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EXHIBIT 8.2
[O'REILLY, MARSH & CORTESELLI P.C. LETTERHEAD]
February 4, 1998
Board of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
186 Montague Street
Brooklyn, New York 11201-3601
RE: MUTUAL HOLDING COMPANY FORMATION AND STOCK ISSUANCE
Ladies and Gentlemen:
As requested, contained herein is the opinion of this firm relating to the
state and local tax consequences of the proposed Plan of Reorganization (as
defined herein) with respect to Atlantic Liberty Savings, F.A., a
federally-chartered mutual savings association (the "Bank" or the "Stock Bank"
as the context requires), Atlantic Liberty MHC, a federally-chartered mutual
holding company (the "Mutual Holding Company") and Brooklyn Heights Bancorp, a
federally-chartered savings and loan holding company ("Stock Holding Company").
The scope of the firm's opinion and the discussion contained herein are limited
to the following taxes:
- New York State Sales or Use Tax
- New York State License and Maintenance Fees on Foreign Corporations
- New York State Stock Transfer Tax
- New York State Real Estate Transfer Tax
- New York State Real Property Transfer Gains Tax
- New York State Banking Franchise Tax
- Personal Income Tax
- New York City Banking Franchise Tax
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In arriving at the firm's opinion, we have examined originals and copies,
certified or otherwise identified to our satisfaction, of such documents,
corporate records, certificates of public officials, certificates of officers
of the Bank, other instruments and matters of law, as we have deemed necessary
for the purposes of this opinion. As to various questions of fact material to
the opinions hereinafter set forth, we have relied upon representations or
certificates of officers of the Bank, as well as the Proxy Statement,
Prospectus and Plan of Reorganization. As to various federal tax law issues
and questions of fact material to the opinions hereinafter set forth, we have
relied on the federal tax opinion prepared by Luse, Lehman, Gorman, Pomerenk &
Schick, a professional corporation.
We have assumed the genuineness of all signatures, the authenticity of
documents submitted to us as originals, and the conformity to authentic
original documents of all documents submitted to us as certified, conformed, or
photostatic copies. In addition, we have assumed, without investigation and
without expressing an opinion, that the Plan has been duly and validly
authorized and has been approved and adopted by the Bank's Board of Directors.
The firm's opinion assumes that the Bank will comply with the terms and
conditions of the Plan and will properly implement the Plan. The firm's
opinion does not, and is not meant to, address the effects of any variations
from the Plan. Any variations may affect the opinions we are rendering. The
firm's opinion is based on current New York State and New York City laws,
regulations promulgated thereunder and caselaw.
We emphasize that the outcome of litigation cannot be predicted with certainty
and, although we have attempted in good faith to opine as to the probably
outcome of the merits of each tax issue with respect to which an opinion was
requested, there can be no assurance that our conclusions are correct or that
they would be adopted by the Department of Taxation and Finance or a court.
OPINION
NEW YORK STATE
A. NEW YORK STATE SALES OR USE TAX
For purposes of the New York State Sales or Use Tax, imposed by
Article 28 of the New York Tax Law, the proposed conversion will be tax-free.
New York State places a tax on the sale or use of tangible personal property.
Although broadly
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defined, "tangible personal property" does not include intangible personal
property. Stock has been defined by New York caselaw as intangible personal
property in the nature of a chose in action. Thus, no tax liability will be
incurred due to the exclusion of stock from the definition of "tangible
personal property."
B. NEW YORK STATE LICENSE AND MAINTENANCE FEES ON FOREIGN CORPORATIONS
For purposes of the New York State license and maintenance fees on
foreign corporations, the proposed conversion will result in tax liability. No
liability will be incurred from the Stock Bank issuance of stock to Holding
Company, but a license fee will be imposed on the Holding Company. An
exemption exists for certain banking corporations as defined in Tax Law Section
1452, but the Holding Company will be unable to qualify for the exemption since
the Holding Company will not be engaged in a "banking business." As such, it
will be subject to a license fee and a rate of one-twentieth of one per centum
(1/20%) of the apportioned par value of shares issued by the foreign
corporation. This fee is a one-time tax which would be imposed on any
additional shares issued by the Holding Company in the future. Furthermore, an
annual maintenance fee is imposed.
