DENVER – Bellco CU, one of the largest state chartered credit unions in the country, on Wednesday filed suit against the Internal Revenue Service over the taxing agency’s practices for assessing Unrelated Business Income Taxes, or UBIT.
The $1.8 billion credit union is disputing the IRS’ assessment of its sale of credit life disability insurance, accidental death and disability insurance, and revenues it earned from its CFS Financial Services operation. Bellco CU is asking for a repayment of $199,000 in back taxes, penalties and interest.
The UBIT suit follows a similar action filed against the IRS in January by Community First CU, in Madison, Wis., which is asking for $54,600 in back taxes paid last year on revenue from the sale of credit life, credit disability and guaranteed auto protection (GAP) insurance.
State chartered credit unions have been fighting the IRS for decades over what is taxable under UBIT, with credit unions claiming services and products such as insurance sales, ATM fees and others are related to the core business of credit unions, and therefore are exempt from UBIT.
Federally chartered credit unions, which are considered an instrumentality of the federal government, are exempt from UBIT.
In its suit, filed in U.S. District Court for Colorado, Bellco says it disagrees with the position of the IRS, but has paid its assessment while it continues to challenge the ruling. Bellco said it complied with the proper administrative procedures by filing a request for a refund with the IRS but has not received the refund.
Bellco said seven products and services contributed to its UBIT assessment, but only three generated net income and were taxable. The three products produced net income of almost $820,000 for Bellco in 2003. Bellco is asking for UBIT refunds for the years 2001, 2002 and 2003.
