WASHINGTON — The Internal Revenue Service has backed down in its dispute with the credit union community over unrelated business income tax and cleared almost all CU products at stake in related litigation.
The move follows two court cases brought by credit unions and means some CUs could receive refunds for previous payments.
In a statement released by CUNA Wednesday, Larry Blanchard, chairman of a collation of CU organizations supporting the litigation, called a memorandum released by the IRS late last month "a breakthrough with the agency."
NASCUS also hailed the result, with president and CEO Mary Martha Fortney calling the memo "welcome news" and "a significant win for the entire credit union system."
"Many people from all over the credit union movement have contributed to this positive outcome with their dedication and unrelenting focus on this issue through the years, Fortney said in a statement. "But special thanks is certainly due to Community First and Bellco for their willingness to step forward and take this issue to court."
The IRS's three-page memo from March 24 follows two lawsuits brought by credit unions — Community First CU in Appleton, Wis. in 2009 and Bellco CU in Colorado in 2010. In both cases, courts ruled in favor of the credit unions.
Blanchard, a consultant with CUNA Mutual Group, is part of the UBIT Steering Committee, which includes representatives from CUNA, the American Association of CU Leagues and NASCUS said, "We have achieved what we set out to do, and more. The IRS memo signals that credit union tax refunds for past UBIT payments should now be processed. It also bolsters credit union arguments that future payments to the IRS of UBIT on these same products may not be due.
He added, however, that CUs should discuss these matter with their tax advisers first.
The IRS memo said that revenue from certain income-generating activities are "substantially related income," and not subject to UBIT. Some of those income-producing products include:
- Interchange fees
- Check-printing fees
- ATM per-transaction fees
- Credit card interest
- Credit life and credit disability insurance
- GAP auto insurance.
"After 15 years of work — and millions of dollars in litigation expenses — it is ironic that a breakthrough in a struggle of this scope comes down to a three-page memo," said Blanchard. "But the effort has been entirely worth the time and money, particularly for those credit unions who have filed their returns and made payments in the past."
Bellco CU's UBIT dispute dates as far back as 2001.
Industry Leaders Cheer Ruling
Outgoing CUNA CEO Bill Cheney said in a statement that CUNA was proud to have taken a leadership position and partnered with state leagues in order to bring about this result for CUs.
"Even though UBIT applies only to state-chartered credit unions, CUNA and league engagement ensured that credit unions of all charter types helped to bring about this success," he said. Further, this latest development is highly significant, particularly as it signals that refund requests for past tax payments by credit unions may now be processed, and — most importantly — credit unions may be able to offer products and services to their members in the future with a significantly diminished threat of having to pay this tax."
Despite this success, other UBIT issues remain, and NASCUS said it plans to continue to work with coalition partners "until there is a fully satisfactory resolution on all UBIT issues."
