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UBIT judge ponders governments premise
WASHINGTON (4/30/09)— A district court judge’s pre-trial decision in an unrelated business income tax—or UBIT—case not only came out in favor of the plaintiff credit union’s witness list, it also pondered the premise of the government’s tax arguments. The case involved is Community First CU v. United States of America. The Appleton, Wis. credit union filed 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. Community First CU 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. May 11 is the date set for a jury trial. On Tuesday, U.S. District Court Judge William Griesbach rejected the request of the government to disallow certain of the credit union’s witnesses, but also did not block any defendant witnesses. Notably, the judge also used the occasion to question aspects of the government’s intended line of testimony to support the Internal Revenue Service's UBIT position. For instance, 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.’ Noting that the credit union has said that 51% of its expenses take the form of dividend payouts to member deposits, the judge went on to ponder that members are “actually the beneficiaries of the insurance products in more ways than one.” “It would be one thing if there were allegations of lavish executive perks or waste,” the judge wrote adding that, instead, it appears the bulk of the premiums “is actually going into the pockets of the members who are depositors.” If that’s the case, Griesbach said, it seems the government’s objections to cost are “crippled.” Although the case will be decided by jury, the judge will decide points of law and instruct the jury in the case.


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