Exhibit 8.2
(Arthur Andersen LLP Letterhead)
Form of State Income Tax Opinion
1/18/00
[DATE], 2000
Boards of Trustees
Board of Directors
Cambridgeport Mutual Holding Company
Cambridgeport Bank
Port Financial Corp.
689 Massachusetts Avenue
Cambridge, MA 02139
Dear Board Members:
You have requested from Arthur Andersen LLP an opinion regarding the
Massachusetts Financial Institutions Excise Tax consequences to Cambridgeport
Mutual Holding Company ("MHC")/1/, Cambridgeport Bank ("Bank"), Port Financial
Corp., ("SHC"); and the Massachusetts Personal Income Tax Consequences which
apply to the "Eligible Account Holders" and "Supplemental Eligible Account
Holders" of Bank resulting from the proposed conversion and reorganization of
the existing mutual holding company structure to a stock holding company
structure.
In rendering our opinion, we have relied upon certain facts and information
presented in the Plan of Conversion from Mutual Holding Company to Stock Holding
Company and Stock Issuance dated October 19, 1999 ("Plan of Conversion") as well
as the facts and representations shown below, under "Statement of Facts" and
"Representations". We have also relied on the facts and representations made to
Thacher Proffitt & Wood, Bank's legal counsel, and their "Federal Income Tax
Opinion," dated January ____, 2000, summarized below. We have assumed that
these facts and representations are complete and accurate and have not
independently audited or otherwise verified any of these facts or
representations. If any fact or representation contained herein or represented
to or obtained from Bank's legal counsel that we have relied upon is not true,
correct, and complete in all material respects, our opinion could change.
The discussions and conclusions set forth herein are based upon existing state
tax law under the Massachusetts General Laws, related Income Tax Regulations,
Judicial Decisions, Rulings, and Administrative Interpretations thereunder as of
the date of this letter all of which are subject to change. Changes to these
authorities may be prospective or retroactive and could significantly affect our
opinions. Furthermore, any change in applicable federal income tax law that
affects
___________________
/1/Capitalized terms used herein are defined in the Plan of Conversion, unless
otherwise defined.
Boards of Trustees
Board of Directors
Cambridgeport Mutual Holding Company
Cambridgeport Bank
Port Financial Corp.
Page 2
_______2000
the opinion expressed by Thacher Proffitt & Wood could change our
opinion. As a result, the opinions expressed herein would necessarily have to
be re-evaluated in light of any such changes. However, we have no
responsibility to update this opinion for any such changes occurring after the
date of this opinion letter.
The opinions expressed herein are based solely upon our interpretation of the
above authorities, are not binding on the Massachusetts Department of Revenue
and there can be no assurance that the Massachusetts Department of Revenue will
not take a position contrary to any of the opinions expressed herein. The
opinions expressed herein reflect our assessment of the probable outcome of
litigation and other adversarial proceedings based solely on an analysis of the
existing tax authorities as of the date of this letter.
The opinion expressed herein is rendered only with respect to the opinion
requested above and no opinion is expressed with respect to any other legal,
federal, state or local tax or non-tax aspect of the Plan of Conversion. Our
opinion is expressed under the heading "STATE INCOME TAX OPINION". This opinion
is as of the date of this letter and we have no responsibility to update this
opinion for events, transactions, circumstances or changes in any of the facts
or representations occurring after this date.
We are rendering our opinion pursuant to Section 3.1, General Procedure for
Conversion, of the Plan of Conversion. Our opinions are solely for the benefit
of MHC, Bank, SHC, Eligible Account Holders and Supplemental Eligible Account
Holders and are not intended to be relied upon by anyone other than the
aforementioned. Furthermore, without the prior written consent of Arthur
Andersen LLP, this letter may not be quoted in whole or in part or otherwise
referred to in any documents or delivered to any other person or entity.
Statement of Facts
Conversion
Bank, headquartered in Cambridge, Massachusetts is a Massachusetts-chartered
stock savings bank, which operates as a wholly owned subsidiary of MHC, a
Massachusetts-chartered mutual holding company. In 1994, Bank reorganized into
the mutual holding company form of organization and as a result became a wholly
owned subsidiary of MHC.
Subsequently, on October 19, 1999, the Boards of Trustees of MHC and the Board
of Directors of Bank adopted a Plan of Conversion providing for the conversion
of MHC into the capital stock form of organization ("Conversion").
