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MEDIA, Pa. – NCUA and NASCUS aren’t the only ones under the microscope of the House Ways and Means Committee. CUSOs are in the mix also. While taking a closer look at credit unions’ tax-exempt status, the committee came across CUSOs and learned the service organizations can provide many products and services that some credit unions can’t. What caught the committee’s eye, said NACUSO General Counsel Guy Messick, is some CUSOs are structured as limited liability companies and can elect to have taxes passed through to the owners of the LLC rather than the LLC choosing a corporate tax status and pay the taxes itself. Messick said that’s why CUSOs are on the list of information the House Ways and Means Committee is looking for from NCUA and NASCUS to provide. The NACUSO general counsel has had discussions with the House Ways and Means Committee as well as the General Accounting Office, and he said, “They want to better understand the CUSO industry.” Specifically they’re looking for information, for example, on how many CUSOs there are, what services they provide, how much income they earn and how much revenue is passed back to the owner credit unions. But providing that information may turn out to be more complicated than simply accessing readily available data. “There’s no complete list or summary of the information the committee is looking for, nobody’s been able to collect that,” said Messick. “NACUSO and Callahan [and Associates] have tried compiling CUSO data, but they’ve had to rely on voluntary information or the NCUA call report. But even that’s incomplete. “The call report only refers to investment levels, but those can fluctuate depending if the credit union or credit unions are making income or if additional contributions are being made. The call report doesn’t show how many CUSOs there are, nor is there a uniform reporting system that shows how much income a CUSO earns is passed back to the owners,” Messick added. “So there isn’t a lot of empirical information on CUSOs. There’s more anecdotal data and an overview of the industry versus specificity and numbers.” Messick said NACUSO is in the process of working with NCUA to help the agency develop a more comprehensive system for collecting and reporting CUSO information. “Everyone acknowledges more information is necessary,” he said. The problem up until now in setting up such a system, Messick explained, is that CUSOs are in a wide range of businesses and credit unions have set them up in many different ways. “It’s only recently that the CUSO industry has matured to have a significant impact on credit unions that use CUSOs. One reason why there’s been a lack of uniformity in a CUSO reporting system is that until now CUSOs didn’t have as much of an industry-wide impact as they do now, so they weren’t something critical to understand. Now it’s become more important to better understand CUSOs and their impact on the industry. As CUSOs grow and become more important to credit unions, the need to measure them and how they relate to credit unions has matured,” said Messick. He added, “While the House Ways and Means Committee is interested in obtaining this information for its own purposes, I think this is also an opportunity for CUSOs and credit unions to better understand the system that’s been constructed.” Messick said “NACUSO understands the need to respond to what the committee is asking for,” but he also recognizes there may have to be some sort of rules regarding the tax elections CUSOs can make. For example, he explained, with limited liability corporations “which is predominantly what CUSOs are becoming,” the CUSO can choose to be taxed at the corporate level – the profits are divided among the owners and they each pay taxes on their share – or as a partnership type tax treatment – as a LLC with “disregarded entity status” for tax purposes only. According to Messick, NACUSO is recommending that those CUSOs that provide services that a credit union could provide such as operational services or business loans, that they continue to have the option to continue to provide that product or service as an LLC with disregarded entity status. “We understand from a political basis though that there may be a need for those LLCs to elect to have corporate tax treatment, but that wouldn’t change their structure,” said Messick. “That’s the beauty of the LLC, it affords tremendous flexibility. That’s important if a CUSO elects a corporate tax treatment. You can have the same corporate form and have the advantages of flexibility of that form. It’s a very useful organization structure,” he said. Messick said NACUSO is currently working on the issue with NCUA, and he said the topic will be discussed at the association’s upcoming annual meeting later this month in Las Vegas. He anticipates having recommendations ready for NACUSO members at that time as well. NACUSO intends to get the feedback it receives from its members to NASCUS and NCUA Messick emphasized, “NACUSO wants to do its part to make sure the credit union tax-exemption is preserved,” and added, “The tax issue never drove CUSOs. It had to do with whatever benefits beyond taxes there were for members and credit unions.” Messick realizes it will probably be very difficult for NCUA and NASCUS to provide the Ways and Means Committee the information it’s looking for on CUSOs by the designated deadline, but he said “we’re doing the best job we can under the circumstances. Still it’s clear we won’t be able to give a clear analysis of CUSOs in the designated timeframe. However, one thing we will be able to show is we’re working on putting a system that will allow us to collect the information going forward.” -

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