Government lets UBIT filing date pass

WASHINGTON (9/16/09)—The government let its 60 days come and go and failed to file an appeal to a federal court judge's July decision that backed a favorable verdict for credit unions in an unrelated business income tax (UBIT) case.

The U.S. Department of Justice had until Sept. 12 to appeal the decision that backed Community First Credit Union in a suit against the Internal Revenue Service seeking refund for UBIT paid on credit life insurance, credit disability insurance and Guaranteed Asset Protection (GAP).

The government's decision to back off the lawsuit could have considerable impact on credit union UBIT issues.

According to attorney Michael M. Conway of Foley & Lardner LLP, in Chicago, who represented Community First, "Now accountants and tax advisors to credit unions have this court decision as 'substantial authority' that UBIT is not due on income from credit life insurance, credit disability insurance and Guaranteed Asset Protection."

Back on May 14, a jury found in favor of the credit union's refund claim of $54,604, the full amount the credit union sought, plus costs. The Justice Department then asked a trial judge to overturn the jury's verdict, which resulted in a July 14 ruling by U.S. District Judge William Griesbach.

Griesbach said that the government's challenge, which asked the court to "re-weigh the evidence and find that the jury should have preferred its version of the evidence" to the credit union's, was "outside the bounds" of what is allowed under Federal Rule 50. Under Federal Rule 50, courts may "grant judgment as a matter of law when a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue."

Eric Richard, general counsel of the Credit Union National Association, said Tuesday, "This event—or non event—is important to credit unions and could significant to the future of IRS UBIT opinions."

"After putting enormous Government resources into defending against this 'test case' and having lost at the trial level, the Government chose not to seek to overturn this decision on appeal," said CUNA General Counsel and Executive Vice President Eric Richard.

"Clearly, the government was unwilling to expose its reasoning to review by the Court of Appeals even though it had an absolute right to obtain this appellate review. Now accountants and tax advisors to credit unions have this court decision as substantial authority that UBIT is not due on credit life insurance, credit disability insurance and GAP."

In another UBIT case, Bellco Credit Union V. U.S. , Judge Christine Arguello asked both parties earlier this month reconsider their requests for a jury trial, which is currently set for Dec. 7.

Bellco, of Grand Junction, Colo., has challenged the IRS assessment of UBIT on income from three of its products, and is seeking a refund of $199,293. The amount reflects what was paid on products such as accidental death and disability insurance (AD&D), credit life and disability insurance, and financial services such as investments in 2000, 2001 and 2003, plus statutory interest.

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