C. NEW YORK STATE STOCK TRANSFER TAX
For purposes of the New York State Stock transfer tax, imposed by
Article 12 of the New York Tax Law, the proposed conversion will be tax-free.
Caselaw holds that the tax does not apply to a corporation's original issuance
of stock. Thus, no tax will be imposed on the original issuance of Bank's
stock or Holding Company's stock.
D. NEW YORK STATE REAL ESTATE TRANSFER TAX
For purposes of the New York State real estate transfer tax imposed by
Article 31 of the New York Tax Law, the proposed conversion may result in tax
liability. Every conveyance of an interest in real property is subject to the
tax, however, certain exemptions do exist. It should be noted that the issue
of whether a mutual to stock conversion with a publicly-traded foreign holding
company acquiring the stock of the stock institution qualifies as a "mere
change" exemption has not been decided under New York caselaw or tax law
regulations. Under current regulations and on the basis of private letter
rulings, a position may be taken that the proposed conversion will qualify as a
"mere change" exemption and be tax-free.
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E. NEW YORK STATE REAL PROPERTY TRANSFER GAINS TAX
For purposes of the New York State real property transfer gains tax,
imposed by Article 31-B of the New York Tax Law, the proposed conversion will
not result in tax liability, as this Article was repealed effective June 15,
1996.
F. NEW YORK STATE BANKING FRANCHISE TAX
For purposes of the New York State banking and franchise tax, imposed by
Article 32 of the New York Tax Law, the proposed conversion will be tax-free.
The New York State banking franchise tax is based on net income for federal
income tax purposes, with some New York modifications. No adjustments to
income are provided with respect to transactions which are tax-free under
Internal Revenue Code Section 368(a)(1)(F). Thus, no gain or loss will be
recognized since the proposed conversion will constitute a tax-free
reorganization within the meaning of Section 368(a)(1)(F) of the Internal
Revenue Code of 1986, as amended (the "Code" or "IRC"). It should be noted,
however, that the Mutual Holding Company will be subject to New York State
banking franchise tax and will be required to file a combined New York State
banking franchise tax return with the Stock Bank and Stock Holding Company.
G. PERSONAL INCOME TAX
The beneficial ownership interest of the Bank is held by its
depositors by reason of their right to their respective deposit accounts and
interest on those accounts. After the Plan of Reorganization, each holder of a
deposit account in the Bank immediately preceding the reorganization will
continue as an account holder in the Stock Bank after the reorganization. The
reorganization will not affect the deposit balance, interest rate, and other
terms of such accounts, nor the basis of deposit accounts held by each account
holder for New York State tax purposes.
Section 611(a) of Article 22 of the Tax Law provides: "[t]he New York taxable
income of a resident individual shall be his New York adjusted gross income
less his New York deduction and New York exemptions, as determined under this
part."
Section 612(a) of the Tax Law provides: "[t]he New York adjusted gross income
of a resident individual means his federal adjusted gross income as defined in
the laws of the United States for the taxable year, with the modifications
specified in this section."
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Section 612 of the Tax Law does not contain any modification that affects the
shareholders or stockholders of the banks or corporations that are each a party
to a transaction, that for Federal income tax purposes constitutes a tax-free
transaction pursuant to Section 351(a) of the IRC.
Accordingly, if for Federal income tax purposes, no taxable income will be
realized by New York State resident individuals who are eligible account
holders and new stockholders of Stock Bank as a result of the Plan of
Reorganization, no taxable income will be realized by such eligible account
holders and new stockholders of Stock Bank for New York State personal income
tax purposes under Article 22 of the Tax Law. Also, with respect to
nonresident individuals of New York State, no taxable income will be realized
by eligible account holders and new stockholders of Stock Bank for New York
State personal income tax purposes under Article 22 of the Tax Law.
NEW YORK CITY
A. NEW YORK CITY BANKING FRANCHISE
For purposes of the New York City banking franchise tax, imposed by Part 4,
Chapter 6 of Title 11 of the New York City Administrative Code, the proposed
conversion will be tax-free. The New York City banking franchise tax is based
on net income for federal income tax purposes with some New York modifications.
No adjustments to income are provided with respect to transactions which are
tax-free under IRC Section 368(a)(1)(F). Thus, no gain or loss will be
recognized since the proposed conversion will constitute a tax free
reorganization within the meaning of Section 368(a)(1)(F) of the Code. Similar
to New York State, the Mutual Holding Company would be required to file a
combined return for New York City banking franchise tax purposes.
BACKGROUND
On August 19, 1997, the board of directors of the Bank adopted a certain Plan
of Reorganization From A Mutual Savings Association to A Mutual Holding Company
(the "Plan of Reorganization"). For what are represented to be valid business
purposes, the Bank's board of directors has decided to convert to a mutual
holding company structure pursuant to statutes. The following steps are
proposed:
(i) The Bank will organize in interim federal stock savings bank
(Interim One) as its wholly-owned subsidiary.
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(ii) Interim One will organize a federal mid-tier holding company as
its wholly-owned subsidiary (Stock Holding Company); and
(iii) Interim One will also organize another interim federal stock
savings bank as its wholly-owned subsidiary (Interim Two).
The following transactions will occur simultaneously:
(iv) The Bank will exchange its charter for a federal stock savings
bank charter and become a stock savings bank that will constructively issue its
common stock to members of the Bank;
(v) Interim One will cancel its outstanding stock and exchange its
charter for a federal mutual holding company charter and thereby become the
Mutual Holding Company;
(vi) Interim Two will merge with and into the Bank with the Bank as
the surviving entity, the former members of the Bank who constructively hold
stock in the Bank will exchange their stock in the Bank for membership
interests in the Mutual Holding Company; and
(vii) The Mutual Holding Company will contribute the Bank's stock to
the Stock Holding Company, a wholly-owned subsidiary of the Mutual Holding
Company for additional shares of Bank Stock.
(viii) Contemporaneously, with the contribution set forth in "(vii)"
the Stock Holding Company will offer to sell up to 49.9% of its Common Stock in
the Subscription Offering and, if applicable, the Direct Community Offering.
These transactions are referred to herein collectively as the "Reorganization."
Those persons who, as of the date of the Bank Conversion (the "Effective
Date"), hold depository rights with respect to the Bank will thereafter have
such rights solely with respect to the Stock Bank. Each deposit account with
the Bank at the time of the exchange will become a deposit account in the Stock
Bank in the same amount and upon the same terms and conditions. Following the
completion of the Reorganization, all depositors and borrowers who had
membership rights with respect to the Bank immediately prior to the
Reorganization will continue to have such rights solely with respect to the
Mutual Holding Company so long as they continue to hold deposit accounts or
borrowings with the Stock Bank. All new depositors of the Stock Bank
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after the completion of the Reorganization will have ownership rights solely
with respect to the Mutual Holding Company so long as they continue to hold
deposit accounts with the Stock Bank.
The shares of Interim Two common stock owned by the Mutual Holding Company
prior to the Reorganization shall be converted into and become shares of common
stock of the Stock Bank on the Effective Date. The shares of Stock Bank common
stock constructively received by the Stock Bank stockholders (formerly the
members holding liquidation rights of the Bank) will be transferred to the
Mutual Holding Company by such persons in exchange for liquidation rights in
the Mutual Holding Company.
The Stock Holding Company will have the power to issue shares of capital stock
(including common and preferred stock) to persons other than the Mutual Holding
Company. So long as the Mutual Holding Company is in existence, however, it
must own a majority of the voting stock of Stock Holding Company. Stock
Holding Company may issue any amount of non-voting stock to persons other than
Mutual Holding Company. No such non-voting stock will be issued as of the date
of the Reorganization.
ANALYSIS
NEW YORK STATE
A. NEW YORK STATE SALES OR USE TAX
New York State imposes a sales or use tax on tangible personal
property and certain enumerated services. Tax Law Section 1101, et seq. The
sales tax is a transactions tax and is imposed on the receipts from the retail
sale of tangible personal property. Although the term "tangible personal
property" encompasses corporeal personal property of any nature having a
material existence, it does not include intangible personal property. 20 NYCRR
Section 526.8. New York caselaw holds that a share of stock is intangible
personal property in the nature of a chose in action. Agar v. Orda, 264 N.Y.
248, 190 N.E. 479 (1934); Pierpont v. Hoyt, 260 N.Y. 26, 182 N.E. 235 (1933).
Accordingly, the transfer of stock in return for money does not constitute a
taxable transaction. Thus, the proposed conversion will be tax-free for
purposes of the New York State sales and use tax.
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B. NEW YORK STATE LICENSE AND MAINTENANCE FEES ON FOREIGN CORPORATIONS
New York State imposes a license tax on foreign corporations doing
business in the state. The tax is based on the foreign corporation's capital
structure and is separate from the corporate franchise tax. Tax Law Section
181 et seq. Furthermore, an annual maintenance fee of $300.00 is required.
Tax Law Section 181.2. The license tax and maintenance fee are imposed for the
privilege of exercising the corporation's franchise or carrying on business in
a corporate capacity in New York.
An exemption exists for certain banking corporations as defined in the New York
State banking franchise tax, but the Holding Company will be unable to qualify
for the exemption since the Holding Company will not be engaged in a "banking
business." As such, it will be subject to a license fee and a rate of
one-twentieth of one per centum (1/20%) of the apportioned par value of shares
issued by the foreign corporation. This fee is a one-time tax which would be
imposed on any additional shares issued by the Holding Company in the future.
C. NEW YORK STATE STOCK TRANSFER TAX
New York State imposes a tax on the sale and transfer of shares of
stock on a transactional basis. Tax Law Section 270 et seq. The original
issuance of stock by a corporation is exempt from the tax. Terminals and
Transportation Corporation v. State, 169 Misc. 703, 8 N.Y.S.2d 282 affirmed 257
App. Div. 1028, 14 N.Y.S.2d 493 (1938). Furthermore, many State Department of
Taxation and Finance Opinions of Counsel confirm this exemption. Accordingly,
no tax will be imposed on the original issuance of stock pursuant to the
proposed conversion.
D. NEW YORK STATE REAL ESTATE TRANSFER TAX ("NYS RETT")
New York State imposes a transfer tax on conveyances of interest in
realty located within the state. Tax Law Section 1415. Every conveyance of an
interest in real property located in New York is subject to tax at the time of
transfer of $2.00 for each $500.00 (or fraction thereof) of consideration given
with an additional tax on conveyance of residential real property, where the
consideration is greater than $1,000,000.00. Included in the definition of a
taxable transfer is the transfer of a "controlling interest" in an entity with
New York State real property interests. Tax Law Section 1440. A "controlling
interest" is defined as ownership of fifty percent or more of the combined
voting power of the shares of a corporation. Tax Law Section 1440.2.
The transfer of 100% of the Stock Bank's stock to the Holding Company pursuant
to a proposed conversion will be deemed a transfer of a controlling interest in
the Stock
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Bank (an entity with an interest in real property located in New York State)
and, thus, potentially subject to the New York State RETT.
Certain exemptions do apply. The tax does not apply to conveyances to
effectuate a mere change in identity or form of ownership or organization if
there is no change in beneficial ownership. Tax Law Section 1405.
Some support exists for the contention that the proposed conversion is tax-free
under "mere change" exemption. Two private letter rulings have held that the
conversion of a mutual savings bank to a stock institution is exempt from the
real estate transfer taxes the rulings primarily addressed the New York State
Real Property Transfer Gains Tax but the analysis is the same). It should be
noted, however, that both private letter rulings involved mergers of insolvent
banks under IRC Section 368(a)(1)(g). Nevertheless, the substantive reasoning
behind the rulings appear to be applicable to the proposed conversion. As
such, there exists a strong position that the proposed conversion will qualify
as a "mere change" exemption and be tax-free.
E. NEW YORK STATE REAL PROPERTY TRANSFER GAINS TAX ("GAINS TAX")
New York State no longer imposes an additional tax on gains
attributable to the transfer of real property, or an interest therein, located
in New York State where the consideration given is in excess of $1,000,000.00.
Article 31-B of the Tax Law was repealed effective June 15, 1996.
F. NEW YORK STATE BANKING FRANCHISE TAX
New York State imposes a special franchise tax on banking corporations doing
business in New York State. Tax Law Section 1451. The tax is imposed for the
privilege of doing business or exercising the corporate franchise for the
taxable year. The tax is based on net income for federal income tax purposes
with some New York modifications. The proposed conversion presents the issue
of whether the transactions will result in gains taxable under this special
franchise tax.
A corporation organized as a bank is subject to the New York State banking
franchise tax only if it is doing business in New York. It is not necessary
for a non-New York bank to be doing a full-scale banking business in New York
to be subject to the tax. Tax Law Section 1452(a). It is sufficient that it
is engaged in a banking business anywhere and is doing business in New York.
The term "doing business" is used in a comprehensive sense and encompasses most
corporate activities. See 20, Codes, Rules and Regulations ("NYCRR") of the
State of New York, NYCRR Section 16-2.7.
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The determination of whether a corporation is "doing business" in New York
State is dependent upon the facts of each case. Consideration is given to such
factors as: (i) the nature, continuity, frequency and regularity of the
activities of the corporation in New York State; (ii) the purposes for which
the corporation was organized; (iii) the location of the corporation's officers
and other places of business; (iv) the employment in New York State of agents,
officers and employees; and (v) the location of the actual seat of management
or control of the corporation.
Given that the Stock Bank and Holding Companies will maintain headquarters and
officers in New York State, all entities will be subject to the tax. The
Holding Companies will be required to file a combined New York State banking
franchise tax return with the Stock Bank. Permission must be requested from
the New York State to file a combined return. 20 NYCRR Section 21-2.5.
Although the entities will be subject to the New York State banking franchise
tax, the proposed conversion, taken as a single transaction will not result in
tax liability. The New York State banking franchise tax is based on net income
for federal income tax purposes with some New York modifications. 20 NYCRA
Section 18-2.2. No adjustments to income are provided with respect to
transactions which are tax-free for federal income tax purposes under IRC
Section 368(a)(1)(F). Furthermore, a New York State advisory opinion
specifically provided that a bank's change in form from a mutual savings bank
to a stock savings bank under an IRC Section 368(a)(1)(F) tax-free
reorganization was tax-free for purposes of the New York State banking
franchise tax. Goldome Bank for Savings, State Tax Commission, Petition No.
C831021A, 7/2/85. Thus, the proposed conversion is tax-free for the purposes
of the New York State banking franchise tax.
G. PERSONAL INCOME TAX
Accordingly, if for Federal income tax purposes, no taxable income
will be realized by New York State resident individuals who are eligible
account holders and new stockholders of Stock Bank as a result of the Plan of
Reorganization, no taxable income will be realized by such eligible account
holders and new stockholders of Stock Bank for New York State personal income
tax purposes under Article 22 of the Tax Law. Also, with respect to
nonresident individuals of New York State, no taxable income will be realized
by eligible account holders and new stockholders of
Stock Bank for New York State personal income tax purposes under Article 22 of
the Tax Law.