DRAFT
Boards of Trustees
Board of Directors
Cambridgeport Mutual Holding Company
Cambridgeport Bank
Port Financial Corp.
Page 3
_______2000
The Conversion will be effected so that SHC, as successor in interest to MHC,
will continue to own 100% of the common stock of Bank. SHC will issue
prioritized non-transferable subscription rights ("Subscription Rights") to
certain persons, without payment, to purchase SHC common stock ("Holding Company
Common Stock"). SHC may also offer Holding Company Common Stock shares not
subscribed for, if any, for sale to the general public. SHC expects to
contribute at least 50% of the net proceeds of the Conversion to Bank as
additional capital.
Liquidation Account
For purposes of granting a priority claim to the assets of Bank in the event of
a complete liquidation of Bank to Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain deposit accounts at Bank, SHC
will, at the time of Conversion, establish a Liquidation Account in an amount
equal to the net worth of MHC. Each Eligible Account Holder and Supplemental
Eligible Account Holder will have a separate inchoate interest in the
Liquidation Account balance (referred to as a Subaccount Balance). In the sole
event of a complete liquidation, each Eligible Account Holder and Supplemental
Eligible Account Holder will be entitled to receive a liquidation distribution
from the Liquidation Account in the amount of their then current interest before
any liquidation distribution may be made with respect to the stock of SHC.
Deposit Accounts
Upon Conversion, each deposit account holder of Bank will continue to hold
exactly the same deposit account as the holder held immediately before the
Conversion.
Capitalization
SHC will authorize 30 million shares of Holding Company Common Stock with a par
value of $0.01 per share and 5 million shares of preferred stock with a par
value of $0.01 per share. It is estimated that SHC will initially issue between
6,800,000 and 9,200,000 of its authorized shares of Holding Company Common Stock
and no shares of its authorized preferred stock will be issued for sale in the
Conversion.
DRAFT
Boards of Trustees
Board of Directors
Cambridgeport Mutual Holding Company
Cambridgeport Bank
Port Financial Corp.
Page 4
_______2000
Priority of Subscription Rights and Offerings
The Plan of Conversion provides for the issuance of Subscription Rights, without
payment, to purchase Holding Company Common Stock of SHC to the following in
descending order of priority:
1. Eligible Account Holders: As first priority, each Eligible Account Holder
------------------------
(depositors whose aggregate Deposit Accounts in Bank total $50 or more as
of the close of business on July 31, 1998) will receive Subscription Rights
to purchase shares of Holding Company Common Stock in the amount up to
$1,000,000;
2. Supplemental Eligible Account Holders: As second priority, each
-------------------------------------
Supplemental Eligible Account Holder (depositors whose aggregate Deposit
Accounts in Bank total $50 or more as of the close of business on September
30, 1999) will receive Subscription Rights to subscribe for Holding Company
Common Stock in the amount up to $1,000,000;
3. Tax-Qualified Employee Stock Benefit Plans: As third priority, Tax-
------------------------------------------
Qualified Employee Stock Benefit Plans will receive Subscription Rights to
purchase up to eight percent of the shares of Holding Company Common Stock
issued in the Conversion;
4. Management: As fourth priority, directors, officers, employees, trustees
----------
and Corporators of MHC or Bank, will receive Subscription Rights to
subscribe for shares of Holding Company Common Stock in an amount up to
$1,000,000;
5. Public: SHC may offer its shares of Holding Company Common Stock
-------
unsubscribed in the above Subscription Offering (Categories 1-4) for sale
to the general public through a Direct Community Offering (with preference
given to natural persons residing in the Bank's Local Community), a
Syndicated Community Offering and/or Public Offering.
Independent Appraisals of Subscription Rights and Conversion Stock
An independent appraisal of the Subscription Rights by RP Financial, LC., opines
that the Subscription Rights have no value. RP Financial, LC., as an
independent appraiser, has provided an independent valuation of the estimated
pro-forma market value of Holding Company Common Stock to be issued in the
Conversion which will be used as the basis for determining the Holding Company
Common Stock price.
DRAFT
Boards of Trustees
Board of Directors
Cambridgeport Mutual Holding Company
Cambridgeport Bank
Port Financial Corp.
Page 5
_______2000
Representations
In the preparation of this opinion, Arthur Andersen LLP has relied on the
following representations, which were derived, in part, from representations
made to Thacher Proffitt & Wood for purposes of rendering their federal income
tax opinion. Arthur Andersen LLP has not verified the accuracy of the following
representations.
