CUs Escape During House Hearing on Tax-Exempt Groups

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Credit unions successfully dodged the spotlight during last week's congressional hearing on tax-exempt organizations, while the focus shifted to not-for-profit hospitals and health organizations.

But Rep. Bill Thomas, chairman of the tax-writing House Ways and Means Committee, assured The Credit Union Journal that credit unions are within the broad sight-range of the committee, which is examining whether the 1.8 million organizations under section 501 (c) of the Internal Revenue Code continue to deserve a tax exemption "We are reviewing all 501(c)...the entire area," Thomas told The Credit Union Journal during the hearing.

Despite being out of the committee's sights, the credit union lobby took the hearing and its inherent threat very seriously. "This is the nuclear issue for credit unions. This is the heart and soul of our existence," said CUNA President Mica, whose rare attendance at a congressional hearing illustrated the importance CUNA makes of the Ways and Means review.

Executives from credit unions all over the country where representatives sit on the tax-writing committee-Wisconsin, North Dakota, Florida, Maryland, Virginia, Kentucky and Colorado-came to Washington for the hearings to try to dissuade their representatives from expressing any interest in the credit union issue.

Ex-Banker Opposes Tax Increase

John Dill, president of the Colorado CU System, Chuck Mabry, president of Fort Collins, Col.-based Norlarco CU, and Mark Cummins, president of Denver-based White Crown FCU, met with Rep. Bob Beauprez (R-CO), a former banker, who told them he is not interested in repealing the credit union tax exemption. According to Dill, Beauprez, the former chairman of the Colorado Bankers Association, told them he is against any tax increases.

Their main argument, according to Dill, is that a tax on credit unions would raise such a small amount of revenues, an estimated $1 billion to $1.5 billion a year-doing little for the federal budget deficit estimated at $425 billion-while at the same time alienating a large constituency that amounts to 200,000 members for every congressional district in the country.

Representatives of the Kentucky CU League met with Rep. Ron Lewis (R-KY), who also assured them he is against repeal of the credit union tax exemption, as well.

While the credit union tax exemption remained out of the focus, the lobbying effort was still necessary because the bankers were working behind the scenes to bring the credit union tax to the attention of the committee. Banking lobbyists were providing committee staffers with potential questions for committee members to ask about the credit union exemption during the hearing in hopes of shining the light on the issue. But there were no takers and the credit union issue was mentioned only in passing during the hearing.

"We had a lot of reasons to be concerned going into the hearing, given the chairman's (Thomas) past rhetoric and given some of the information we had received from his staff," said CUNA's chief lobbyist John McKechnie, referring to remarks made by Thomas about non-profits, including credit unions. "But at the same time, you don't want to over react."

NAFCU lobbyist Brad Thaler said he was satisfied with the conduct of the hearing. "I think it went well. It seems as though the issues they're looking at are bigger picture issues. It doesn't look like the focus, at least immediately, is going to be on credit unions," he said.

The witnesses and the hearing focused mainly on the history of tax-exemption organizations and section 501(c) of the tax code, and the vast increase in the number and kind of organizations that now qualify for exemptions of federal income taxes. According to the U.S. Government Accountability Office, those groups now account for $1.2 trillion of revenues a year, nearly 12% of the nation's gross domestic product and 9% of its workforce.

The credit union movement, itself, is an example of the expansion of the use of section 501(c), with the advent of dozens of new credit union-related organizations over the past 30 years organized as tax-exempts. Those include credit union trade groups, charitable foundations founded by state leagues, and even non-profit foundations now being organized by individual credit unions, providing vehicles for million-dollar projects and for individuals to make tax-deducible donations.

What Might Lie Ahead

Chairman Thomas said he isn't sure where this oversight process is headed. For the committee to reform the system or even challenge the exemption of some of these groups-like non-profit hospitals or credit unions-it would entail a major political battle. And Thomas's term as chairman of the committee expires next year under the Republicans' six-year term limits on chairmanship. With congressional election season beginning about a year from now-when Congress generally shies away from controversial issues-there is very little time to tackle reform.

"Given that this issue is so important to our members we need to remain vigilant all the time," said McKechnie.

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