Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 68-63

1968-1 C.B. 439

IRS Headnote

Where a State bank is converted into a national bank pursuant to section 35, title 12, United States Code, the national bank is considered the same employer and taxpayer as the State bank for Federal Unemployment Tax Act purposes. The national bank should file one return, Form 940, for the entire taxable year and is entitled to the credits against such tax provided by section 3302 of the Act for contributions made by the State bank into State unemployment funds.

S.S.T. 188, C.B. 1937-2, 377, distinguished.

Full Text

Rev. Rul. 68-63

Advice has been requested whether, for purposes of the Federal Unemployment Tax Act (Chapter 23, subtitle C, Internal Revenue Code of 1954), a new employer is created upon the conversion of the S State bank into the Y national bank, and whether separate returns under the Act, Form 940, are required to be filed, one for the State bank and one for the national bank.

When the S State bank was converted into the Y national bank it surrendered its State franchise and was issued a national banking association charter. The conversion did not interrupt the bank's business, and there was no change of officers or personnel. The bank continued to be a member of the Federal Reserve system, and its deposits continued to be insured by the Federal Deposit Insurance Corporation. As permitted by the National Banking Act, 12 U.S.C. 35, the directors of the bank at the time of conversion continued to be directors of the national banking association and will so serve until their successors are elected or appointed and have qualified in accordance with law.

The S State bank was converted into the Y national bank under the National Banking Act. This Act provides, in part, that any bank incorporated by special law of any State or organized under the general laws of any State and having an unimpaired capital sufficient to entitle it to become a national banking association under the provisions of the existing laws may, under certain specified conditions, be converted into a national banking association, provided that the conversion shall not be in contravention of State law.

The applicable section of the State banking law provides, in part, that the franchise of a State bank as a State bank shall automatically terminate when its conversion into a national banking association under a Federal charter is consummated, and that the resulting national banking association shall be considered the same business and corporate entity as the State bank, although as to rights, powers and duties the resulting bank is a national banking association.

Under these circumstances, the Y national bank is regarded as the same employer and taxpayer as the S State bank for purposes of the Federal Unemployment Tax Act. That is to say, if individuals are employed by the bank for the appropriate 20-week period during the calendar year in which the conversion occurred, liability for the Federal unemployment tax is incurred by the Y national bank whether it employed them for 20 weeks or whether that period was divided between the S State bank and the Y national bank. Credits against the Federal unemployment tax provided by section 3302 of the Code for contributions made by S State bank into State unemployment funds with respect to such employment are allowable to the Y national bank.

The conclusion in the preceding paragraph is in full accord with G.C.M. 24423, C.B. 1945, 145, which states that `a new taxable entity is not created upon the conversion of a State bank into a national bank pursuant to section 35, title 12 , United States Code, and in such cases only one Federal income tax return is required for the entire taxable year.' Compare Revenue Ruling 62-60, C.B. 1962-1, 186, relating to the effect of a statutory merger or consolidation upon an absorbed corporation and the resultant entity with respect to tax liability under the Federal Unemployment Tax Act.

The conclusion that the Y national bank is the same employer as the S State bank is also applicable for purposes of the taxes imposed under the Federal Insurance Contributions Act and the Collection of Income Tax at Source on Wages (chapters 21 and 24, respectively, subtitle C of the Code).

The Y national bank should furnish one Form W-2, Wage and Tax Statement, to each employee showing as one total the wages paid in the year of the conversion by one or both banks. A single Form W-3, Reconciliation of Income Tax Withheld and Transmittal of Wage and Tax Statements (Forms W-2) should be filed by the Y national bank, and the amount of income tax withheld by each bank need not be separately identified. On Form 941, Employer's Quarterly Federal Tax Return, for the quarter in which the conversion occurred and one Form 940, Employer's Annual Federal Unemployment Tax Return, for the calendar year in which the conversion occurred should be filed by the Y national bank covering the wages paid by both banks during those periods.

The first return filed by the Y national bank subsequent to the conversion should be accompanied by information indicating the change which has taken place, the date of the change, and the name in which returns, etc., will be filed thereafter.

The conclusion that the Y national bank is the same employer as the S State bank is distinguishable from the ruling in S.S.T. 188, C.B. 1937-2, 377. S.S.T. 188 holds that where a company incorporated under the laws of one State discontinues business, surrenders its charter, and incorporates in another State, it becomes a separate and distinct legal entity and, therefore, a separate employer, and that the former corporation ceases to be an employer. In the case of Y national bank, however, both State and Federal laws treat the resulting national bank as the same corporate entity as the State bank and therefore there is only one taxable entity and one employer for the purposes of the Federal Unemployment Tax Act, the Federal Insurance Contributions Act and the Collection of Income Tax at Source on Wages.