The federal court verdict in favor of Community First Credit Union on the unrelated business income tax represents substantial authority that credit life and disability insurance are exempt from the tax, according to an advisory opinion by attorneys for the UBIT Steering Committee.
"Because Community First is 'substantial authority' for credit unions to treat credit insurance and GAP as non-taxable activities, we believe a credit union will be exempt from civil penalties if it takes that position, and tax return preparers also will be exempt from civil penalties if they prepare Form 990-T on that basis," according to the memorandum from the Washington law firm of Foley & Lardner.
In May, after a four-day trial, a federal jury ruled that the IRS erroneously levied the unrelated business income tax on three financial products sold by Community First Credit Union. The jury ruled that the government must refund the Appleton, Wis.-based credit union $54,604 that it paid for UBIT on sales of financial products.
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