1. MHC is a Massachusetts-chartered mutual holding company; Bank is a
Massachusetts-chartered stock savings bank; SHC is a stock holding company,
charted as a Massachusetts corporation and will be authorized to exercise
any and all powers, rights and privileges and will be subject to all
limitations applicable to bank holding companies under applicable laws and
regulations. SHC is registered under the Federal Bank Holding Company Act.
2. MHC, at the time of Conversion, will qualify as a financial institution
under Massachusetts General Laws (MGL) Chapter 63, Sec. 1. MHC will file a
notice of withdrawal of its Massachusetts security corporation
classification, as defined in MGL Chapter 63, Sec. 38B, in accordance with
Massachusetts Department of Revenue Directive 86-36, Security Corporations:
Election for Voluntary Withdrawal. MHC's withdrawal of its security
corporation classification will be made retroactive to MHC's taxable year
beginning January 1, 2000. SHC, at the time of Conversion, will also
qualify as a financial institution under MGL Chapter 63, Sec. 1.
3. MHC has no outstanding stock; mutual ownership interests in MHC are the
only ownership interests in MHC.
4. The principal amount, interest rate, and maturity of each deposit account
in the Bank, and the fair market value of each such deposit account, will
not change by reason of the Conversion.
5. The fair market value of the interest in the SHC Liquidation Account
received by a Bank depositor in the Conversion will approximately equal the
fair market value of such depositor's interest in the liquidation proceeds
of the Bank surrendered in exchange therefor.
6. The aggregate fair market value of the Qualifying Deposits held by Eligible
Account Holders or Supplemental Eligible Account Holders at the close of
the Eligibility Record
DRAFT
Boards of Trustees
Board of Directors
Cambridgeport Mutual Holding Company
Cambridgeport Bank
Port Financial Corp.
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_______2000
Date or the Supplemental Eligibility Record Date, respectively, will equal
or exceed 99% of the aggregate fair market value of all deposit accounts in
the Bank (including deposits of less than $50) as of the close of the
Eligibility Date.
7. Immediately following the Conversion, depositors of the Bank will own all
of the outstanding interests in the Liquidation Account and will own such
interests solely by reason of their ownership of deposits in the Bank
(including their right to liquidation proceeds) immediately before the
Conversion.
8. Immediately following the Conversion, SHC will possess the same assets
(except for assets used to pay expenses incurred in connection with the
Conversion) and liabilities as those possessed by MHC immediately before
the Conversion, plus the proceeds from the Offering.
9. Assets of MHC used to pay expenses of the Conversion (without reference to
expenses related to the Offering), and any distributions by MHC will, in
the aggregate, constitute less than 1% of the net assets of MHC
10. At the time of the Conversion, MHC will not have outstanding any warrants,
options, convertible securities or any other type of right pursuant to
which any person could acquire stock in SHC, other than the nontransferable
Subscription Rights.
11. SHC has no plan or intention to sell or otherwise dispose of any of the
assets of MHC acquired in the Conversion, except for dispositions made in
the ordinary course of business.
12. The liabilities of MHC assumed or succeeded to by SHC plus the liabilities,
if any, to which the assets of MHC are subject, were incurred by MHC in the
ordinary course of its business and are associated with such assets.
13. Following the Conversion, SHC will continue to engage in the same business
in substantially the same manner as engaged in by MHC before the
Conversion.
14. MHC is not under the jurisdiction of a court in a Title 11 or similar case
within the meaning of section 368(a)(3)(A) of the Internal Revenue Code of
1986 (the "Code").
15. No account holder in the Bank who is eligible to receive an interest in the
Liquidation Account will be excluded from participating in the Liquidation
Account.
DRAFT
Boards of Trustees
Board of Directors
Cambridgeport Mutual Holding Company
Cambridgeport Bank
Port Financial Corp.
Page 7
_______2000
16. SHC and each account holder of the Bank will pay its, his or her own
expense, if any, of the Conversion.
17. SHC has no plan or intention to redeem or otherwise reacquire any of the
stock issued in the Offering.
18. The stock of SHC issued in the Offering will not be callable or subject to
mandatory redemption or to a put option.
19. At the time of the Conversion, the fair market value of the assets of MHC
will equal or exceed the sum of MHC's liabilities and the amount of
liabilities to which such assets are subject, and immediately before the
Conversion, MHC will have a positive net worth.
