WASHINGTON (1/16/07)—Community First CU filed a complaint Tuesday in federal court challenging the Internal Revenue Service (IRS) on its determinations that certain insurance products offered to members fall outside the credit union’s main mission and are subject to unrelated business income tax (UBIT). Community First, based in Appleton, Wisc., is seeking a refund of taxes paid on income from several insurance products. The credit union said at issue is about $54,000 in taxes it paid in 2006 on income from the sale of credit life and credit disability insurance, and guaranteed auto protection (GAP) insurance. While no outside parties are expected to be allowed to join the case, Community First’s decision to sue the IRS received the support of the Credit Union National Association (CUNA), the American Association of CU Leagues, the National Association of State CU Supervisors and CUNA Mutual Group, which comprise the UBIT Steering Committee. CUNA EVP and General Counsel Eric Richard said at a press conference Tuesday that the entire credit union movement owes Community First “a debt of gratitude’ for taking on the UBIT issue in federal district court. “The IRS position is untenable,” Richard said, “They say credit unions should pay taxes even on some financial services products offered to their own members on a cooperative, not-for-profit basis. That’s just wrong--and we think the court will agree with us. “We believe Community First Credit Union has a strong case to make to the court and we want to compel IRS to adopt a more reasonable position. This is an important policy issue for the entire credit union movement, as well as specifically for Community First. Our role at CUNA, and with the other system players, is to ensure the movement understands we are working together to address this issue and get it fixed.” Larry Blanchard, CUNA Mutual Group senior vice president, noted that the UBIT Steering Committee has been trying to work out UBIT issues with the IRS for more than ten years. He said the UBIT challenge ranks high in importance for the credit union movement, and added that it is close to H.R. 1151, the Credit Union Membership Access Act, and establishing an independent regulator for credit unions. In its petition to the United States District Court for the Eastern District of Wisconsin, Community First requested a trial by jury for its UBIT challenge. Naming the United States of America as defendant, the credit union charged that the defendant, through the Commissioner of Internal Revenue, “has aggressively sought to characterize income from certain activities of state-chartered credit unions to be unrelated business income and therefore subject to UBIT.” “Community First fundamentally disagrees with the Defendant’s position that such income is unrelated business taxable income subject to UBIT,” the court document added and explained that the credit union seeks through its lawsuit to obtain a legal determination binding on the United States that income derived from the credit union activities identified in the complaint does not constitute unrelated business taxable income. NASCUS President/CEO Mary Martha Fortney, voicing her group’s support of the credit union’s legal action, said, “State regulators and state legislators have long recognized that credit unions must evolve their products and services to meet the needs of their members. The IRS must understand that credit unions offer certain products to their members in an effort to promote thrift and savings, as a part of the credit union’s purpose.” Catherine J. Tierney, Community First’s president and CEO, called the decision to sue the IRS “daunting,” but said it was made because her credit union believes “unequivocally that these products are integral to our services to members.” “It is daunting to stand up to the IRS—but we do it for our members who would have to bear the cost of this tax ultimately.” Also speaking at the press conference, Brett Thompson, Wisconsin CU League president/CEO, said Community First “acted in the best interest of its members.” He added that his league and all the state leagues support the credit union in its effort. CUNA’s Richard said that it “would be reasonable to expect” the case to be resolved at the district court level in a year’s time.