Revenues from shared-branching arrangements are among the items subject to the unrelated business income tax, according to an IRS technical advice memorandum.
The IRS memorandum also said that management services to other credit unions, certain CUSOs, and sales of financial management services and certain insurance products are subject to the UBIT.
The IRS said that the fees that the credit union derived from shared branching should be taxable because "they are primarily for the purpose of generating income and for the for the benefit of the non-member user rather than for the benefit of the credit union's membership."
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But parts of the memorandum is at odds with a federal court verdict that stated that insurance products aren't subject to the UBIT. That suit was filed by Community First Credit Union of Appleton, Wisconsin which successfully sought a refund of $54,604 in back taxes. The memorandum was issued privately to IRS agents and an unnamed credit union on May 5, but was made public this week.
CUNA General Counsel Eric Richard said the memorandum was "disappointing because in all of our conversations with the IRS they've recognized the need for cooperation among credit unions."
He said CUNA's UBIT Steering Committee is considering all of its options, including filing a lawsuit.
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