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News Now

Washington
As expected Justice seeks UBIT reversal
WASHINGTON (5/26/09)—The U.S. Department of Justice, defendant in a Wisconsin court case challenging the government’s interpretation of unrelated business income tax (UBIT), has asked a federal judge to toss out the jury’s ruling in favor of the credit union. The request for reversal posits that there was no “legally sufficient basis” for a “reasonable” jury to have found in favor of Community First CU in its challenge of the Internal Revenue Service's (IRS) interpretation of UBIT assessments as it related to three insurance products. An eight-member jury, deliberating less than two hours, sided with the Appleton, Wis. credit union’s argument that all the insurance products are related to all of the credit union's purposes under Wisconsin law; that the insurance and GAP products are a source of credit with fair and reasonable rates and are directly connected to the loans made; and that the credit union educated members about the products to improve their financial conditions. The government’s request for reversal did not introduce any new arguments. Notably, prior to the outset of the court’s proceeding, U.S. District Court Judge William Griesbach questioned aspects of the government's then intended line of testimony to support the IRS. In part, Griesbach wrote: "The unstated, but apparent, premise of the government's argument is that credit life and GAP insurance could (emphasis is the judge's) be substantially related to a credit union's tax-exempt purposes if they were offered at lowered rates. That is, no one argues that credit and GAP insurance isn't related to the business of credit unions—the argument is simply that the premiums charged are too high.' Community First filed its suit in January 2008 in the U.S. District Court for the Eastern District of Wisconsin against the United States seeking a refund of $54,000 in taxes paid in UBIT on income from several insurance products. The credit union is expected to respond to the government’s latest request, but a timeframe had not yet been made public.


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