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UBIT case oral arguments end briefs due Feb. 1
DENVER (12/15/09)--Closing arguments in Bellco CU's challenge of the government's unrelated business income tax (UBIT) ended at 12:15 p.m. (MT) Friday in a U.S. District Court in Denver, with the judge requesting post-trial briefs from both sides by Feb. 1. U.S. District Judge Christine M. Arguello began hearing testimony Dec. 7 from 15 witnesses, including 11 called on behalf of the Greenwood Village, Colo.-based credit union and four called by the government, according to Eric Richard, Credit Union National Association (CUNA) general counsel, who attended the trial. "The judge asked both sides for additional briefs, due Feb. 1. She will need time to read them and make her decision, so we are not expecting an immediate outcome," Richard told News Now, adding that Judge Arguello indicated that some of the issues involved in the case are difficult. At the conclusion of the case presented on behalf of Bellco by Mike Conway of the Foley & Lardner law firm, the government moved for a summary judgment as a matter of law, saying Bellco hadn't met its burden of proof. However, Judge Arguello said Bellco had submitted plausible evidence and denied the government's motion. Bellco argued why income derived from credit life and disability insurance, as well as royalties from accidental death and dismemberment (AD&D) insurance, should not be subject to UBIT. Among Bellco's arguments were that:
* Credit insurance is substantially related to the credit union's purposes of promoting thrift and making credit available at fair and reasonable rates. All sides in the case agree that a substantially related product is tax exempt, said Richard. "The Colorado credit union statute indicates credit unions must promote thrift among their members and help make credit available at fair and reasonable rates. The products protect credit union members from loss and protect the credit union from the effects on its capital from defaults on the loans," Richard told News Now. * Credit unions have been offering and integrating the insurance in the work of credit unions at least since 1934, when CUNA and CUNA Mutual were established. * Bellco offered the best rates in Colorado on credit insurance products, and these products were valued by the Bellco members who elected them.
The government argued that credit union insurance products are a poor value for members and do not promote thrift. The government's case relied heavily on what it characterized as the low loss ratios experienced by the insurance company that worked with Bellco on some of the insurance products offered through Bellco. Also at issue is whether AD&D insurance provides royalty income, which is exempt from UBIT. "To earn royalty income, the credit union must play a passive role in marketing and administering the AD&D program. The outside parties who contract with the credit union, such as marketing and insurance companies, must do most of the work," Richard said. "We believe Bellco met this test. But the court will consider whether Bellco's time and actions spent with the product reflect more than passive involvement." Richard noted that Bellco CU President/CEO Doug Ferraro "has shown incredible dedication" on a key issue important to credit unions. "He and his key employees participated in all the preparations for this trial, including the discovery process. He testified as the first witness last week, and spent every day with counsel at the counsel table in court the entire week." Bellco filed the lawsuit in May with support of the UBIT Steering Committee, which includes CUNA, CUNA Mutual, the American Association of Credit Union Leagues and the National Association of State Credit Union Supervisors (News Now Dec. 7).


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