MEDIA, Pa. – NCUA and NASCUS aren't the only ones under themicroscope of the House Ways and Means Committee. CUSOs are in themix also. While taking a closer look at credit unions' tax-exemptstatus, the committee came across CUSOs and learned the serviceorganizations can provide many products and services that somecredit unions can't. What caught the committee's eye, said NACUSOGeneral Counsel Guy Messick, is some CUSOs are structured aslimited liability companies and can elect to have taxes passedthrough to the owners of the LLC rather than the LLC choosing acorporate tax status and pay the taxes itself. Messick said that'swhy CUSOs are on the list of information the House Ways and MeansCommittee is looking for from NCUA and NASCUS to provide. TheNACUSO general counsel has had discussions with the House Ways andMeans Committee as well as the General Accounting Office, and hesaid, “They want to better understand the CUSO industry.”Specifically they're looking for information, for example, on howmany CUSOs there are, what services they provide, how much incomethey earn and how much revenue is passed back to the owner creditunions. But providing that information may turn out to be morecomplicated than simply accessing readily available data. “There'sno complete list or summary of the information the committee islooking for, nobody's been able to collect that,” said Messick.“NACUSO and Callahan [and Associates] have tried compiling CUSOdata, but they've had to rely on voluntary information or the NCUAcall report. But even that's incomplete. “The call report onlyrefers to investment levels, but those can fluctuate depending ifthe credit union or credit unions are making income or ifadditional contributions are being made. The call report doesn'tshow how many CUSOs there are, nor is there a uniform reportingsystem that shows how much income a CUSO earns is passed back tothe owners,” Messick added. “So there isn't a lot of empiricalinformation on CUSOs. There's more anecdotal data and an overviewof the industry versus specificity and numbers.” Messick saidNACUSO is in the process of working with NCUA to help the agencydevelop a more comprehensive system for collecting and reportingCUSO information. “Everyone acknowledges more information isnecessary,” he said. The problem up until now in setting up such asystem, Messick explained, is that CUSOs are in a wide range ofbusinesses and credit unions have set them up in many differentways. “It's only recently that the CUSO industry has matured tohave a significant impact on credit unions that use CUSOs. Onereason why there's been a lack of uniformity in a CUSO reportingsystem is that until now CUSOs didn't have as much of anindustry-wide impact as they do now, so they weren't somethingcritical to understand. Now it's become more important to betterunderstand CUSOs and their impact on the industry. As CUSOs growand become more important to credit unions, the need to measurethem and how they relate to credit unions has matured,” saidMessick. He added, “While the House Ways and Means Committee isinterested in obtaining this information for its own purposes, Ithink this is also an opportunity for CUSOs and credit unions tobetter understand the system that's been constructed.” Messick said“NACUSO understands the need to respond to what the committee isasking for,” but he also recognizes there may have to be some sortof rules regarding the tax elections CUSOs can make. For example,he explained, with limited liability corporations “which ispredominantly what CUSOs are becoming,” the CUSO can choose to betaxed at the corporate level – the profits are divided among theowners and they each pay taxes on their share – or as a partnershiptype tax treatment – as a LLC with “disregarded entity status” fortax purposes only. According to Messick, NACUSO is recommendingthat those CUSOs that provide services that a credit union couldprovide such as operational services or business loans, that theycontinue to have the option to continue to provide that product orservice as an LLC with disregarded entity status. “We understandfrom a political basis though that there may be a need for thoseLLCs to elect to have corporate tax treatment, but that wouldn'tchange their structure,” said Messick. “That's the beauty of theLLC, it affords tremendous flexibility. That's important if a CUSOelects a corporate tax treatment. You can have the same corporateform and have the advantages of flexibility of that form. It's avery useful organization structure,” he said. Messick said NACUSOis currently working on the issue with NCUA, and he said the topicwill be discussed at the association's upcoming annual meetinglater this month in Las Vegas. He anticipates havingrecommendations ready for NACUSO members at that time as well.NACUSO intends to get the feedback it receives from its members toNASCUS and NCUA Messick emphasized, “NACUSO wants to do its part tomake sure the credit union tax-exemption is preserved,” and added,“The tax issue never drove CUSOs. It had to do with whateverbenefits beyond taxes there were for members and credit unions.”Messick realizes it will probably be very difficult for NCUA andNASCUS to provide the Ways and Means Committee the information it'slooking for on CUSOs by the designated deadline, but he said “we'redoing the best job we can under the circumstances. Still it's clearwe won't be able to give a clear analysis of CUSOs in thedesignated timeframe. However, one thing we will be able to show iswe're working on putting a system that will allow us to collect theinformation going forward.” -

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