Does reincorporating from Delaware to New York State (without formally electing federal F-reorganization treatment) terminate a company's existing New York S corporation election?

Plain-English summary

Spectrum Energy, Inc. was originally incorporated in Delaware and elected New York S corporation status for its 1982 taxable year. On January 13, 1984, it changed its state of incorporation from Delaware to New York -- keeping the same federal identification number, business activities, and place of business; only the state of incorporation changed. The company believed this transaction would have qualified as a tax-free federal "F-reorganization" under IRC § 368(a)(1)(F), but it never actually filed for that federal treatment. Believing its 1982 New York S election simply carried forward, the company didn't file a fresh New York S election for 1984 either, and asked the Department to confirm its S corporation status for 1984-1986.

The Department's analysis worked backward from the federal question, since New York's S election tracks federal S status closely. A 1964 IRS Revenue Ruling establishes that a company reincorporating in a different state via an F-reorganization does NOT lose its federal S election -- the reorganization is treated as a continuation of the same corporate entity for this purpose. Since New York statutes direct that undefined terms follow federal tax-law interpretations (including Revenue Rulings), the Department concluded that if Spectrum's reincorporation genuinely qualified as an F-reorganization, its federal (and therefore its New York) S election would have survived automatically, WITHOUT needing to actually file the F-reorganization paperwork -- the substance of the transaction, not the filing, is what matters for this specific continuity question. If nothing else terminated the New York election (a majority-shareholder revocation, a new nonconsenting shareholder, etc.), Spectrum would be a valid New York S corporation for all three years in question.

But the Department flagged an important filing wrinkle regardless of the S-status answer: changing the state of incorporation itself means the company surrendered its authority to do business in New York as a FOREIGN corporation and began exercising its NEW YORK franchise instead -- a change in corporate identity for New York filing purposes, distinct from the S-election question. That means TWO short-period returns are required for 1984 no matter how the S-election question comes out: if the S election survived, two short-period CT-3S returns (one for each half of the year, under the old and new corporate identity); if the S election was terminated by the reincorporation, one short-period CT-3S return (while the election was still in effect) and one short-period CT-3 return (after it ceased). Either way, a corporate maintenance fee applies for the period as a foreign corporation, and a one-time license fee report is required as well.

What this means for you

Companies reincorporating in a different state while holding an S election

Whether your state S election survives a reincorporation turns on whether your FEDERAL S election survives it -- which in turn depends on whether the transaction genuinely qualifies as a tax-free F-reorganization in substance, even if you never filed anything to claim that treatment. Don't assume a state S election carries over just because nothing seems to have "changed" about the business.

Companies changing their state of incorporation into New York

Regardless of how the S-election question resolves, changing your state of incorporation to New York requires filing two short-period New York franchise tax returns for that transition year -- one covering the period as a foreign corporation (with an accompanying maintenance fee), and one covering the period as the new New York corporation -- even though your federal return treats the whole year as one continuous period.

Common questions

Q: Does a company need to actually file for F-reorganization treatment to get this benefit?
A: No -- the Department's analysis turned on whether the transaction qualifies for F-reorganization treatment in substance, following Revenue Ruling 64-250, regardless of whether the company formally claimed that treatment on its federal return.

Q: What if the federal S election WAS terminated by the reincorporation?
A: Then the New York S election terminates too, under Tax Law § 660(c), and the company would need one short-period CT-3S return (pre-termination) and one short-period CT-3 return (post-termination) for that year.

Q: Can another company rely on this specific ruling?
A: No. It binds the Department only for this petitioner's specific facts and can't be relied upon by other taxpayers, even ones undergoing a similar reincorporation.

Citations and references

Statutes and regulations:

• Tax Law § 660(a), (b)(4), (c) (New York S election, duration, termination)
• Tax Law § 607(a) (federal-conformity interpretation rule); § 181.1, § 181.2 (license fee, maintenance fee)
• IRC § 368(a)(1)(F); § 1372, § 1371(a) (1954 Code S corporation provisions)
• Revenue Ruling 64-250

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a87_11c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87 (11) C
Corporation Tax
May 29, 1987

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C870218A

On February 18, 1987, a Petition for Advisory Opinion was received from Spectrum
Energy, Inc., 208 Huston Street, Scotia, New York 12302.
The issue raised is whether Petitioner is a New York S corporation for taxable years
1984, 1985 and 1986.
Prior to 1984, Petitioner has incorporated in Delaware. Petitioner elected New York S
corporation status for the taxable year ended December 31, 1982.
On January 13, 1984, Petitioner changed its state of incorporation to New York State.
For federal income tax purposes, Petitioner's federal identification number remained the same.
Also, Petitioner's business activities and place of business did not change. The new corporation is
the same as the old corporation. The only change is the state of incorporation. Petitioner states
that this transaction would qualify as an "F" reorganization pursuant to section 368(a)(1)(F) of
the Internal Revenue Code. However, for federal income tax purposes, Petitioner did not file for
the "F" reorganization.
Petitioner states that it did not request approval of an election to be treated as a New York
S corporation for taxable year 1984 because it believed it retained its New York S corporation
status elected for taxable year 1982.
Under section 660(a) of the Tax Law, shareholders of a federal S corporation are
permitted to make an election to treat the corporation as a New York S corporation whereby the
corporation would be exempt from the corporation franchise tax and the shareholders would be
taxed under the personal income tax law on their pro rata share of the S corporation's items of
income, loss, deduction and reduction for taxes described in section 1366(f)(2) and (3) of the
Internal Revenue Code which are taken into account for federal income tax purposes.
Section 660(b)(4) of the Tax Law provides that the election made under section 660(a) is
effective for the taxable year of the corporation for which it is made and for all succeeding
taxable years of the corporation until such election is terminated.
Pursuant to section 660(c) of the Tax Law, termination occurs when the election made
under section 660(a) ceases to be effective. The election will cease to be effective:
1.
2.
3.

