A meeting to discuss the federal tax treatment disparity between banks – showered with tax relief to help them survive the current financial crisis – and credit unions -- which continue to have unrelated business income tax (UBIT) claims piled on them – has been requested by CUNA with Treasury and IRS officials.

In a letter to U.S. Treasury Secretary Henry M. Paulson, CUNA President and CEO Dan Mica points out that recent IRS decisions, made in the wake of actions taken to address the financial meltdown, have greatly enhanced “the ability of banks to shelter income by using losses incurred by other banks with which they merge.”

Mica pointed out that these efforts have the potential to “shelter billions of dollars of income to such institutions as Wells Fargo and JP Morgan Chase, which announced major acquisitions of troubled banks.”

But at the same time, the credit union leader told the Treasury Secretary, “the IRS has been aggressively reinterpreting existing law to increase the tax liabilities of state chartered credit unions, leaving less funds for them to lend.” (Federally chartered credit unions are not subject to UBIT.) “This harsh position has imposed substantial burdens on credit unions, diverting funds which might better be used to provide loans to consumers for homes, cars and education,” Mica wrote.

Noting the “urgent circumstances,” Mica requested that the IRS be directed to halt its efforts against credit unions, and a meeting be scheduled to “discuss this significant issue.”

The complete text of the CUNA letter follows:

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December 8, 2008



The Honorable Henry M. Paulson

Secretary

Department of the Treasury

1500 Pennsylvania Avenue, N.W.

Washington, D.C. 20220



Dear Secretary Paulson:



As the Treasury, with the Internal Revenue Service, has attempted to be helpful in addressing the current crisis in the financial markets, a disturbing disparity has emerged in the tax treatment of different kinds of federally insured depository institutions. I am writing to ask for an opportunity to meet with you, the IRS Commissioner, or other senior official about this matter.

Recently, the IRS issued Revenue Procedure 2008-63, greatly enhancing the ability of banks to shelter income by using losses incurred by other banks with which they merge. According to press reports, the enhanced ability of banks to utilize and accelerate their losses has the potential to shelter billions of dollars of income to such institutions as Wells Fargo and JP Morgan Chase, which have announced major acquisitions of troubled banks.

Revenue Procedure 2008-63 coincides, of course, with the massive financial bailout being made available to banks and certain lending institutions treated as banks. Because the needs of mutual institutions have not yet been addressed, credit unions have been excluded from this bailout to date, although they are engaged in exactly what the program is designed to promote—making credit available to the economy. Credit union borrowers have particular need of credit, and they should not be disfavored by IRS policies or interpretations of existing law.

Yet this is precisely the current situation. Even as it has reinterpreted existing law to favor banks, the IRS has been aggressively reinterpreting existing law to increase the tax liabilities of state-chartered credit unions, leaving less funds for them to lend. After years of indecision, the IRS has issued nineteen Technical Advice Memoranda overruling prior informal rulings that revenues from certain financial products offered by credit unions

were substantially related to their tax exempt purpose, and thus exempt from tax. This harsh position has imposed substantial burdens on credit unions, diverting funds which might better be used to provide loans to consumers for homes, cars, and education

Credit unions do not oppose needed benefits for other kinds of institutions, but they do object to increased burdens upon themselves at a time when their funds are needed more than ever to serve as a vital source of cooperative consumer finance.

We request that, in light of the urgent circumstances described above, the IRS halt its current efforts to enlarge the tax burden of credit unions. We request a meeting to discuss this significant issue.

Sincerely,



Daniel A. Mica

President/CEO

Credit Union Natl. Assn.

Washington, DC



cc:   The Honorable Anthony Ryan

        Acting Under Secretary for Domestic Finance

        Department of the Treasury

        1500 Pennsylvania Avenue, NW

        Washington, D.C. 20220



cc:   The Honorable Douglas Shulman

        Commissioner

        Internal Revenue Service

        1111 Constitution Avenue, N.W.

        Washington, D.C. 20224