WALLINGFORD, Conn. – The $1.7 billion Constitution Corporate has applied to convert to a federal charter. The corporate said the driving force is a $100,000 per year savings it will see as a federal charter. The savings comes from no longer having to pay a state sales tax and a lower annual assessment from NCUA versus the state regulator. Constitution Corporate CU EVP Bill White said the IRS’ Unrelated Business Income Tax had nothing to do with the conversion. Constitution, and all state charters in Connecticut were audited by the IRS in 2004 for UBIT, which requires non-profits to pay on income that is not related to their core business. Constitution came under further scrutiny when a local IRS office questioned whether the corporate should even be tax exempt. The IRS office issued a Technical Advice Memorandum to IRS headquarters in Washington D.C. to be ruled on. The matter is still pending, as is the UBIT question in general for credit unions. “UBIT was not the driving factor. It was the economics, the savings,” said White. White noted that it is not a done deal yet. If it gets preliminary approval from regulators to convert it then needs to get its members’ approval. It needs two-thirds approval of members voting. Constitution has one of the more successful corporate CUSOs in the corporate network in Smart Source Solutions Inc. which offers Web site development and an online board communication solution among other technology solutions. This type of non-financial business may have raised eyebrows at the IRS as CU groups involved in the UBIT watch said they’re amazed at the lack of knowledge some of the IRS examiners have about CU operations and how CUSOs fit in. There are currently 17 state chartered corporates and 13 federal charters. (See chart on this page).

Complete your profile to continue reading and get FREE access to CUTimes.com, part of your ALM digital membership.

Your access to unlimited CUTimes.com content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Critical CUTimes.com information including comprehensive product and service provider listings via the Marketplace Directory, CU Careers, resources from industry leaders, webcasts, and breaking news, analysis and more with our informative Newsletters.
  • Exclusive discounts on ALM and CU Times events.
  • Access to other award-winning ALM websites including Law.com and GlobeSt.com.

Already have an account?


Credit Union Times

Join Credit Union Times

Don’t miss crucial strategic and tactical information necessary to run your institution and better serve your members. Join Credit Union Times now!

  • Free unlimited access to Credit Union Times' trusted and independent team of experts for extensive industry news, conference coverage, people features, statistical analysis, and regulation and technology updates.
  • Exclusive discounts on ALM and Credit Union Times events.
  • Access to other award-winning ALM websites including TreasuryandRisk.com and Law.com.

Already have an account? Sign In Now
Join Credit Union Times

Copyright © 2023 ALM Global, LLC. All Rights Reserved.