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NEW YORK CITY
A. NEW YORK CITY BANKING FRANCHISE TAX
An annual tax is imposed on every banking corporation doing business
in New York City in a corporate or organized capacity by the New York City
Administrative Code Section 11-612 (Part 4, Chapter 6 of Title 11). The tax is
based on the apportioned net income, as reported for federal tax purposes with
certain adjustments. A corporation organized as a bank is subject to the New
York City banking franchise tax only if it is doing business in the City of New
York. As issue is whether any of the bank entities in the proposed conversion
is "doing business" in New York City and thus, subject to the New York City
banking franchise tax.
New York City has adopted regulations similar to the state for determining the
level of corporate activity and/or presence that constitutes "doing business"
within New York City. The term "doing business" is used in a comprehensive
sense. Rule Section 3.01 states that "[e]very corporation organized for profit
and carrying out any of the purposes of its organization is deemed doing
business for purposes of the tax." Given that the Holding Companies and Stock
Bank will maintain operations in New York City, both entities will be subject
to the New York City banking franchise tax.
Taken as a single transaction, the proposed conversion will not result in tax
liability. Analogous to New York State, New York City bases the tax on net
income for federal income tax purposes with some modifications. No adjustments
to income are provided with respect to transactions which are income tax-free
under IRC Section 368(a)(1)(F). Since the proposed conversion is tax-free for
federal income tax purposes under IRC Section 368(a)(1)(F), no gain or loss
will be recognized for purposes of New York City banking franchise tax.
QUALIFICATION
The opinions set forth above represent our conclusions as to the application of
existing New York State and New York City banking franchise tax law to the
facts of the instant transaction, and we can give no assurance that changes in
such law, or in the interpretation thereof, will not affect the opinions
expressed by us. Moreover, there can be no assurance that contrary positions
may not be taken by the Department of Taxation and Finance, or that a court
considering the issues would not hold contrary to such opinions.
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All of the opinions set forth above are qualified to the extent that the
validity of any provision of any agreement may be subject to or affected by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally. We do not express any opinion as
to the availability of any equitable or specific remedy upon any breach of any
of the covenants, warranties or other provisions contained in any agreement.
We have not examined, and we express no opinion with respect to the
applicability of, or liability under, any Federal, state or local law,
ordinance, or regulation governing or pertaining to environmental matters,
hazardous wastes, toxic substances, asbestos, or the like.
It is expressly understood that the opinions set forth above represent our
conclusions based upon the documents reviewed by us and the facts presented to
us. Any material amendments to such documents or changes in any significant
fact would affect the opinions expressed herein.
The opinions set forth herein are based on current law, including statutes,
regulations, and judicial and administrative interpretations thereof. Such
statutes and regulations could be amended with retroactive effect, and such
interpretations could change. Additionally, the taxing authorities could
disagree with the conclusions contained in this opinion, and no assurance can
be given that such conclusions would be sustained by a court, if these matters
were contested.
The opinions set forth herein do not, and are not meant to, address the tax
return filing requirements of New York State of New York City.
The opinions set forth herein are furnished solely for the benefit of the Board
of Directors of Atlantic Liberty Savings, F.A. and prospective investors in
connection with the proposed transactions and is not to be relied upon or used
for any other purposes without the firm's prior written consent.
Notwithstanding the foregoing, we hereby consent to the reference to this firm
and our opinions in any Registration Statement filed by the Stock Holding
Company and all amendments thereto and the Application for Conversion filed by
the Bank and all amendments thereto, relating to the Plan.
VERY TRULY YOURS,
/s/ O'REILLY, MARSH & CORTESELLI P.C.
O'REILLY, MARSH & CORTESELLI P.C.