GREEN BAY, Wis. — Last week's quick jury verdict proclaiming a credit union's sale of credit life products as part of their regular course of business could induce the Internal Revenue Service to return to the table to negotiate a settlement on the decades-old dispute over unrelated business tax, or UBIT, individuals involved on the credit union side suggested.
"We hope that now they may be willing to sit down and talk with us," said Larry Blanchard, chairman of the credit union UBIT Task Force, who has been working on the issue for more than two decades.
Last week's verdict, in which the U.S. District Court for the Eastern District of Wisconsin ordered the IRS to refund more than $54,000 to Community First CU, comes as another credit union UBIT challenge is gearing up to go to go court in Denver. In that case, Bellco CU is seeking a refund of $199,000, based on UBIT taxes paid for 2000, 2001 and 2003.
In both cases the credit unions claim that the offering of products such as credit life insurance and accidental life and dismemberment are part of the normal course of business for credit unions, and thus should be exempt from taxation, particularly UBIT.
The IRS claims that such products are not essential to the regular offerings of loans and deposits, and thus should be subject to UBIT.
"These products and services have been available for more than 70 years now," said Catherine Tierney, president of Appleton, Wis.-based Community First CU. "The government could not make its case that they weren't part of the mission of credit unions."
The government has indicated it will challenge last week's jury verdict, but it is unclear whether they will file a formal appeal.
Government lawyers did not respond to phone calls seeking comment.
Community First CU was asking the court for a $54,604 refund of UBIT taxes it paid in 2006 on credit life, credit disability and GAP, insurance payments that the credit union claims are "substantially related" to its tax-exempt purpose. According to Blanchard, almost every credit union in the country offers some kind of credit life coverage.
But only state chartered credit unions pay UBIT. Federal charters are exempt because the Federal CU Act defines them as an "instrumentality of the federal government," and thus exempt from taxation.
