CUs Bulk Up for UBIT Assault
WASHINGTON -- With next May's trial date in place for the lawsuit over the unrelated business income tax, credit union industry officials say there will be additional attempts to challenge the IRS' interpretation of the law.
CUNA Executive Vice President and General Counsel Eric Richard said there will be another lawsuit filed "within the month," though he declined to reveal which credit union will file it.
He noted that state-chartered credit unions need the issue cleared up because of the high amounts some credit unions have to pay in these taxes on top of the regulatory compliance costs.
"Congress has said credit unions can do certain things, such as offering insurance products, but the IRS is saying that income from those is taxable, which goes against what Congress intended," Richard said.
Community First Credit Union's lawsuit over the IRS' interpretation of the UBIT is scheduled to be heard May 9, 2009, U.S. District Judge William C. Griesbach announced last week.
Community First is seeking a refund of $54,000 that the IRS claimed was owed based on the sale of credit life and credit disability insurance and guaranteed auto protection insurance. The credit union contends that the IRS should not have levied a UBIT on these services because they are financial services that help mitigate losses to the credit union, enable the credit union to grant loans and thus further the mission of credit unions.
All state-charted credit unions--40% of all credit unions--are potentially subject to the UBIT. Federally chartered credit unions are not affected because they are governed by a different portion of the Internal Revenue Code.
State-chartered credit unions contend that being subject to UBIT undermines the dual chartering system by creating a financial disadvantage for them.