Exhibit 8.3
August 3, 1998
Board of Trustees
Cortland Savings Bank
1 North Main Street
Cortland, New York 13045
Board of Directors
CNY Financial Corporation
1 North Main Street
Cortland, New York 13045
Ladies and Gentlemen:
This letter constitutes our opinion as to certain federal income tax issues
related to the proposed establishment of a private foundation (the "Foundation")
in connection with the proposed conversion (the "Conversion") of Cortland
Savings Bank (the "Bank") from a federally chartered mutual savings bank to a
federally chartered stock savings bank followed by the acquisition of the Bank's
capital stock by CNY Financial Corporation (the "Company"), a Delaware
corporation, pursuant to the Plan of Conversion (the "Plan").
The opinions contained herein are based solely on the facts and
circumstances stated herein and those described in the Prospectus of CNY
Financial Corporation included in Amendment No. 1 to the Registration Statement
on Form S-1, file no. 333-57259, as filed with the Securities and Exchange
Commission on or about August 3, 1998. All Section references are to the
Internal Revenue Code of 1986, as amended (the "Code") as in effect as of the
date of this opinion.
STATEMENT OF FACTS
The Board of Trustees of the Bank has adopted a plan of conversion to
convert from a mutual savings bank to a stock savings bank. In connection with
the anticipated mutual-to-stock conversion, the Company has been formed. The
primary initial activities of the Company will be ownership of its wholly-owned
subsidiary, the Bank, and the investment of the net proceeds from the Conversion
remaining in its hands after acquiring
100% of the capital stock of the Bank including the funding of a loan to its
Employee Stock Ownership Plan.
The Boards of the Company and the Bank wish to share part of the financial
success of the Company and the Bank with the communities which the Bank serves.
Therefore, the Board of the Company has decided that it would be appropriate to
establish a private foundation completely dedicated to performing charitable
causes within the Bank's market area. The Foundation will be incorporated under
New York law as a not-for-profit corporation.
The Foundation's Board of Directors will initially consist of three
members, a majority of whom will be members of the Board of Directors or
Officers of the Company, the Bank or an affiliate or subsidiary of the Company
or the Bank.
The Bank will contribute to the Foundation up to $100,000 in cash. The
Company will donate to the Foundation, at or about the time of the consummation
of the Conversion, an amount of its common stock equal to 2% of the common stock
sold in the Conversion. The Foundation will pay an amount equal to the par value
of the donated stock, which will be $0.01 per share, for an aggregate nominal
consideration of from $1,041 to $1,620, depending upon the number of shares
sold. Based upon the $10.00 per share initial offering price of the Company's
common stock, the Foundation will thus own between $1,041,250 (at the minimum)
and $1,620,062 (at the super-maximum) in shares of the common stock of the
Company based on the original purchase price of $10.00 per share, or 1.96% of
the issued and outstanding common stock of the Company.
SUMMARY OF OPINIONS
Accordingly, based upon the facts and representations stated herein, it is
the opinion of Serchuk & Zelermyer, LLP regarding the federal income tax effect
of the planned establishment of the Foundation that:
1) The Foundation will qualify as an organization described in Sec. 501(c)(3)
of the Code and will be a private foundation rather than a public charity.
2) The Company will be entitled to a charitable contribution deduction in the
manner and to the extent provided in Section 170 of the Code for its
contributions of stock to the Foundation.
3) The amount of the charitable contribution deduction will be the difference
between the amount that the Foundation is required to pay the Company
pursuant to Delaware law and the fair market value of the shares on the
date of the contribution plus the initial funding of the Foundation,
subject to the limitation imposed by Section 170(d)(2) of the Code as
discussed below.
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4) The purchase of the stock of the Company by the Foundation will not
constitute an act of self-dealing.
No opinion is expressed herein regarding whether or not the requirement
imposed by regulatory authorities that the Common Stock of the Company owned by
the Foundation must be voted in the same proportion as other shares of Common
Stock outstanding could have an adverse effect on the qualification of the
Foundation under Section 501(c)(3). Further, no opinion is expressed regarding
the effect of any other regulatory restrictions which may be imposed on the
Foundation.
DETAILED ANALYSIS
CHARITABLE CONTRIBUTION DEDUCTION
Subject to certain limitations, Section 170(a) of the Code provides for the
deduction of contributions and gifts to or for the use of organizations
described in Section 170(c) of the Code, payment of which is made within the
taxable year. The Foundation will be a private foundation organized exclusively
for charitable purposes. Contributions to the Foundation will be deductible as
charitable contributions for federal income tax purposes.
