NY TSB-A-94(8)C Corporation Tax 1994-05-26

Does a bank subsidiary that elected to keep Article 9-A treatment lose that election when the FDIC sells the parent bank's stock in a transaction treated as a deemed asset sale?

Short answer: No -- the election survives. Corporation X is a subsidiary of an Article 32 bank that made a proper one-time election under 20 NYCRR 16-2.5(j)(3) to continue being taxed under Article 9-A. When the FDIC took over the parent bank and sold its stock to investors in a transaction treated as a deemed asset acquisition under Treasury Reg. 1.597-5, the subsidiary's business was neither interrupted nor changed and it took no action to revoke its election. The regulation says the election stays in effect until the taxpayer revokes it (by filing an Article 32 return). So the FDIC takeover and stock sale do not affect the election, and Corporation X continues to be subject to Article 9-A until it affirmatively revokes.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Corporation X is a wholly owned subsidiary of a bank (the Bank Parent) that is taxed under Article 32 (the bank franchise tax). Corporation X itself made a proper one-time election under 20 NYCRR 16-2.5(j)(3) to continue being taxed under Article 9-A (the general business franchise tax). In 1992 the FDIC took over the Bank Parent because of financial trouble, and in 1993 sold the Bank Parent's stock to a group of investors -- a transaction treated for federal purposes as a deemed asset acquisition under proposed Treasury Reg. 1.597-5. The subsidiary's operations, EIN, contracts, and immediate ownership were unchanged, and it took no action to revoke its election.

The question (raised by Robert J. Buckley of Arthur Andersen): did the FDIC stock sale revoke the subsidiary's Article 9-A election?

No. Section 16-2.5(j)(3) lets a qualifying bank-related corporation make a one-time election to continue to be taxable under Article 9-A, and that election "shall continue to be in effect until revoked by the taxpayer" -- with revocation made only by filing an Article 32 return. Because Corporation X made the election and took no step to revoke it, the FDIC takeover and stock sale do not affect it. So Corporation X continues to be subject to Article 9-A until it affirmatively revokes by filing under Article 32. (This is the rule later opinions like Apple Bank, TSB-A-96(7)C, build on for whether the election survives acquisitions and business changes.)

What this means for you

The Article 9-A election runs until the taxpayer revokes it

A bank-related corporation's one-time section 16-2.5(j)(3) election is open-ended: it stays in force until the taxpayer itself revokes, by filing an Article 32 return.

A change in the parent's ownership does not revoke it

The FDIC's takeover and sale of the parent bank -- even treated as a deemed asset sale federally -- did not revoke the subsidiary's election, because the subsidiary remained the same entity and did nothing to revoke.

Revocation is an affirmative act

You do not lose the election by inaction or by external events; you change it only by deliberately filing under Article 32.

Common questions

Q: Our parent bank was sold. Did our Article 9-A election automatically end?
A: No. The election continues until you revoke it by filing an Article 32 return; a sale of the parent does not revoke it.

Q: The stock sale was treated as a deemed asset sale federally -- does that matter?
A: No. The federal deemed-asset-sale fiction did not change the subsidiary's identity or its standing election.

Q: How would we end the election if we wanted to?
A: By affirmatively filing a return under Article 32, which is how the regulation says revocation is made.

Citations and references

Statutes, regulations, and authorities:
- 20 NYCRR 16-2.5(j)(3) (one-time election by a bank-related corporation to continue to be taxed under Article 9-A, in effect until revoked)
- Tax Law section 209.4 (corporations taxable under Article 32 are not subject to Article 9-A)
- Treasury Regulation section 1.597-5 (FDIC stock sale treated as a deemed asset acquisition)

Source

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (8) C
Corporation Tax
May 26, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C940225A

On February 25, 1994, a Petition for Advisory Opinion was received from Robert J. Buckley,
Arthur Andersen & Co., 1345 Avenue of the Americas, New York, New York 10105.
The issue raised by Petitioner, Robert J. Buckley, is whether a subsidiary of a bank which is
taxed under Article 9-A of the Tax Law, pursuant to the grandfather provision in section 16-2.5(j)(3)
of the Franchise Tax on Banking Corporations Regulations (hereinafter "Article 32 Regulations"),
revokes its Article 9-A status when the bank is sold by the FDIC (Federal Deposit Insurance
Corporation) to investors through a stock sale, which is deemed an asset sale for Internal Revenue
Code purposes.
Corporation X (hereinafter "Taxpayer") is the wholly-owned subsidiary of a banking
corporation (hereinafter "Bank Parent"). The Bank Parent operates as a bank, and is taxed under
Article 32 of the Tax Law. Taxpayer is taxed under Article 9-A of the Tax Law pursuant to a
properly made election under section 16-2.5(j)(3) of the Article 32 Regulations. The Bank Parent
was taken over by the FDIC in 1992 and its stock was sold in 1993 to a group of investors. The
FDIC had taken control of the Bank Parent because the bank experienced financial difficulties. The
1993 stock sale of the Bank Parent was treated as a deemed asset acquisition under proposed section
1.597-5 of the Treasury Regulations.
The business operations of the Bank Parent and the Taxpayer were neither interrupted nor
changed by the stock sale. The Employer Identification Numbers for the two companies remain the
same; and the immediate ownership structure of the Taxpayer has not been altered. Petitioner states
that the deemed asset sale per proposed section 1.597-5 of the Treasury Regulations, applicable to
FDIC transfers, is a tax fiction without substance or economic effect.
Taxpayer continues to be obligated under contracts entered into before the stock sale.
Taxpayer had no right to repudiate any of the previously entered contracts and Taxpayer remains
liable for all supply contracts, obligations to debtors, lease agreements for branch properties, etc.
Petitioner states that because no meaningful change took place after the stock sale, Taxpayer is the
same entity which elected to remain taxable under Article 9-A of the Tax Law.
Taxpayer did not take any action to revoke the election to be taxed under Article 9-A of the
Tax Law.
Section 16-2.5(j)(3) of the Article 32 Regulations provides:
Any corporation described in paragraph (1) of this subdivision which was subject to
the tax imposed by article 9-A of the Tax Law for its taxable year ending during 1984
may, on or before the due date for filing its return (determined with regard to
extensions of time for filing) for its taxable year ending during 1985,
TP-9 (9/88)

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TSB-A-94 (8) C
Corporation Tax
May 26, 1994

make a one-time election to continue to be taxable under article 9-A. Such election
shall continue to be in effect until revoked by the taxpayer. In no event shall such
election or revocation be for a part of a taxable year. The election is made by the
filing of a tax return pursuant to article 9-A of the Tax Law and the revocation is
made by the filing of a tax return pursuant to article 32 of the Tax Law.
Herein, the Taxpayer made the election to be taxed under Article 9-A of the Tax Law. The
subsequent takeover of the Bank Parent by the FDIC in 1992 and the sale of the Bank Parent's stock
in 1993 does not affect the Taxpayer's election to be taxable under Article 9-A of the Tax Law.
Accordingly, Taxpayer will continue to be subject to franchise tax under Article 9-A of the Tax Law
until the election is revoked by the Taxpayer by the filing of a tax return pursuant to Article 32 of
the Tax Law.

DATED: May 26, 1994

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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