Tax Type
Bank Franchise Tax
Description
Taxability of merger
Topic
Taxpayers
Date Issued
11-14-1989
November 14, 1989
Re: Request for Ruling - Taxability of Merger
Dear***************
This will reply to your letter of August 11, 1989 in which you requested a ruling regarding the merger of ****************** (the "Target Corporation"3 and **************** (the "Acquiring Corporation").
FACTS
The Target Corporation and the Acquiring Corporation are bank holding companies, both operating within the geographic boundaries of Virginia. Both are registered with the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended.
The Target Corporation will merge with and into a shell subsidiary of the Acquiring Corporation and, under the same plan of merger, the shell subsidiary will merge upstream with and into the Acquiring Corporation (this two-step process is referred to as the "First Merger"). The Acquiring Corporation will receive all of the assets and assume all of the liabilities of the Target Corporation. After the First Merger, an existing subsidiary of the Target Corporation will be converted from a state chartered bank to a federally chartered bank (the "Conversion"). Finally, another wholly-owned subsidiary of the Target Corporation will be merged with and into the federally chartered bank resulting from the Conversion (the 'Second Merger"). The Internal Revenue Service has ruled that no gain or loss will be recognized by the parties to the proposed transactions except to the extent that cash is received.
Subject to favorable ruling by the Internal Revenue Service to your ruling request, you request the Virginia Department of Taxation rule on the Virginia income tax treatment for the Target Corporation and its shareholders.
RULING
Virginia Code §58.1-402 provides that the Virginia taxable income of a corporation for a taxable year means the federal taxable income, and any other income taxable to the corporation under federal law for such year, subject to specified adjustments. Virginia Code §58.1-322 defines Virginia taxable income of an individual as federal adjusted gross income for the taxable year, with specified modifications. There are no modifications specified in §§ 58.1-402 and 58.1-322 in respect to a statutory merger as described in your ruling request; therefore, the Internal Revenue Service ruling also determines the state income tax treatment for the Target Corporation and for the shareholders of the Target Corporation.
§58.1-402 D and §58.1-322 F do require a modification for an amount provided in Virginia Code §58.1-315 as a transitional modification. The transitional modification could possibly be available to those individuals who inherited their stock prior to 1972.
To the extent applicable, any amount of gain for federal income tax purposes that is the result of these mergers may be reduced by the amount specified in Virginia Code §58.1-315.5. This §provides that if the Virginia basis of any nondepreciable property is greater than the federal basis, the difference will be allowed as a subtraction in arriving at Virginia taxable income. If the Virginia basis is less than the federal basis, no adjustment is required.
This ruling is limited to the specific transactions herein considered and under the facts as you have presented them to us. If you have any questions regarding this matter, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner