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WASHINGTON-House Ways and Means Committee Chairman Bill Thomas (R-Calif.) recently advocated that Congress should look into the tax-exempt status of 501(c) organizations, which includes credit unions. In a speech to the Federation of American Hospitals last week, he said the committee needed to weigh their “societal good” against their tax status, according to a report in Congress Daily. Though the chairman said he had previously considered looking into tax-exempt entities, including credit unions, this latest announcement was spurred by an argument between the American Hospital Association and the Department of Health and Human Services, the report said. Representatives from both CUNA and NAFCU have said they will not have any difficulty defending credit unions’ tax-exempt status if it comes to hearings in the House Ways and Means Committee. CUNA Senior Vice President of Governmental Affairs John McKechnie said of Thomas’ announcement, “It was a disappointment, but not a surprise.” He said CUNA’s lobbyists had been hearing rumors of the chairman’s hopes for hearings since last fall. McKechnie also highlighted that Thomas has not had a positive relationship with credit unions over his entire 13-term career in the House. Both McKechnie and NAFCU President and CEO Fred Becker pointed to Treasury Secretary John Snow’s recent remarks at CUNA’s Governmental Affairs Conference. “There is no interest, at least on the administration’s side, to tax credit unions,” Becker said. “At the same time, we’re always ready, willing and able to defend our tax-exempt status.” He also noted that Thomas has the same party affiliation as the administration, which has recently publicly opposed taxing credit unions. McKechnie agreed that the timing of Thomas’ remarks is curious but explained that, as chairman, Thomas has the prerogative to schedule a hearing. The lobbyist said he does not see congressional support for credit union taxation and does not believe it will go beyond the hearing stage. Additionally, he said, Congress as recently as 1998 with the passage of the Credit Union Membership Access Act reaffirmed its support for credit unions’ tax-exempt status. McKechnie added that it is ironic that the Ways and Means committee has also been working to expand the tax-preferred Subchapter S charter for banks and other closely held companies. NCUA Chairman Dennis Dollar weighed in, “It is the not-for-profit structure of credit unions upon which Congress has based its tax status for decades. Even as credit unions have diversified to keep pace with a changing marketplace in recent years, their not-for-profit structure has not changed.” He reminded lawmakers to “carefully consider the negative impact” taxation could have on the capital buffer for the National Credit Union Share Insurance Fund. Dollar also provided statistics demonstrating that if credit unions were subject to the federal corporate income tax over the last 10 years, their capital ratio would be $14 billion less. Currently, credit unions’ capital ratio stands at 10.7%, but it would be 8.4% if they had been taxed. “The NASCUS organization will carefully monitor any discussion in Congress concerning the tax-exempt status of federal credit unions as changes in federal law may have an impact on state chartered credit unions as well,” NASCUS President and CEO Mary Martha Fortney said. However, she pointed out that just as state legislatures make tax decisions at the state level, so federal taxation should be made by Congress. America’s Community Bankers Chairman William W. Zuppe called Thomas’ actions “courageous” for investigating tax-exempt organizations and their value to society. “Larger credit unions are rapidly expanding into business and commercial lending, while paying no federal taxes. Zip. . .nada. . .nothing,” Zuppe said. “We agree with Chairman Thomas that one must look at the “societal good” provided by credit unions, and determine whether today’s credit union industry has strayed from the original mission for which it was given preferential tax treatment-to serve customers of modest means.” He pointed out that the estimated cost of credit unions’ tax exemption through 2009 is about $7.9 billion, according to the administration’s fiscal year 2005 budget. The American Bankers Association welcomed the review of credit unions and others’ tax-exempt status to determine if their public value outweighs that of for-profits. “We’re pleased to see a key leader like Chairman Thomas take on this long-overlooked issue,” ABA Chairman Ken Fergeson, chairman of $290 million NBanC, commented. “There should be a point at which tax exemptions end if the organizations have strayed from their original purposes. Many credit unions have morphed into full-service financial institutions that today are virtually indistinguishable from community banks.” The Independent Community Bankers of America President and CEO-elect Camden R. Fine applauded Thomas’ decision. “In their quest to compete with banks and expand their commercial lending powers, credit unions have lost sight of their statutory mission, which is to provide financial services to people of small means,” Fine stated. “The credit union tax exemption, which is estimated to cost the Treasury $7.9 billion through 2009, should be examined to determine whether it still has any value to the public.” [email protected]

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