For example, Knight pointed out that credit unions' governance structures are set by law and regulation and their boards are democratically elected. "Transparency in SCU governance already exists," according to Knight.

"Requiring state credit unions to complete governance questions on draft Form 990 increases regulatory burden while capturing very little information that is not already publicly available through any casual reading of state law."

In addition, CUNA Senior Vice President and Deputy General Counsel Mary Dunn wrote in the group's letter, "Credit unions are demonstrably different from charitable organizations that solicit funds from the public to support their endeavors. As financial institutions, credit unions receive no public donations or contributions to underwrite their activities."

She added, "In light of these material differences between credit unions and other tax-exempt entities that file Form 990, we seriously question whether Form 990 reporting is appropriate for state credit unions. We also do not believe the IRS has provided sufficient explanation of, and justification for, treating credit unions the same as it does charitable organizations for reporting purposes, given the fact that credit unions are vastly different entities."

CUNA wrote that if the credit unions are not granted an exemption, the IRS should work with CUNA and state credit union representatives to develop a credit union specific reporting system, including the fact that much of the information is already submitted on the 5300 Call Report to NCUA. "We believe working with the credit union system to redesign the reporting mechanism for state credit unions could result in enhanced compliance and an improved reporting process," Dunn wrote.

Both groups recommended that the IRS should continue to allow state credit union regulators to file consolidated Form 990s for all the state chartered credit unions. NASCUS noted that the group filing is done in an effort to achieve parity between the state charters and federal credit unions, which are exempt from filing 990s.

"Eliminating the ability of the state regulator or the association to file the group return potentially burdens state credit unions, particularly smaller institutions, and disadvantages the state system. Furthermore, the requirement for disclosure of information beyond the tax liability [e.g. director salary, home addresses of directors] of the entity diminishes the practicability of a group filing," NASCUS' Knight wrote.

Dunn explained that several state regulators are currently filing group 990s. "However," she wrote, "despite the fact that group 990 filings are permitted under IRS regulations, we are concerned that the agency no longer supports the use of such fillings.

"For forty-seven years, the IRS has permitted state credit unions to file a group Form 990 through a state instrumentality, such as their regulator…To our knowledge, no rule was proposed to change the agency's position on group filings. In our view, this is a policy matter that should be decided through a notice and comment procedure under the Administrative Procedure Act (APA)."

States Backing Off Group Filings

Three state credit union regulators recently an-nounced that they would no longer be filing a consolidated IRS form 990 for their respective state chartered credit unions.

Missouri's Division of Credit Unions issued a Bulletin (2007-CU-04) to credit unions on Sept. 6 informing them that they would no longer be filing consolidated IRS 990s for the 2007 tax year and beyond. "To this date, the Division had been one of the few state regulators that have continued to file this on behalf of credit unions. External issues have brought the Division to this decision," the Missouri letter read.

"The Form 990 is an informational return about a non-profit entity where the Form 990-T includes the calculation of a potential tax called the Unrelated Business Income Tax (UBIT)."

Virginia and Wisconsin announced earlier in the

summer that they would stop the practice. Wisconsin's Department of Financial Institutions further explained that the proper filings would be part of the management component of the state tax examination.

Wisconsin DFI Office of Credit Unions Director Suzanne Cowan stated, "The reason we stopped doing it was because we feel the credit unions have better access to the information than we do." She explained that the agency simply got the information for the 990s from the Call Reports but there was no way to judge exactly where the income was from.

When asked about the recent credit union unrelated business income tax reviews in a few states, Cowan said, "We did look at it but the TAMs (Technical Advice Memoranda) that were issued do not apply to our credit unions." She said as far as she knew, the IRS had not been into any Wisconsin credit unions for UBIT reviews. She added that rather than have that liability on the agency and open it up to questions from the IRS, they decided to turn it over to the states.

While the Wisconsin regulator said it will examine to ensure credit unions are filing the 990s, it is up to the credit union to decide if they should file the Form 990T for taxable income.

Wisconsin Credit Union League Chief Financial Officer Carol Robinson said, "From the league perspective, we're trying to help the credit unions out the best we can." A recent Webinar the league hosted had 128 participants, she said, adding that she would speak at each of the roundtable meetings the league holds in the fall. The roundtables are divided by asset size and Robinson will speak for an hour at the one for small credit unions. "Particularly with the small credit unions, they feel overwhelmed when faced with a nine-page form," she observed.

Additionally, the league's Services Corp will offer low-cost help.

Virginia Bureau of Financial Institutions Dep-uty Commissioner (Credit Unions) George Latham said his agency "looked over the landscape" and decided to take the agency out of the issue as well. He also said

he does not know of the IRS conducting UBIT reviews in Virginia credit unions, but

he "can't say whether they will or not."

Missouri Director of the Division of Credit Unions Sandra Branson e-mailed at press time that the agency had no comment, but the Missouri Credit Union Association would be holding informational sessions for credit unions.

Right to Privacy

"Disclosing compensation on Form 990 poses several issues in addition to impeding meaningful group filing alternatives," Knight said of the compensation disclosure requirements on the new form. It also sets a level of $100,000 for disclosing compensation for officials, which NASCUS said was "too arbitrary relative to the size of the entity and complexity of the industry to be truly instructive to the general public. Clearly, size, geographic location, and industry of a tax-exempt entity will influence compensation."

NASCUS also said that a better means of collecting the information would be through regulatory monitoring rather than the 990. "This filing method would provide greater transparency for all credit unions," the letter read.

NASCUS also raised privacy concerns with disclosing compensation. "Individuals should not be made to choose between a reasonable expectation of privacy and service to a tax exempt organization," Knight wrote. And, if the IRS is interested in determining with an organization's board lives outside the state of the association, it could just ask whether any board members do or not.

"We feel any marginal benefit of including this information is outweighed by the possibility that the individual's privacy will be jeopardized and that it should not be included on the form," Dunn advocated.

Finally, NASCUS also asked that the comment period be extended and implementation be delayed until at least the 2009 tax year.

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