MADISON, Wis. – The long-simmering feud between state chartered credit unions and the Internal Revenue Service will finally come before a jury Monday at the opening of Community First CU’s challenge of the IRS’s calculation of unrelated business income taxes–or UBIT.
In this case, one of two UBIT suits pending against the IRS, the Appleton-based credit union is asking the court for a $54,604 refund of UBIT taxes it paid in 2006 on credit life, credit disability and guaranteed auto protection, or GAP, insurance payments that the credit union claims are "substantially related" to its tax-exempt purpose.
Credit unions have been fighting with the IRS for decades over the calculation of UBIT–which are only assessed state charters. They say products and services like insurance are essential to their regular business purpose. Federal charters are not assessed UBIT because the Federal CU Act defines them as instrumentalities of the federal government, and thus exempt from taxation.
Bellco CU in Denver has also sued the IRS over a UBIT assessment and that case is still pending.