20. None of the compensation received by an MHC employee who is also an
Eligible Account Holder, Supplemental Eligible Account Holder or a member
of Management will be separate consideration for, or allocable to, his or
her status as an Eligible Account Holder, Supplemental Eligible Account
Holder or a member of Management; none of the shares of SHC stock or
interests in the Liquidation Account received by any employee pursuant to
the Conversion will be separate consideration for, or allocable to, any
employment agreement or arrangement; and the compensation paid the employee
will be for services actually rendered and will be commensurate with the
compensation that would be paid to third parties bargaining at arm's length
for similar services.
21. There is no plan or intention for SHC or the Bank to be liquidated or
merged with or acquired by another corporation following the Conversion.
22. There is no intercorporate indebtedness between MHC and the Bank that was
issued, acquired, or that will be settled, at a discount.
23. No cash or other property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders or a members of Management in lieu of
Subscription Rights or an interest in the Liquidation Account.
24. MHC is not an "investment company" within the meaning of section
368(a)(2)(F) of the Code.
DRAFT
Boards of Trustees
Board of Directors
Cambridgeport Mutual Holding Company
Cambridgeport Bank
Port Financial Corp.
Page 8
_______2000
25. No mutual ownership interests in MHC have been sold or otherwise
transferred in connection with the Conversion, and prior to the
consummation of the Conversion no such mutual ownership interest will be
sold or otherwise transferred in connection with the Conversion. For
purposes of this representation, "mutual ownership interests" means any
liquidation or voting right in MHC.
26. No stock of SHC will be sold or otherwise transferred to SHC or to an SHC
related party in connection with the Conversion. For purposes of this
representation, an "SHC related party" means the Bank or any other
corporation that, prior to or after the Conversion, either (i) is a member
of the same affiliated group of corporations of which SHC is a member (or
that will become a member by reason of the Conversion or by reason of any
transaction related to the Conversion) within the meaning of Section 1504
of the Code (determined without application of Section 1504(b) of the
Code), or (ii) owns (or that will own by reason of the Conversion or by
reason of any transaction related to the Conversion) stock of SHC
possessing at least 50% of the combined voting power of all classes of SHC
stock entitled to vote or 50% or more of the total value of all SHC stock.
In determining the existence of an SHC Related Party, a partner in a
partnership (or a member of a limited liability company or of any other
entity that is treated as a partnership for federal income tax purposes)
shall be treated as owning or acquiring any stock owned or acquired by the
partnership in accordance with that partner's interest in the partnership.
27. As determined by an independent appraisal, Subscription Rights to purchase
shares of common stock in SHC have no value.
28. The exercise price of the Subscription Rights received by Bank's Eligible
Account Holders and Supplemental Eligible Account Holders to purchase
Holding Company Common Stock will be equal to the fair market value of the
stock of SHC at the time of the completion of the Conversion as determined
by an independent appraisal.
29. Bank's legal counsel, Thacher Proffitt & Wood, opines that for federal
income tax purposes Bank, MHC, SHC each will not recognize gain or loss as
a result of the Conversion.
DRAFT
Boards of Trustees
Board of Directors
Cambridgeport Mutual Holding Company
Cambridgeport Bank
Port Financial Corp.
Page 9
_______2000
30. Bank's legal counsel, Thacher Profitt & Wood, opines that for federal
income tax purposes Eligible Account Holders and Supplemental Eligible
Account Holders will not recognize gain or loss upon their receipt of
Subscription Rights to purchase shares of SHC, provided the amount to be
paid for such shares is equal to the fair market value of such shares. In
rendering this opinion, bank's legal counsel relies on the opinion of RP
Financial, LC. that the Subscription Rights have no value.
Federal Income Tax Opinion
In preparation of this opinion, Arthur Andersen LLP has relied on the federal
income tax opinion issued by, Thacher Proffitt & Wood with respect to the
recognition of gain or loss to the parties of the Conversion. Thacher Proffitt &
Wood has issued the following opinions, dated _____, 2000 , with respect to the
federal income taxability:
1. The Conversion will constitute a reorganization under Section 368(a)(1)(F)
of the Internal Revenue Code;
2. None of the Bank, MHC, or SHC will recognize gain or loss as a result of
the Conversion; and
3. Eligible Account Holders and Supplemental Eligible Account Holders will not
recognize gain or loss upon their receipt of Subscription Rights (provided
the Subscription Rights have no value as opinioned on by RP Financial, LC.)
to purchase shares of SHC, provided the amount to be paid for such shares
is equal to fair market value of such shares.
STATE INCOME TAX OPINION
Massachusetts Financial Institutions Excise Tax:
- ------------------------------------------------
Based solely on the Statement of Facts, Representations, and State Tax
Discussion (re: Massachusetts Excise Tax) as set forth in this opinion letter
and the federal income tax opinion of Thacher Proffitt & Wood that for federal
income tax purposes no gain or loss will be recognized in the proposed
Conversion by Bank, MHC or SHC, it is the opinion of Arthur Andersen LLP that:
. Bank, MHC, and SHC each will not recognize gain or loss for Massachusetts
Financial Institutions Excise Tax purposes as a result of the Conversion.
DRAFT
Boards of Trustees
Board of Directors
Cambridgeport Mutual Holding Company
Cambridgeport Bank
Port Financial Corp.
Page 10
_______2000
Massachusetts Personal Income Tax:
- ----------------------------------
Based solely on the Statement of Facts, Representations, and State Tax
Discussion (re: Massachusetts Personal Income Tax) set forth in this opinion
letter and the federal income tax opinion of Thacher Proffitt & Wood, it is the
opinion of Arthur Andersen LLP that for Massachusetts Personal Income Tax
purposes:
. Eligible Account Holders and Supplemental Eligible Account Holders will not
recognize gain or loss upon their receipt of Subscription Rights (provided
the Subscription Rights have no value as opined on by RP Financial, LC.) to
purchase Holding Company Common Stock, provided the amount to be paid for
such shares is equal to fair market value of such shares.
State Tax Discussion
Massachusetts Financial Institutions Excise Tax:
- ------------------------------------------------
"Financial institutions" are subject to Massachusetts Financial Institutions
Excise Tax under Massachusetts General Laws (MGL) Chapter 63, Sections 1, 2, 2A
and 7.
"Financial institutions" are defined in MGL Ch. 63, Sec. 1, in pertinent parts,
as "(a) any bank, banking association, trust company, federal or state savings
and loans association ..., whether of issue or not, existing by authority of the
United States, or any state or a foreign country, or any law of the
commonwealth; (b) any other institution ...., the deposits or accounts of which
are insured under the Federal Deposit Insurance Act or by the Federal Deposit
Insurance Corporation...(c) any corporation ....registered under the Federal
Bank Holding Company Act of 1956, or registered as a savings and loan holding
company under the Federal National Housing Act, as amended, including any
subsidiary which participates in the filing of a consolidated return of income
to the federal government; (d) any corporation subject to supervision by the
division of banks... or (e) any other corporation organized under the laws of
the United States, the commonwealth or any other state or foreign country which,
in substantial competition with financial institutions as defined in any or all
of clauses (a) to (d), inclusive, derives more than fifty percent of its gross
income... from loan origination, from lending activities,..."
Bank, a Massachusetts-chartered stock savings bank, MHC, a Massachusetts-charted
mutual holding company, and SHC, a Massachusetts chartered stock bank holding
company, registered
DRAFT
Boards of Trustees
Board of Directors
Cambridgeport Mutual Holding Company
Cambridgeport Bank
Port Financial Corp.
Page 11
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under the Federal Bank Holding Company Act, are considered "financial
institutions" as that term is defined in MGL Ch. 63, Sec. 1. MGL Ch. 63, Sec. 2
provides that "Every financial institution engaged in business in the
commonwealth shall pay, on account of each taxable year, an excise measured by
its net income determined to be taxable ... as defined in section two A ...." As
financial institutions, Bank, MHC, and SHC will pay an excise tax measured by
their respective taxable "net incomes."
"Net income" is defined in MGL Ch. 63, Sec 1 as "gross income, other than
ninety-five percent of dividends received in any taxable year beginning on or
after January 1, 1999 from or on account of the ownership of any class of stock
if the financial institution owns fifteen percent or more of the voting stock of
the institution paying the dividend, less the deductions, but not the credits
allowable under the provisions of the Internal Revenue Code, as amended and in
effect for the taxably year. For taxable years beginning on or after January 1,
1999, the provisions of section 291 of said Code shall not apply, and the
provisions of section 171(a)(2) and 265 of said Code shall apply to the extent
that the income to which the deductions relate is excludable from gross income.
Deductions with respect to the following items, however, shall not be allowed
except as otherwise provided: (a) dividends received, except as otherwise
provided; (b) losses sustained in other taxable years; or (c) taxes on or
measured by income, franchise taxes measured by net income, franchise taxes for
the privilege of doing business and capital stock taxes imposed by any state."
Under MGL Ch. 63, Sec. 1, taxable "net income" begins with "gross income."
"Gross income" is defined in MGL Ch. 63, Sec.1 as "gross income as defined under
the provisions of the Internal Revenue Code, as amended and in effect for the
taxable year, plus interest from bonds, notes and evidences of indebtedness of
any state, including this commonwealth."
The Massachusetts Department of Revenue has issued Letter Rulings addressing the
taxability of financial institutions converting from a mutual form to a stock
form of operation. In Letter Ruling 1983-53 the Massachusetts Department of
Revenue held that the conversion of a state-chartered mutual savings bank
("bank") to a state-charted stock savings bank ("converted bank") results in no
gross income, gain or loss being realized for Massachusetts bank excise tax
purposes by either the bank or converted bank as a result of the conversion
provided that the conversion qualifies as a tax-free reorganization within the
meaning of Section 368(a)(1)(F) of the Internal Revenue Code and provided no
gain or loss will be recognized pursuant to Section 1032 of the Internal Revenue
Code. (See also, Letter Ruling 1982-5 (conversion of a federal mutual savings
and loan association to a federal stock savings and loan association),
Letter Ruling 1983-61 (conversion of state-charted co-operative bank in mutual
form to a state-charted
DRAFT
Boards of Trustees
Board of Directors
Cambridgeport Mutual Holding Company
Cambridgeport Bank
Port Financial Corp.
Page 12
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co-operative bank in stock form); and Letter Ruling 1984-11 (conversion of a
federal mutual savings bank to a federal stock savings bank) which similarly
held).
In establishing a starting point for the calculation of Massachusetts taxable
net income for financial institutions, Massachusetts begins with federal taxable
income and makes no provisions for adjustments with respect to the proposed
Conversion. Therefore, since no federal gross income or federal taxable income
will be recognized as a result of the Conversion, no Massachusetts gross income
or Massachusetts taxable income will be recognized.
Massachusetts Personal Income Tax:
- ---------------------------------
Individuals are subject to personal income taxation under MGL Ch. 62, Sec. 2 on
their Massachusetts "gross income" less certain deductions and exemptions. The
starting point for determining income subject to Massachusetts's personal income
tax is Massachusetts "gross income." Massachusetts gross income is divided into
Part A, Part B, and Part C income. MGL Ch. 62, Sec. 2(b). Part A gross income
consists of non-Massachusetts bank taxable interest, dividends, and capital gain
income from the sale or exchange of capital assets held for one year or less.
Part B gross income consists of income which is not Part A gross income or Part
C gross income. Part C gross income consists of capital gain income comprised
of gains from the sale or exchange of capital assets held for more than one
year. MGL Ch. 62, Sec. 2(b).
The above Massachusetts classes of gross income are defined by reference to
"federal gross income" adjusted for differences between federal and
Massachusetts basis in property, and certain modifications. MGL Ch. 62, Sec.
2(a). "Federal gross income" is defined as "gross income as defined under the
Code". MGL Ch. 62, Sec. 1(d). The "Code" refers to the Internal Revenue Code,
as amended on January 1, 1998, and in effect for the taxable year. MGL Ch. 62,
Sec. 1(c).
Modifications that increase Massachusetts gross income relative to federal gross
income include:
. Interest on state and municipal obligation exclusive of obligations issued
by Massachusetts or its subdivisions, to the extent not includable in
federal gross income. MGL Ch. 62, Sec. 2(a)(1)(A).
. Foreign source earned income excluded under Code Section 911.
MGL Ch. 62, Sec. 2(a)(1)(C).
. For a Federal S corporation treated as a Massachusetts corporate trust, any
amounts excluded under Subchapter S of the Code.
MGL Ch. 62, Sec. 2(a)(1)(E).
DRAFT
Boards of Trustees
Board of Directors
Cambridgeport Mutual Holding Company
Cambridgeport Bank
Port Financial Corp.
Page 13
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. Amounts determined to be Massachusetts gross income under any other
provision of chapter 62 of the General Laws. MGL Ch. 62, Sec. 2(a)(1)(F).
