WASHINGTON -- CUNA Mutual Group Senior Vice President Larry Blanchard moderated a panel discussion and update on unrelated business income tax at GAC that reported an expected two years ahead on the recent suit filed with the Wisconsin Federal Court.
A response is expected on March 24 with disclosures and conferences from April through May and discovery starting in June through January 2009. March 2009 would be the approximate time for the trial with a decision in April and appeals taking place from 2009 through 2010.
"If we lose we will appeal. We will not give up," General Counsel and Chief Legal Officer for CUNA Mutual Group Faye Patzner said. "We expect the Internal Revenue Service to do the same so we expect this to be a two-year process."
Brett Thompson, president of the Wisconsin Credit Union League, discussed the public relations campaign that comes with the suit filed by Community First Credit Union in Appleton, Wisconsin.
"In our support for Community First, we helped them develop talking points to use in concerns from members and suggested they write a letter to members to let them know a suit was being filed," Thompson said. "The response from the members was very supportive."
Thompson went on to explain the importance of relaying the message that the objective in challenging the IRS rulings on UBIT is to preserve credit unions and "protect the integrity of what a credit union is all about."
Thompson also stressed the importance of league participation and support from credit unions that wish to file a suit. "It's important for leagues if not just for the reason that its another piece to the never-ending puzzle of regulatory issues credit unions face."
The panel explained that the IRS has a very narrow view that a credit unions basis is to offer loans and take deposits. "Our position is to say that our purpose is anything a bank can offer in a nonprofit way," Blanchard said.
Patzner addressed concerns about filing a suit by saying, "You ask the question do we really want to be suing the IRS and I'm here to tell you business do it all the time."
Patzner said that a second case will be filed in April but that they are not yet disclosing where it will be filed.
Aside from the current suits filed, the credit union movement's legal challenge, the UBIT Steering Committee is taking an active role to educate and answer questions
Blanchard outlined the committees approach as a three-tier method to administrate, litigate, and legislate.
CUNA General Counsel and Executive Vice President Eric Richard went over the application of UBIT to credit unions and what is and is not taxable. Interchange fees from debit and credit cards, check printing, collateral protection insurance, and ATM fees from members are not taxable, but insurance-related income--including credit insurance, AD&D, group life, health-related insurance, GAP insurance--securities and investment products, and non-member ATM fees are taxable under UBIT.
In discussing litigation, Patzner addressed the issue of the IRS finding insurance a taxable unrelated business for credit unions. "Credit union insurance has been a part of credit unions since the beginning so to say that its not is ridiculous so that will be part of litigation."
Richard explained that there are several other credit union activities that the IRS has not commented on.
"They only address products that come across in their audit. They don't address issues on a theoretical basis," Richard said.
Debt cancellation, overdraft fees, CUSOs, and business loan participants are among the activities that have not been commented on by the IRS.
"We're going through the process to restructure programs to make them non-taxable," Blanchard said.
In a question from the audience about whether or not to wait to file 990-T, Patzner brought up the point that in January of 2009 tax advisors will have to state a reason as to why their client is not filing so credit unions' time to take "the wait and see approach" is closing.
For the preservation of rights, Patzner recommended credit unions should file a refund claim.