on the day the election to be treated as an S corporation for federal income tax
purposes ceases;
if shareholders owning a majority of the shares revoke the election; or
on the day a person becomes a new shareholder if he affirmatively refuses to
consent to the S corporation treatment.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

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

-2­
TSB-A-87 (11) C
Corporation Tax
May 29, 1987

For federal income tax purposes, Revenue Ruling 64-250 holds that based on the facts
presented, a reorganization under section 368(a)(1)(F) of the Internal Revenue Code did not
cause a termination of the election to be treated as an S corporation under section 1372 of the
Internal Revenue Code. The shareholders of M (an electing S corporation) reincorporated in a
state other than that of original incorporation by organizing, a new corporation, N, in the other
state and merged M into N. The surviving corporation, N, also met the requirements for
qualifying as an S corporation under section 1371(a) of the Internal Revenue Code.
Based on federal Revenue Ruling 64-250, it is clear that if Petitioner filed for a section
368(a)(1)(F) reorganization for federal income tax purposes the Petitioner's reincorporation in
New York State from Delaware would not have changed its federal status and the transaction
would not have terminated the S corporation election for federal income tax purposes.
Section 607(a) of the Tax Law provides that "[a]ny term used in this article shall have the
same meaning as when used in a comparable context in the laws of the United States relating to
federal income taxes, unless a different meaning is clearly required." It is now beyond question
that when an interpretation of a law of the United States relating to federal income taxes is
established by the Internal Revenue Service through a Revenue Ruling or a Revenue Procedure,
such federal interpretation will be followed for New York State personal income tax purposes, as
well.
Therefore, for New York personal income tax purposes, Revenue Ruling 64-250 would
be followed and since the section 368(a)(1)(F) reorganization would not terminate the federal S
corporation election, such reorganization would not cause a termination of the New York S
corporation election.
In the instant case, Petitioner did not file for a section 368(a)(1)(F) reorganization for
federal income tax purposes. Therefore, if Petitioner's election to be treated as a S corporation for
federal income tax purposes has not been terminated because of the reincorporation in 1984,
Petitioner's New York S corporation status was not terminated pursuant to section 660(c) of the
Tax Law. Since none of the causes for termination of the New York S corporation election exist,
Petitioner would be a New York S corporation for taxable years 1984, 1985 and 1986.
However, when Petitioner changed the state of incorporation from Delaware to New
York, Petitioner surrendered its authority to do business in New York State as a foreign
corporation and began to exercise its New York State franchise. Therefore, assuming Petitioner's
S corporation election has not been terminated, for taxable year 1984, two short period CT-3S
returns are required for New York State franchise tax purposes, even though only one return is
required for federal income tax purposes. A short period return is required for the period from the
beginning of its federal taxable year up to and including the day Petitioner surrendered its
authority to do business in New York State. A maintenance fee is required to be paid for this
period. Also, a short period return is required for the period from the day Petitioner incorporated
in New York State to the end of its federal taxable year.

-3­
TSB-A-87 (11) C
Corporation Tax
May 29, 1987

If Petitioner's election to be treated as an S corporation for federal income tax purposes
was terminated when Petitioner reincorporated in New York State in 1984, Petitioner's election
to be a New York S corporation was also terminated. In such instance, for taxable year 1984, two
short period returns would be required for New York State franchise tax purposes. A CT-3S short
period return is required for the period Petitioner's election was in effect and a CT-3 short period
return is required for the period the election ceased to be in effect.
It should be noted, that section 181.2 of the Tax Law provides that every foreign
corporation that is authorized to do business in New York State pursuant to Article 13 or Article
15-a of the Business Corporation Law shall pay an annual maintenance fee of $200 for each year
or portion thereof for which it is so authorized, provided however such fee is reduced by 50
percent if the period for which the fee is imposed consists of no more than six months. Such fee
is to be paid annually until the corporation surrenders its authority to do business in New York
State.
Additionally, section 181.1 of the Tax Law provides that a foreign corporation, including
a New York S corporation, must pay a license fee for the privilege of exercising its corporate
franchise or carrying on its business in New York State. This fee is payable only once unless the
capital share structure changes or the amount of capital stock employed in New York State has
increased since the last license fee report, form CT-240, was filed.

DATED: May 29, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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