Bellco Credit Union doesn't have to pay unrelated business income tax on its income from credit insurance or on royalties from accidental death and dismemberment insurance. On a technicality, it does have to pay a UBIT on income from credit insurance and on its profits from credit insurance sales of the Credit Union Indirect Lending Association, a federal judge ruled Friday.
"In the banking and credit union context, the concept of thrift is tied to sound financial management...Credit insurance does just that...For a relatively marginal payment, the borrower buys peace of mind," U.S. District Judge Christine Arguello wrote.
"Giving members a convenient way to purchase insurance that protects them, their families, and their assets in the event of a catastrophic event certainly qualifies as a mechanism for careful management of the borrowers' money. None of the government's arguments convince the court otherwise," she said in the decision in the suit filed by the Greenwood Village, Colo.-based credit union against the IRS.
The judge upheld the UBIT on Bellco's profits on credit insurance through the CUILA because system changes led to inadequate data for 2000 and parts of 2001. She ruled that the credit union couldn't prove that the income excluded items that weren't tax exempt.
Editor's note: This is a corrected story.