Connecticut CUs offered guidance on UBIT issues

HARTFORD, Conn. - Credit union representatives met here earlier this month with state regulators to get some guidance on the Unrelated Business Income Tax. More than a dozen of the state-chartered credit unions received guidance recently from the Internal Revenue Services which was discussed among the group (federal charters are not subject to UBIT).

The guidance had some good news for the state charters. The good news was that interchange fees earned on cards transactions is not subject to the tax. However, at least one credit union was notified that ATM fees collected from non-members is subject to UBIT in certain circumstances.

The IRS guidance, issued as TAMs, or technical advice memoranda, also stated that certain products routinely offered by credit unions are subject to UBIT. They include: collateral protection insurance, credit life, accidental death and dismemberment coverage, among others.

Connecticut is one of three states where the IRS has issued UBIT TAMs in recent months. The TAMs were issued to 19 of Connecticut's 42 credit unions.

CUNA is currently planning a lawsuit to challenge some of the IRS guidance.

State-chartered CUs have been grappling with the IRS for two decades to determine what activities may be taxable under UBIT but the IRS has until now refused to provide detailed guidance.