Tax Type
Individual Income Tax
Description
Bank merger; Taxability of exchange of common stock
Topic
Taxable Income
Date Issued
07-25-1986
July 25, 1986
Re: Ruling Request: Taxability of Merger
Dear*********************
This will reply to your letter of June 9, 1986 concerning the merger of *********** ("Merging Bank") into ("Surviving Bank").
Facts
Merging Bank and Surviving Bank are commercial banks operating within Virginia. ********* ("Holding Company") is a bank holding company registered with the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended.
Merging Bank will merge with and into and under the charter of Surviving Bank. Surviving Bank will receive all of the assets and assume all of the liabilities of Merging Bank. Each holder of outstanding shares of Merging Bank common stock will be entitled to receive in the merger transaction ********* shares of Holding Company common stock for each share of Merging Bank common stock.
You have requested that the Internal Revenue Service rule that this merger will meet the requirements of I.R.C. §368. Subject to a favorable ruling by the Internal Revenue Service, you request that the Virginia Department of Taxation rule that:
-
- No Virginia taxable income will arise to the shareholders of [Merging Bank] as a result of the exchange of [Merging Bank] common stock for [Holding Company] common stock, except to the extent that the exchange results in the recognition of taxable income for Federal income tax purposes.
If the Virginia tax basis of any common stock of [Merging Bank] is greater than the Federal tax basis of such stock, the difference will be allowed as a subtraction in arriving at Virginia taxable income. If the Virginia tax basis of such stock is less than the Federal tax basis of such stock, no adjustment is required.
- No Virginia taxable income will arise to the shareholders of [Merging Bank] as a result of the exchange of [Merging Bank] common stock for [Holding Company] common stock, except to the extent that the exchange results in the recognition of taxable income for Federal income tax purposes.
Determination
Section 58.1-322 of the Code of Virginia provides that the Virginia taxable income of an individual means federal adjusted gross income, with the modifications specified by the section. There are no modifications which apply to a statutory merger as described in your ruling request. Accordingly, the ruling from the Internal Revenue Service concerning whether taxable income will arise to Merging Bank shareholders as a result of their exchange of common stock will also determine Virginia income tax treatment.
Pursuant to the transitional modification of Va. Code §58.1-315.5 required by Va. Code §58.1-322 F, if the Virginia tax basis of any common stock of Merging Bank is greater than the Federal basis of such stock, the difference will be allowed as a subtraction in arriving at Virginia taxable income. If the Virginia tax basis of such stock is less than the Federal tax basis of such stock, no adjustment is required.
This ruling is limited to the specific transactions considered herein and to the facts as you have presented them to us. Absent changes in the facts and applicable Federal and Virginia laws, you may rely upon this ruling as representing the position of the Department of Taxation.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner