Certified Public Accountants
Suite 500 Management Consultants
2601 Cambridge Court 248.375.7100
Plante & Moran, LLP Auburn Hills, Michigan 48326 FAX 248.375.7101
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Exhibit 8.1
November 1, 2000
Board of Directors
Citizens First Bancorp, Inc.
525 Water Street
Port Huron, Michigan 48060
Board of Directors
Citizens First Savings Bank
525 Water Street
Port Huron, Michigan 48060
Ladies and Gentlemen:
This letter constitutes our opinion as to certain state income tax
consequences of the proposed conversion of Citizens First Savings Bank
("Citizens First") from a Michigan mutual savings bank to a Michigan stock
savings bank followed by the acquisition of Citizens First's common stock by
Citizens First Bancorp, Inc. ("Bancorp"), a Delaware corporation, pursuant to
the plan of conversion.
The opinions contained herein are based solely on the FACTS and
REPRESENTATIONS stated herein. All Section references are to the Internal
Revenue Code of 1986, as amended (the "Code") and Michigan Compiled Laws
("MCL") as in effect as of the date of this opinion. If any of the FACTS and
REPRESENTATIONS are not correct or complete, it is imperative that we be
informed in writing as this could have a material adverse effect on our
opinion.
FACTS and REPRESENTATIONS
The facts, as we understand them, are as follows:
On September 19, 2000, the Board of Directors of Citizens First unanimously
adopted the plan of conversion. Under the plan of conversion, Citizens First
will convert from a Michigan mutual savings bank to a Michigan stock savings
bank and become a wholly owned subsidiary of Citizens First Bancorp, Inc.
("Bancorp"), a newly formed Delaware corporation. In addition, the plan
provides that Bancorp will offer its common stock in a subscription offering
and, if necessary, through a community offering and/or a syndicate of
registered broker-dealers. Bancorp is authorized to issue 20,000,000 shares of
common stock and 1,000,000 shares of preferred stock with all shares having a
par value of $0.01. Bancorp expects to issue up to
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8,284,140 shares of common stock. Bancorp will not issue any preferred stock
in the converson and has no current plans to issue any preferred stock after the
conversion.
As a mutual savings bank, Citizens First has never been authorized to issue
stock. Instead, each depositor in a mutual savings bank has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his or her account. This ownership
interest is tied to the depositor's account and has no value separate from such
deposit account. This ownership interest may only be realized in the event that
the institution is liquidated. In such event, the depositors of record at that
time, as owners, would be able to share in any residual surplus and reserves
after payment of other claims, including claims of depositors to the amounts of
their deposits. When a mutual savings bank converts to stock form, depositors
lose all rights to the net worth of the mutual savings bank, except to the right
to claim a pro rata share of funds representing the liquidation account
established in connection with the conversion.
Under the plan of conversion, Citizens First has granted nontransferable rights
to subscribe for Bancorp common stock to the following persons in the following
order of priority:
I. Persons with deposits in Citizens First with balances aggregating $50
or more ("qualifying deposits") as of July 31, 1999 ("eligible account
holders"). For this purpose, deposit accounts include all savings,
time, and demand accounts, not including escrow accounts.
II. Tax-qualified benefit plans of Bancorp or Citizens First, including
Citizens First's employee stock ownership plan (ESOP) which intends to
purchase 8 percent of the shares of common stock issued in the
conversion.
III. Persons with qualifying deposits in Citizens First as of December 31,
2000 ("supplemental eligible account holders").
Bancorp may offer shares not sold in the subscription offering to the general
public in a community offering. People and trusts of people who are residents of
St. Clair, Sanilac, Huron and Lapeer Counties, Michigan will have first
preference to purchase shares in the community offering. All shares of common
stock not purchased in the subscription offering and community offering may be
offered for sale to the general public in a syndicated community offering
through a syndicate of registered broker-dealers.
Keller has issued a letter, pursuant to its valuation, indicating that the
subscription rights do not have any value, based on the fact that the rights are
acquired by the recipients without cost, are nontransferable and of short
duration and afford the recipients the right only to purchase shares of common
stock at a price equal to its estimated fair market value, which will be the
same price paid by purchasers in the community offering for the unsubscribed
shares of Bancorp common stock.
Plante & Moran, LLP is relying on the following representations in rendering the
opinions contained herein. It is understood that Plante & Moran, LLP has not
independently verified the accuracy of any of these representations:
. The fair market value of the withdrawable deposit accounts plus interests in
the liquidation account of the converted Citizens First to be constructively
received under the plan of conversion will, in each instance, be equal to the
fair market value of the withdrawable
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deposit accounts (plus the related interest in the residual equity of
Citizens First) deemed to be surrendered in exchange therefor.
. If an individual's total deposits in Citizens First equal or exceed $50 as of
the eligibility record date or the supplemental eligibility record date, then
none of that individual's total deposits will be excluded from participating
in the liquidation account.
. Immediately following the conversion, the eligible account holders and the
supplemental eligible account holders of Citizens First 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 Citizens First immediately
before the conversion.
. After the conversion, the converted Citizens First will continue the business
of Citizens First in the same manner as prior to the conversion. The
converted Citizens First has no plan or intention and Bancorp has no plan or
intention to cause the converted Citizens First to sell its assets other than
in the ordinary course of business.
. Bancorp has no plan or intention to sell, liquidate, or otherwise dispose of
the stock of the converted Citizens First other than in the ordinary course
of business.
. Bancorp and the converted Citizens First have no current plan or intention to
redeem or otherwise acquire any of the common stock issued in the conversion
transaction.
. Immediately after the conversion, the assets and liabilities of the converted
Citizens First will be identical to the assets and liabilities of Citizens
First immediately prior to the conversion, plus the net proceeds from the
sale of the converted Citizens First's common stock to Bancorp and any
liability associated with indebtedness incurred by the employee plans in the
acquisition of Bancorp common stock by the employee plans.
. Citizens First and Bancorp are corporations within the meaning of section
7701(a)(3) of the Code.
. None of the shares of Bancorp common stock to be purchased by the depositor-
employees of Citizens First in the conversion will be issued or acquired at a
discount. However, shares may be given to certain directors and employees as
compensation by means of the employee plans. Compensation to be paid to such
directors and depositor-employees will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services.
. The fair market value of the assets of Citizens First, which will be
transferred to the converted Citizens First in the conversion, will equal or
exceed the sum of the liabilities of Citizens First which will be assumed by
the converted Citizens First and any liabilities to which the transferred
assets are subject.
. Citizens First is not under the jurisdiction of a bankruptcy or similar court
in any Title 11 or similar case within the meaning of section 368(a)(3)(A) of
the Code.
. Upon the completion of conversion, Bancorp will own and hold 100% of the
issued and outstanding common stock of the converted Citizens First and no
other shares of common stock of the converted Citizens First will be issued
and/or outstanding. At the time of the
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conversion, the converted Citizens First does not have any plan or intention
to issue additional shares of its stock following the transaction. No shares
of preferred stock of the converted Citizens First are issued and/or
outstanding.
. Upon the completion of the conversion, there will be no rights, warrants,
contracts, agreements, commitments or understandings with respect to the
common stock of the converted Citizens First, nor will there be any
securities outstanding which are convertible into the common stock of the
converted Citizens First.
. No cash or property will be given to eligible account holders, supplemental
eligible account holders, or others in lieu of (a) nontransferable
subscription rights, or (b) an interest in the liquidation account of the
converted Citizens First.
. Citizens First has maintained a reserve for bad debts in accordance with
sections 593 and 585 of the Code and, following the conversion, to the extent
allowed under the Code, the converted Citizens First shall maintain a reserve
for bad debts in accordance with the applicable provisions of the Code.
. Depositors will pay the expense of the conversion solely applicable to them,
if any. Bancorp and Citizens First will each pay expenses of the transaction
attributable to them and will not pay any expenses solely attributable to the
depositors or to Bancorp shareholders.
. The exercise price of the subscription rights received by Citizens First's
eligible account holders, supplemental eligible account holders, and other
holders of subscription rights to purchase Bancorp common stock will be equal
to the fair market value of the stock of Bancorp at the time of the
completion of the conversion as determined by an independent appraisal.
. The proprietary interests of the eligible account holders and the
supplemental eligible account holders in Citizens First arise solely by
virtue of the fact that they are account holders in Citizens First.
. There is no plan or intention for the converted Citizens First to be
liquidated or merged with another corporation following this proposed
transaction.
. The liabilities of Citizens First assumed by the converted Citizens First
plus the liabilities, if any, to which the transferred assets are subject
were incurred by Citizens First in the ordinary course of its business and
are associated with the assets transferred.
. External legal counsel, Muldoon, Murphy & Faucette LLP, has opined that for
federal income tax purposes no gain or loss will be recognized as a result of
the proposed conversion by either Citizens First or Bancorp, and that the
proposed conversion of Citizens First from a Michigan-chartered mutual
savings bank to a Michigan-chartered stock savings bank qualifies as a tax-
free reorganization for federal income tax purposes pursuant to Section
368(a)(1)(F) of the Code.
. External legal counsel, Muldoon, Murphy & Faucette LLP, has opined that for
federal income tax purposes, no gain or loss will be recognized by eligible
account holders and supplemental eligible account holders of Citizens First
on the issuance to them of withdrawable deposit accounts in the converted
Citizens First plus interests in the liquidation
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account of the converted Citizens First in exchange for deposit accounts in
Citizens First and their related interest in the residual equity of Citizens
First or to the other depositors on the issuance to them of withdrawable
deposit accounts.
. External legal counsel, Muldoon, Murphy & Faucette LLP, has opined that for
federal income tax purposes, no gain or loss will be recognized by eligible
account holders and supplemental eligible account holders of Citizens First
upon the distribution to them of the nontransferable subscription rights to
purchase shares of stock in Bancorp, provided that the amount paid for
Bancorp common stock is equal to the fair market value of such stock. Gain
realized, if any, by the eligible account holders and supplemental eligible
account holders of Citizens First on the distribution to them of
nontransferable subscription rights to purchase Bancorp stock will be
recognized but only in an amount not in excess of the fair market value of
such subscription rights. Eligible account holders and supplemental eligible
account holders of Citizens First will not realize any taxable income for
federal income tax purposes as a result of the exercise by them of the
nontransferable subscription rights.
. Based on the opinion of Keller, the nontransferable subscription rights do
not have any value.
. No gain or loss will be recognized by Citizens First under generally accepted
accounting principles (GAAP) as a result of the conversion and the purchase
accounting method will not be used by Citizens First to account for the
transaction in accordance with GAAP.
. Citizens First is a Michigan-chartered mutual savings bank. Citizens First is
neither incorporated nor currently conducting business in the State of
Delaware.
. Bancorp is a domestic Delaware corporation, organized at the direction of
Citizens First to become a savings and loan holding company and own all of
Citizens First common stock to be issued upon its conversion from mutual form
to stock form. Bancorp does not maintain any physical presence in nor conduct
any business in the state of Delaware. Bancorp conducts its business
activities in the State of Michigan.
STATE INCOME TAX OPINION
Michigan Single Business Tax
The Michigan Single Business Tax (MSBT) is an annual value-added tax imposed on
the privilege of doing business in the state (Sec. 208.31(3), MCL). Every person
with business activity in Michigan is subject to the tax (Sec. 208.31(1), MCL).
Most organizations exempt from federal income tax are also exempt from MSBT, as
are nonprofit cooperative housing corporations, the United States, Michigan, and
all other states. "Person" is defined as an individual, firm, bank, financial
institution, limited partnership, copartnership, partnership, joint venture,
association, corporation, receiver, estate, trust, or any other group or
combination acting as a unit (Sec. 208.6(1), MCL). "Business activity" means a
transfer of legal or equitable title to or rental of property, whether real,
personal, or mixed, tangible or intangible, or the performance of services, or a
combination thereof, made or engaged in, or caused to be made or engaged in,
within Michigan, with the object of gain, benefit, or advantage, whether direct
or indirect, to the taxpayer or to others (Sec. 208.3(2), MCL).
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Financial institutions are included within the definition of "person" subject to
the MSBT and are generally subject to the tax in the same manner as other
corporations (Sec. 208.6(1), MCL). A "financial organization" is defined to mean
a bank, industrial bank, trust company, building and loan or savings and loan
association, bank holding company, credit union, safety and collateral deposit
company, regulated investment company, and any other association, joint stock
company, or corporation at least 90 percent of whose assets consist of
intangible personal property and at least 90 percent of whose gross receipts
consist of dividends or interest or other charges resulting from the use of
money or credit (Sec. 208.10(4), MCL).
Michigan has adopted federal taxable income computed under the provisions of the
Internal Revenue Code of 1986 (the "Code") that were in effect on January 1,
1999 or, at the option of the taxpayer, in effect for the tax year, as the
starting point for the computation of the Michigan tax base (Sec. 208.3(3) and
208.5(4), MCL). For a corporation, the computation begins with its entire
federal taxable income; for a noncorporate taxpayer, it begins with that part of
federal taxable income that is derived from business activity in Michigan (Sec.
208.5(3), MCL). Various modifications, as discussed below, are made to federal
taxable income to arrive at the Michigan tax base. The tax base is either
entirely allocable to Michigan, if a taxpayer's business activities are confined
solely to Michigan, or entirely apportionable, if the taxpayer's business
activities are taxable both within and without Michigan.
Taxpayers may choose an alternative method to compute the MSBT, which subjects
50% of adjusted gross receipts (in lieu of the adjusted tax base) to the MSBT
rate. This method has as its starting point gross receipts rather than federal
taxable income, and avoids the addition and subtraction modifications required
in computing the adjusted tax base.
Effective January 1, 1999, the MSBT rate is 2.2% of the adjusted tax base and
will be phased out during a 23-year period providing that certain revenue
targets are met. As of January 1 of each subsequent year, the rate is scheduled
to be reduced 0.1 percentage point if the comprehensive annual report for the
state reports an ending balance of at least $250 million, until the tax is
reduced to 0%. The MSBT is repealed effective January 1 of the year in which the
rate is reduced to 0% and is not effective for tax years that begin on or after
that date.
Adjustments that would increase the MSBT tax base include:
. Salaries, wages and other payments to employees, including employee insurance
plans, pension, retirement, and profit sharing plans.
. Depreciation of tangible assets.
. Taxes imposed on or measured by income.
. Single business tax to the extent deducted in determining federal taxable
income.
. Dividends, interest and royalty expenses.
. Capital loss and net operating loss carryovers and carrybacks.
. Gross interest and dividend income from bonds and similar obligations issued
by states other than Michigan and its political subdivisions.
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. Losses from partnerships.
Adjustments that would decrease the MSBT tax base include:
. Dividends, interest and royalty income included in federal taxable income.
. Capital losses not deducted in arriving at business income.
. Income from partnerships.
The tax base of a financial organization does not include the increase
adjustment for interest expense and does not include the decrease adjustment for
interest income. Additionally, the tax base of a financial organization is
decreased by interest income derived from obligations of the United States which
this state is by federal law prohibited from subjecting to taxation, and is
increased by a proportionate share of its expenses incurred to carry tax exempt
income.
Michigan has enacted a number of MSBT credits, including a small business
credit, a credit for minority-owned enterprises, a charitable contribution
credit, and a credit for businesses operating in enterprise zones. For tax years
beginning after 1999, a taxpayer may claim an investment tax credit against the
MSBT for the taxpayer's expenditures on tangible depreciable property used in
its business. For tax years beginning before 2000, taxpayers are allowed a
capital acquisition deduction.
External legal counsel, Muldoon, Murphy & Faucette LLP, has opined that for
federal income tax purposes no gain or loss will be recognized as a result of
the proposed conversion by either Citizens First or Bancorp, and that the
proposed conversion of Citizens First from a Michigan-chartered mutual savings
bank to a Michigan-chartered stock savings bank qualifies as a tax-free
reorganization for federal income tax purposes pursuant to Section 368(a)(1)(F)
of the Internal Revenue Code. In most cases, the gain or loss recognized on a
reorganization for purposes of the MSBT will be the same as the gain or loss
recognized for federal tax purposes. Michigan uses federal taxable income as the
starting point for the computation of its tax base and there is no provision of
Michigan law that modifies the federal recognition or nonrecognition rules
applicable to reorganizations.
Based solely on the facts, representations and authorities as set forth in this
opinion letter and the opinion of Muldoon, Murphy & Faucette LLP that for
federal tax purposes no gain or loss will be recognized in the proposed
conversion by Citizens First or Bancorp, it is our opinion that neither Citizens
First or Bancorp will recognize gain or loss for MSBT purposes.
Michigan Personal Income Tax
The statutes levying the Michigan income tax are codified as Chapter 206 of the
Compiled Laws. The Michigan personal income tax is imposed on Michigan residents
and on nonresidents who derive income from Michigan sources. The tax applies to
individuals, trusts, and estates.
Federal adjusted gross income is the starting point in determining Michigan
personal taxable income (Sec. 206.12, MCL). Certain modifications are made to
federal adjusted gross income to arrive at Michigan personal taxable income.
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Adjustments that would increase Michigan personal taxable income include:
. Gross interest and dividend income derived from obligations or securities of
states other than Michigan.
. Taxes on or measured by income to the extent the taxes have been deducted in
arriving at adjusted gross income.
. Losses on the sale or exchange of obligations of the United States
government, the income of which Michigan is prohibited from subjecting to a
net income tax.
. Trade or business loss attributable to other state.
Adjustments that would decrease Michigan personal taxable income include:
. Income derived from obligations, or the sale or exchange of obligations, of
the United States government that Michigan is prohibited from subjecting to a
net income tax.
. Compensation, including retirement benefits, received for services in the
armed forces of the United States.
. Trade or business income attributable to another state.
. Certain retirement or pension benefits up to a maximum amount.
. Social security benefits.
. Michigan state and local income tax refunds.
Beginning in the 2000 tax year, the personal income tax rate will be lowered
gradually from a rate of 4.2% for tax years beginning in 2000 to a rate of 3.9%
for tax years beginning after 2003. Effective May 1, 1994, through tax years
ending in 1999, the tax rate was 4.4%. Michigan personal income tax may also be
reduced by a variety of tax credits, including credits for income tax paid to
Michigan cities, public contributions, community foundation contributions,
homeless and food bank contributions, income tax paid to another state, college
tuition, and property taxes.
External legal counsel, Muldoon, Murphy & Faucette LLP, has opined that for
federal income tax purposes, no gain or loss will be recognized by eligible
account holders and supplemental eligible account holders of Citizens First on
the issuance to them of withdrawable deposit accounts in the converted Citizens
First plus interests in the liquidation account of the converted Citizens First
in exchange for deposit accounts in Citizens First and their related interest in
the residual equity of Citizens First or to the other depositors on the issuance
to them of withdrawable deposit accounts.
External legal counsel, Muldoon, Murphy & Faucette LLP, has opined that for
federal income tax purposes, no gain or loss will be recognized by eligible
account holders and supplemental eligible account holders of Citizens First upon
the distribution to them of the nontransferable subscription rights to purchase
shares of stock in Bancorp, provided that the amount paid for
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Bancorp common stock is equal to the fair market value of such stock. Gain
realized, if any, by the eligible account holders and supplemental eligible
account holders of Citizens First on the distribution to them of nontransferable
subscription rights to purchase Bancorp stock will be recognized but only in an
amount not in excess of the fair market value of such subscription rights.
Eligible account holders and supplemental eligible account holders of Citizens
First will not realize any taxable income for federal income tax purposes as a
result of the exercise by them of the nontransferable subscription rights.
In addition, Keller has issued a letter, pursuant to its valuation, indicating
that the subscription rights do not have any value, based on the fact that the
rights are acquired by the recipients without cost, are nontransferable and of
short duration and afford the recipients the right only to purchase shares on
the common stock at a price equal to its estimated fair market value, which will
be the same price paid by purchasers in the community offering for the
unsubscribed shares of Bancorp common stock.
Based solely on the facts, representations and authorities as set forth in this
opinion letter and the opinion of Muldoon, Murphy & Faucette LLP, it is our
opinion that for Michigan Personal Income Tax purposes:
. No gain or loss will be recognized by eligible account holders and
supplemental account holders of Citizens First on the issuance to them of
withdrawable deposit accounts in Citizens First plus interests in the
liquidation account of the converted Citizens First in exchange for their
deposit accounts and their related interest in the residual equity of
Citizens First, or to the other depositors on the issuance to them of
withdrawable deposit accounts.
. No gain or loss will be recognized by eligible account holders and
supplemental eligible account holders of Citizens First upon the distribution
to them of the nontransferable subscription rights to purchase shares of
stock in Bancorp, provided that the amount paid for Bancorp common stock is
equal to the fair market value of such stock. Gain realized, if any, by the
eligible account holders and supplemental eligible account holders of
Citizens First on the distribution to them of nontransferable subscription
rights to purchase Bancorp stock will be recognized but only in an amount not
in excess of the fair market value of such subscription rights. Eligible
account holders and supplemental eligible account holders of Citizens First
will not realize any taxable income for state income tax purposes as a result
of the exercise by them of the nontransferable subscription rights.
Delaware Corporate Income Tax
Citizens First is neither incorporated nor currently conducting business in the
State of Delaware. Accordingly, no Delaware corporate income tax will arise to
Citizens First as a result of the conversion.
Bancorp is a domestic Delaware corporation, organized at the direction of
Citizens First to become a savings and loan holding company and own all of
Citizen First's common stock to be issued upon its conversion from mutual form
to stock form. Bancorp does not maintain any physical presence in nor conduct
any business in the State of Delaware.
Delaware Tax Law Section 1902(b)(6) exempts an entity from Delaware corporate
income tax if the corporation maintains a statutory corporate office in Delaware
but is not doing business in
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Delaware. Thus, if a company has no physical presence in Delaware and derives no
income from Delaware activities, it will be exempt from Delaware corporate
income taxation.
Based solely on the facts, representations and authorities as set forth in this
opinion letter and the opinion of Muldoon, Murphy & Faucette LLP, it is our
opinion that Citizens First will not be subject to Delaware income taxation
because it is not organized under the laws of Delaware and it does not have any
physical presence or conduct any business in Delaware. Additionally, although
Bancorp will be organized in Delaware, it will not be subject to Delaware
corporate income tax if it does not maintain any physical presence in Delaware
nor conduct any business within Delaware.
Conclusion
The opinions contained herein are rendered only with respect to the specific
matters discussed herein and we express no opinions with respect to any other
legal, federal, state, or local tax aspect of these transactions. These opinions
are not binding upon any tax authority including the Michigan Department of
Treasury or any court and no assurance can be given that a position contrary to
that expressed herein will not be asserted by a tax authority.
In rendering our opinions we are relying upon the relevant provisions of the
Internal Revenue Code of 1986, as amended, Michigan Compiled Laws and the
regulations, judicial and administrative interpretations thereof, all as of the
date of this letter.
However, all of the foregoing authorities are subject to change or modification
which can be retroactive in effect and, therefore, could also affect our
opinions. We undertake no responsibility to update our opinion for any
subsequent change or modification.
Very truly yours,
PLANTE & MORAN, LLP
/s/ Plante & Moran, LLP