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Judge denies stay in Bellco UBIT case
WASHINGTON (1/29/09)—There was recent good news for Bellco CU in its lawsuit challenging the Internal Revenue Service’s (IRS) application of unrelated business income tax (UBIT). A federal court denied the government’s request to dismiss the case or order a stay of action. Attorneys for the IRS had argued that the case could not be decided until the IRS finished all of its audits of Bellco's tax returns. “It was rightfully a losing argument because the Internal Revenue Code specifically allows taxpayers to bring refund suits after their refund requests have been pending for six months,” noted Eric Richard, general counsel for the Credit Union National Association (CUNA). Bellco, of Greenwood, Colo.. filed its lawsuit last May against the tax agency's UBIT policies toward credit unions. The complaint seeks a refund of $199,000, based on UBIT taxes paid for 2000, 2001 and 2003. Now Bellco must wait for a trial date to be set. The trial date for the case, known as Bellco CU of Greenwood Village, Colo. vs. the United States, had originally been set for Aug. 31. On Dec. 22, 2008, however, U.S. District Court Judge Christine M. Arguello ordered that the date was "vacated." She did not set a new trial date and no reason was given for the delay. Of the latest action in the case, CUNA’s Richard said Bellco has moved one step closer to its goal of compelling the IRS to adopt a more reasonable position on UBIT. He said Bellco has a strong case, “essentially seeking to right a wrong that IRS has committed by forcing cooperatively owned, not-for-profit credit unions to pay tax on some of the financial services they offer.” The credit union’s refund claim is based on income generated primarily through sales of credit life and credit disability insurance over those three tax years. Revenue generated from sales of accidental death and disability insurance, and the credit union's involvement with CFS Member Financial Services, a credit union service organization, were included under the 2003 refund claim. The lawsuit contends that the revenue is substantially or otherwise related to the exempt purposes and functions of the credit union as a tax-exempt, state-chartered credit union. Bellco has asserted that no portion of the taxes paid were legally due. In a related case, a Wisconsin credit union filed a complaint in January 2008 against IRS seeking a refund of $54,000 in taxes paid in UBIT on income from several insurance products. Appleton-based Community First CU also contends that the revenue from sale of the products is "substantially related" to the purposes and functions of the tax-exempt, state chartered credit union. Federal Judge William Griesbach has set May 11 as the trial date for that case.


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