesn't matter for New York: Tax Law Section 1453(b)(3) already disallows any net operating loss deduction when computing entire net income for Article 32 purposes -- any NOL deduction allowable federally must be ADDED BACK to federal taxable income, not deducted. Since New York doesn't allow the NOL deduction at all, whether section 382(b) operates to limit or preserve the bank's FEDERAL NOL carryovers as a result of the reorganization is simply irrelevant to the New York computation. This is the same "immaterial" conclusion the Department reached in its other conversion rulings addressing IRC section 382(a) and (b) issues, such as TSB-A-85(22)C, (7)I (Apple Bank for Savings) and TSB-A-86(8)C, (5)I (Rochester Community Savings Bank).

What this means for you

Mutual savings institutions converting to stock form

Whether your federal NOL carryovers survive a mutual-to-stock conversion intact under IRC section 382(a) or (b) is a question worth resolving for federal purposes, but it has no bearing on your New York Article 32 franchise tax -- New York's permanent NOL disallowance under section 1453(b)(3) means the state-level computation doesn't care either way.

Accountants who received an earlier Advisory Opinion missing an NOL discussion

If your client's original Advisory Opinion on a bank reorganization didn't address net operating loss carryovers, a modified opinion appending that analysis (like this one) may be requested and issued separately, as happened here about a month after East River's original opinion.

Common questions

Q: Does it matter for New York franchise tax whether IRC section 382(b) limits a converted bank's federal NOL carryovers?
A: No -- New York disallows the net operating loss deduction entirely under Tax Law § 1453(b)(3), so the federal section 382(b) question doesn't affect the New York computation either way.

Q: What is a "Modified Advisory Opinion"?
A: It's an amendment appending additional discussion to an Advisory Opinion the Department already issued to the same petitioner, addressing an issue the original opinion didn't cover -- here, the NOL-carryover question wasn't part of East River's original June 11, 1985 opinion.

Q: Can another bank rely on this Opinion?
A: No. It binds the Department only as to East River Savings Bank's own facts and cannot be relied upon by another institution, even in an identical conversion.

Citations and references

Statutes:

• Tax Law § 1453(a), § 1453(b)(3), § 1455(a)
• Internal Revenue Code § 368(a)(1)(F), § 382(b)

Related rulings:

• TSB-A-85(9)C -- the original East River Savings Bank Advisory Opinion this ruling modifies
• TSB-A-85(22)C, (7)I -- Apple Bank for Savings, same "immaterial under § 1453(b)(3)" holding on IRC § 382(a) and (b)
• TSB-A-86(8)C, (5)I -- Rochester Community Savings Bank, same holding

Date note: The document header reads "July 12, 1985," while the sign-off line reads "DATED: July 10, 1985" -- a two-day gap consistent with internal signing before the header/publication date; issued_date uses the header date without correction.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1985.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a85_9_1c.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-85 (9.1) C
Corporation Tax
July 12, 1985

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
MODIFIED ADVISORY OPINION

PETITION NO. C840604A

On June 11, 1985 an Advisory Opinion was issued to East River Savings Bank, 26 Cortlandt
Street, New York, New York 10007. Such Advisory Opinion is modified by appending thereto the
following discussion of an issue not treated therein.
At issue is the tax treatment under Article 32 of the Tax Law regarding net operating loss
carryovers when converting from a New York State mutual savings bank to a New York State stock
savings bank in a tax-free reorganization under section 368(a)(1)(F) of the Internal Revenue Code.
Petitioner states that for federal income tax purposes such conversion of Petitioner to the converted
bank will not cause section 382(b) of the Internal Revenue Code to apply to reduce the net operating
loss carryovers available to the converted bank.
Under Article 32 of the Tax Law, the basic tax is computed pursuant to section 1455(a) of
the Tax Law which states that the basic tax is 12 percent of the taxpayer's entire net income, or
portion thereof allocated to New York State, for the taxable year, of part thereof.
Section 1453(a) of the Tax Law defines entire net income as total net income from all sources
which shall be the same as the entire taxable income which the taxpayer is required to report to the
United States Treasury Department except as modified by section 1453 of the Tax Law. The
modification provided in section 1453(b)(3) of the Tax Law states that any net operating loss
deduction for the taxable year allowable for federal income tax purposes is not allowable when
computing entire net income pursuant to section 1453 of the Tax Law. Thus, when computing entire
net income, a taxpayer must add to the entire taxable income required to be reported for federal
income tax purposes (federal taxable income) the amount of any net operating loss deduction that
is allowable for federal income tax purposes.
Accordingly, since a net operating loss deduction is not allowable for New York State
franchise tax purposes under Article 32 of the Tax Law pursuant to section 1453(b)(3) thereof, entire
net income of Petitioner is not affected when a net operating loss deduction is allowable for federal
income tax purposes. It is immaterial whether section 382(b) of the Internal Revenue Code regarding
the net operating loss carryovers available to the converted bank for federal income tax purposes
becomes operative as a result of the reorganization under section 368(a)(1)(F) of the Internal
Revenue Code.

DATED: July 10, 1985

s/ANDREW F. MARCHESE
Chief of Advisory Opinions

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth herein.
RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR