The Justice Department said Tuesday it won't appeal a federal court's decision that Bellco Credit Union doesn't have to pay unrelated business income tax on income from credit insurance or royalties from accidental death and dismemberment insurance.
U.S. District Judge Christine Arguello issued the ruling in April and also ruled that
a technicality that the Greenwood Village, Colo.-based credit union does have to pay a UBIT on income from credit insurance and on its profits from credit insurance sales of the Credit Union Direct Lending Association.
"The district court ruling was a victory for credit unions and a loss for the IRS," CUNA President Bill Cheney said in a statement. "We consider this fantastic news because it means that the government did not see enough merit in its own position to push it further in the courts. Now CUNA and the other members of the UBIT Steering Committee will be solidifying a strategy that will, we hope, put the UBIT issue to rest with the IRS and others for a long time to come."
Arguello, who is based in Denver, concluded that the products in question were central to the mission of the credit union and therefore shouldn't be subject to the UBIT.
"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," she wrote.
This is the second victory on UBIT for state-chartered credit unions in federal court. In May 2009, an eight-member jury ruled that the government must refund Community First Credit Union of Appleton, Wis., $54,604 paid in UBIT on sales of financial products.