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Community First UBIT decision backs other exemptions claims
WASHINGTON (11/6/09)--The decision in the Community First CU v. United States case constitutes “substantial authority” for the position that the products covered in the case are not subject to unrelated business income tax (UBIT) for credit unions that are situated similarly to Community First, law firm Foley & Lardner LLP concluded in a recent memo to credit unions and credit union legal, tax, and accounting advisors. The memo provides general information about the Community First case and tax law, and notes that each individual state-chartered credit union—in consultation with its accountant and other advisors—must determine for itself whether the Community First decision constitutes “substantial authority” sufficient for the credit union to not pay UBIT on sales of credit insurance and GAP products without penalty. A jury on May 14, 2009 found in favor of Community First’s refund claim for a total of $54,604 in UBIT taxes that the credit union paid on sales of credit life insurance, credit disability insurance, and Guaranteed Asset Protection products to its members, plus costs. The Justice Department at that time asked a trial judge to overturn the jury's verdict, and a judge in July upheld the jury verdict in a written opinion. The government did not appeal this decision. The Internal Revenue Service’s UBIT policy addresses income that is deemed to be "substantially unrelated to the purpose of a tax-exempt organization." State-chartered credit unions with more than $1,000 in UBIT must report the tax on an IRS 990-T form. However, federally-chartered credit unions are not subject to UBIT. Foley & Lardner LLP is counsel to the UBIT Steering Committee, which is composed of representatives from the Credit Union National Association (CUNA), CUNA Mutual Group, the American Association of Credit Union Leagues and the National Association of State Credit Union Supervisors. To read the Foley & Lardner LLP memo in full, use the resource link.


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