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WASHINGTON – In a joint letter to House Ways and Means Committee Chairman Bill Thomas (R-Calif.), the American Bankers Association and America’s Community Bankers have asked that federal credit unions’ exemption from filing a Form 990 with the Internal Revenue Service be revoked. Credit unions presently do not have to file a Form 990-Return of Organization Exempt from Income Tax-with the IRS. Revenue Ruling 89-94 exempted federal credit unions as an “instrumentality of the United States,” according to the bankers’ letter. This definition is crucial for credit unions, because it also keeps federal credit unions off the hook for the Unrelated Business Income Tax as well. Many state chartered credit unions had also not been paying UBIT, but lagging economies in a number of states have turned the governments’ scrutiny on credit unions. The big problem for credit unions is that some states are questioning whether what some consider core credit union activities, like selling checks to members, should fall under UBIT. However, the bankers’ letter, signed by ABA Executive Vice President Robert R. Davis and ACB Executive Vice President Edward L. Yingling stated, “Federal credit unions should not be given the same rights and privileges that are afforded to the federal government. Federal credit unions are not owned by the United States, nor do they possess any special governmental attributes or purpose that would justify an exemption from these disclosure rules. In fact, credit unions are profitable, retail financial service organizations whose activities should be appropriately disclosed in order to efficiently administer the tax laws. Therefore, we urge you to re-impose a Form 990 filing requirement on federal credit unions.” CUNA and NAFCU disagreed strongly with this position. “The easy thing to point out is this is just another example of the bankers harassing us,” CUNA Vice President of Legislative Affairs and Senior Legislative Counsel Gary Kohn said. He said the bankers are simply trying every avenue to drain credit union resources, because they have to respond to illegitimate claims like this one. “The law clearly states what the law states.” NAFCU Communications Manager John Zimmerman explained, “Federal credit unions are exempt from filing Form 990 similar to other tax exempt organizations pursuant to I.R.C. Section 501(c)(1), 26 U.S.C. ~501(c)(1). I am not sure what if anything is ambiguous here, particularly since the IRS and NCUA have reaffirmed where credit unions fall under in the I.R.C.” An August 23, 1988 letter from the IRS to NCUA Assistant General Counsel Timothy P. McCollum stated, “For taxable years beginning after December 31, 1969, section 1.6033-2(g)(1)(vi) of the Income Tax Regulations specifically excepts all organizations described in section 501(c)(1) of the Code from the requirement of filing an annual information return. Federal credit unions are described in section 501(c)(1).In direct response to your inquiry, it is our opinion that it is not appropriate for NCUA to continue filing a consolidated From 990 for all federal credit unions.” Then-NCUA Executive Director Donald Johnson, the current chairman’s father-in-law, subsequently sent out Letter to Credit Unions (No. 100) informing the credit unions of the IRS’s opinion. [email protected]

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