Senate Finance Chairman Orrin Hatch (R-Utah) is asking the IRSto require federal credit unions to file annual information returnswith the agency in an effort to ensure that they are complying withthe role Congress gave them.

In a letter today to Acting IRS CommissionerDavid Kautter, Hatch said if the IRS chooses to require federalcredit unions to file Form 990, it could require just the largestand most complex to file.

And he made it clear that the IRS has the power to institutethis requirement now and does not need congressional approval to doit.

Under federal law, federal credit unions don't have to file theinformational return. However, state-chartered credit unions mustfile the document even though they are tax exempt.

Hatch has questioned whether the credit union tax exemption isoutdated.

“Congress provided this exemption for express purposes and hasan obligation to maintain oversight of credit union activity toensure that they continue to fulfill its intended vision,” he saidin his letter to the IRS.

He said that Congress and the IRS have the responsibility tomonitor whether credit unions still deserve the tax exemption.

Hatch said that in recent years, the NCUA has relaxed field ofmembership rules, expanded commercial lending and permitted the useof alternative capital under certain circumstances.

“While these are all well-intentioned decisions, they shouldgive us occasion to pause and review the current state of America'slargest credit unions,” Hatch said.”

He added that since federal credit unions were given theirexemption, “there is no question that federal credit unions havegrown in size and complexity, which should give us pause to reflectwhether that exemption is still warranted.”

Hatch's letter follows a letter from NCUA Chairman J. Mark McWatters inwhich the NCUA chief said that if Congress chose to repeal theexemption, it would have a devastating impact on the shareinsurance fund and could result in a taxpayer bailout.

Credit union trade groups on Monday praised the McWattersresponse.

“The NCUA has thoroughly responded to Chairman [Orrin] Hatch'sinquiries, with specifics laying out how the loss of the creditunion tax exemption would impact credit unions and the Americantaxpayer,” said NAFCU Executive Vice President of GovernmentAffairs and General Counsel Carrie Hunt.

CUNA President/CEO Jim Nussle said that Hatch had askedreasonable questions.

“In response, Chairman McWatters correctly states that Congresshas conveyed the credit union tax status based on credit unions'structure as not-for-profit financial cooperatives and theirmission to promote thrift and provide access to credit forprovident purposes,” he said.

However, the American Bankers Association was not soimpressed.

“No one wants to eliminate the federal tax exemption for allcredit unions — just for the five percent of institutions thatenjoy 75 percent of the tax exemption,” said BA spokesperson JeffSigmund. “The fact that NCUA claims that credit unions would need ataxpayer bailout without the tax exemption is extremely troublingand raises more questions than it answers. Maybe if they spent lesson stadium naming rights deals and exorbitant executivecompensation packages they wouldn't be in this situation.”