If a charitable contribution is made in property other than money, Treasury
Regulation 1.170A-1(c) provides that the amount of the deduction is the fair
market value of the property at the time of the contribution. The fair market
value of the property is the price at which the property would change hands
between a willing buyer and a willing seller.
Section 1032 of the Code provides that no gain or loss is recognized to a
corporation on the receipt of money or other property in exchange for stock
(including treasury stock) of such corporation. Thus, no gain is recognized to
the Company if it sells its stock at fair market value.
Section 170(e) of the Code provides for a reduction in the amount of
charitable contributions of property to private foundations. Treasury Regulation
1.170A-4(a) provides, in general, that the value of the contribution must be
reduced by the amount of gain that would have been recognized if the property
had been sold at its fair market value at the time of the contribution. Thus,
the amount of deduction is generally limited to the taxpayer's basis in the
property.
Rev. Rule 75-348, 1975-2 C.B. 75, holds that a corporation that pledges to
sell shares of its common stock at a specified price to a charitable
organization is entitled to a charitable contribution deduction, in the taxable
year the pledge is exercised, for the excess of the fair market value of the
shares on the date of the exercise over the exercise price. The Revenue Ruling
discussed the interplay of Section 1011(b), relating to bargain sales of
property sold to a charitable organization, and Section 1032. The Ruling states
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that Section 1011(b) is not applicable because under Section 1032, no gain would
be recognized. Accordingly, the contribution does not have to be reduced by the
potential gain if the stock had been sold.
Therefore, the Company will be entitled to a charitable contribution
deduction in the manner and to the extent provided in Section 170 of the Code
for its contribution of stock to the Foundation. Due to the provision of Section
1032, the reduction provisions found in Section 170(e) will not be applicable to
the deduction that arises upon the contribution of the stock. The amount of the
charitable contribution deduction will be the difference between the par value
that the Foundation is required to pay the Company pursuant to Delaware law and
the fair market value of the shares on the date of the contribution. Such amount
should be the mean between the highest and lowest quoted selling price on that
date less $.01 per share. For purposes of this letter, we assume that amount
will be $9.99 per share. Section 170(b)(2) limits the charitable contribution
deduction of a corporation for any taxable year to 10 percent of taxable income
computed without the charitable contribution, certain special deduction, net
operating loss carrybacks and capital loss carrybacks.
Section 170(d)(2) of the Code allows the taxpayer to carry over the excess
contribution to each of the five succeeding tax years. Any amount contributed in
the succeeding years, plus the carry over amount, is subject to the 10 percent
limitation. Accordingly, the Company has 6 years in which to use the charitable
contribution in its consolidated Federal income tax returns.
SELF-DEALING
Section 4941 of the Code imposes an excise tax on acts of self-dealing
between a disqualified person and a private foundation. Generally, a
disqualified person is someone who manages the foundation or who is considered a
"substantial contributor" to the foundation. In addition, disqualified persons
include family members, businesses, and other entities related to a foundation
manager or a substantial contributor.
Although disqualified persons may generally make gifts to private
foundations, foundations are precluded from engaging in most other transactions
with disqualified persons. It is immaterial that the foundation actually derives
a benefit from the self-dealing transaction.
Treasury Regulation 53.4941(d)-1(a) provides that an act of self-dealing
does not include a transaction whereby the disqualified person status arises
only as a result of the transaction. As an example, the regulations indicate
that a transfer of property to a private foundation is not an act of
self-dealing if the seller becomes a disqualified person only as a result of the
seller becoming a substantial contributor as a result of the bargain element of
the sale. Therefore, if the Company is not a disqualified person just prior to
the transfer, the transfer will not be an act of self-dealing.
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The opinions contained herein are rendered only with respect to the
specific matters discussed herein and we express no opinion with respect to any
other legal, federal, state or local tax aspect of these transaction. This
opinion is not binding upon any tax authority including 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, and the regulations, judicial and
administrative interpretations thereof, 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.
This opinion is given solely for your benefit and may not be relied upon by
any other party or entity or referred to in any document without our express
written consent. We consent to the inclusion of this opinion as an exhibit to
Amendment No. 1 to the Registration Statement on Form S-1 referenced above as
filed with the Securities and Exchange Commission.
Very truly yours,
/s/ Serchuk & Zelermyer, LLP
SERCHUK & ZELERMYER, LLP
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