. Any amount excluded under Code Section 128. MGL Ch. 62, Section 2(a)(1)(G).
. Certain amounts contributed on behalf of the taxpayer and not included in
federal gross income. MGL Ch. 62, Sec. 2(a)(1)(I).
Modifications that decrease Massachusetts gross income relative to federal gross
income include:
. Income with respect to which taxation by any state is prohibited by federal
law such as interest of United States government obligations and dividends
attributable to interest on obligations of the United States paid by a
regulated investment company. MGL Ch. 62, Section 2(a)(2)(A).
. For a federal S corporation treated a Massachusetts corporate trust, any
amount included under Subchapter S of the Code.
MGL Ch. 62, Sec. 2(a)(2)(B).
. Income taxable to a trustee or other fiduciary received from the trustee
or fiduciary. MGL. Ch. 62, Sec. 2(a)(2)(C).
. Dividends from a corporate trust, if the dividends are tax-exempt under
MGL Ch. 62, Sec. 8. MGL Ch. 62, Sec. 2(a)(2)(D).
. Income from contributory annuity, pension, endowment or retirement fund of
the U.S. government or the commonwealth or any political subdivision
thereof. MGL Ch. 62, Sec. 2(a)(2)(E).
. Income from plans or contracts described in Code sections 403(b), 404,
408 or 409, subject to certain limitations. MGL Ch. 62, Sec. 2(a)(2)(F).
. Income received from the sale, lease or other transfer of a certain energy
conservation and alternative energy development patents.
MGL Ch. 62, Sec. 2(a)(2)(G).
. Social security benefits included in federal gross income.
MGL Ch. 62, Sec. 2(a)(2)(H).
. Exempt interest dividends and capital gain dividends from a regulated
investment company attributable to interest or capital gain from
obligations issued by the commonwealth or political subdivisions.
MGL Ch. 62, Sec. 2(a)(2)(I) and (J).
As a general rule, Massachusetts does not adopt federal tax law changes
incorporated into the Internal Revenue Code after January 1, 1998. Chapter 319
of the Acts of 1998 incorporated into Massachusetts personal income tax law the
Internal Revenue Code as amended on January 1, 1998, and in effect for the
taxable year. As a result of the Chapter 319 Internal Revenue Code update, all
amounts which are allowed to be excluded from federal gross income under the
Internal Revenue Code as amended and in effect on January 1, 1998 are excluded
from
DRAFT
Boards of Trustees
Board of Directors
Cambridgeport Mutual Holding Company
Cambridgeport Bank
Port Financial Corp.
Page 14
_______2000
Massachusetts gross income, unless a specific Massachusetts statutory
modification adds the amount back into Massachusetts gross income (See MGL Ch.
62 Sec. 2(a), TIR 98-8 and TIR 98-15).
The Massachusetts Department of Revenue has issued Letter Rulings addressing the
taxability of eligible account holders of financial institutions converting from
a mutual form to a stock form of operation. The Massachusetts Department of
Revenue issued Letter Ruling 1983-53 holding that eligible account holders of a
bank which changes its form of ownership from a state-chartered mutual savings
bank to a state-chartered stock savings bank do not recognize any gain or loss
by reason of either the conversion or the distribution of nontransferable
subscription rights to purchase common stock provided that no gain or loss will
be recognized for federal income tax purposes. (See also, Letter Ruling 1982-5
(conversion of federal mutual savings and loan association to federal stock
savings and loan association), Letter Ruling 1983-61 (conversion of state-
charted co-operative bank in mutual form to a state-charted co-operative bank in
stock form); and Letter Ruling 1984-11 (conversion of a federal mutual savings
bank to a federal stock savings bank) which similarly held).
In establishing a starting point for the calculation of Massachusetts gross
income, Massachusetts begins with federal gross income as determined under the
Internal Revenue Code as amended to January 1, 1998 and makes no provisions for
modifications with respect to the proposed Conversion. Therefore, since no
federal gross income would be recognized under the Internal Revenue Code as
amended to January 1, 1998 as a result of the Conversion, no Massachusetts gross
income or taxable income will be recognized.
*****
We hereby consent to the filing of the opinion as an exhibit to the Application
for Conversion filed with the Division of Banks of the Commonwealth of
Massachusetts, as a supporting document to the Application to the Board of
Governors of the Federal Reserve System on Form FRY-3 and as an exhibit to the
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission.
Very truly yours,
Arthur Andersen LLP