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The Internal Revenue Service’s recent publication on the unrelated business income tax represents far more than tax refunds en route to many credit unions; it shows how determination, patience and a shared vision can score big wins for credit unions, even when challenged by the federal government.

Because of how federal laws are written, state-chartered credit unions are subject to federal income tax on “unrelated” business activities. But other than taking deposits and making loans, what does the IRS consider to be “related” to credit unions’ purpose?

In 1995, emboldened by legal victories over not-for-profit groups’ income from insurance activities, the IRS decided state credit unions should be taxed on credit insurance income. The agency then began challenging a broad range of products and services, arguing that if a product or service was provided by taxable organizations, state credit unions should be similarly taxed. Such a decision was not only costly but, if left unchecked, posed a threat to the state charter and the dual chartering system.

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