WASHINGTON — Among eight new Technical Advice Memoranda issued by the IRS April 27, a new–though specific–issue has arisen in the Unrelated Business Income Tax realm.
Prior to these TAMs, the IRS had deemed sale of accidental death and dismemberment insurance, group life, dental, health and cancer insurance, car buying service and sale of car warranties, guaranteed auto protection insurance, credit disability insurance, and MEMBERS financial management services, as falling under UBIT. One of the new TAMs, however, touches on nonmember ATM usage fees.
CUNA General Counsel and Executive Vice President Eric Richard explained that the new TAMs basically cover the same things as the previously released ones. "However, one of the memos addresses income derived from fees charged to nonmembers using a particular credit union's ATM. While this development is theoretically significant, we believe that very few, if any, credit unions nationwide generate significant net income from nonmember ATM fees once they allocate all expenses to this activity that are properly allocated.
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The TAM stated that the unnamed credit union argued that credit union members may get stuck with nonmember fees if they use another institution's ATM card in one of its machines, even if they are a member. However, the TAM states, "The facts do not show how fees charged to nonmember ATM users contribute directly and importantly to accomplishing [the credit union's] exempt purposes. The nonmember benefits in that he or she can access an ATM. While there is also a benefit to the individual members by allowing them to use the ATMs of other financial institutions, the facts do not show how the nonmember ATM fees contributes importantly and directly to accomplishing [the credit union's] exempt purposes, other than through the production of income. Availability of ATMs by nonmembers does not encourage savings or assist [the credit union] in offering low cost credit."
"In addition, many nonmember ATM fees are generated in circumstances that are significantly different from those involved in this TAM," Richard said. "In particular, the fees in this TAM did not come in through a shared branch or a credit-union-owned cooperative ATM network. Fees generated by those kinds of facilities would likely be from members of other credit unions, and it is not clear that the IRS would treat those fees the same way as fees generated from random customers on the street."
Richard said he believes the nonmember ATM fee coverage as outlined in the TAM should have "limited" impact.
The UBIT Steering Committee–which includes CUNA, CUNA Mutual Group, NASCUS, and the American Association of Credit Union Leagues–disagrees with the IRS's findings. NASCUS President/CEO Mary Martha Fortney concluded in a statement, "We disagree with the IRS' determinations and will continue efforts to challenge the decisions that financial products related to the credit union's business of promoting thrift are exempt from UBIT." Richard said litigation is in the works. –[email protected]
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