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CU System
Ruling a milestone CUNA tells IBNA Daily Tax ReportsI
WASHINGTON (5/20/09)--A court ruling in Wisconsin last week that refunded to a credit union the entire unrelated business income tax (UBIT) it paid for credit life and disability life insurance and a guaranteed asset protection (GAP) product is a milestone, according to the Credit Union National Association (CUNA). The ruling follows 12 years of effort to obtain clarity from the Internal Revenue Service on credit union tax liability, CUNA Executive Vice President and General Counsel Eric Richard said. "We hope this will lead the IRS to reconsider its entire position on UBIT for credit unions," he said (BNA Daily Tax Report May 19). A jury in the U.S. District Court for the Eastern District of Wisconsin Thursday awarded Community First CU of Appleton, Wis., the full amount of the tax refund it sought--$54,604--plus trial costs. The jury found that the insurance and GAP products the credit union provided members were "substantially related" to the credit union's purpose. To be exempt from UBIT, products must relate to the purpose of the credit union. "It was a wonderful and decisive victory for state charter credit unions," said Cathie Tierney, CEO of Community First CU, said during a telephone conference call that CUNA conducted with news media Monday. Only state-chartered credit unions pay UBIT taxes. She noted that similar products have been offered by credit unions for more than 70 years and the government couldn't make its case that the products weren't part of credit unions' mission. Brett Thompson, president/CEO of the Wisconsin Credit Union League, said the ruling should send a message to IRS, which he said is stuck in a "time warp" seemingly believing that tax-exempt credit unions should not offer services beyond basic loans and savings accounts. The U.S. has 10 days to submit in writing a motion to overturn the jury's verdict. The credit union would then have 10 days to rebut that motion. "It's rare for those motions to be granted, but not unheard of," Richard said. The government could then appeal. An appeal, however, would have to be approved by the U.S. Solicitor General before it could proceed. Community First filed the lawsuit against the government in January 2008 with the support of the UBIT Steering Committee--CUNA, the American Association of Credit Union Leagues, CUNA Mutual Group and the National Association of State Credit Union Supervisors. Meanwhile, another credit union is preparing its court case against the IRS's interpretation of UBIT for a Denver court. Bellco CU, Greenwood Village, Colo., is seeking a refund of $199,000 it paid in UBIT taxes for similar products during 2000, 2001 and 2003. A court date has not been set.


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