IRS Concedes Defeat In Key CU UBIT Case

GREEN BAY, Wis. – State chartered credit unions appear to have won an important victory in their decades-old fight with the Internal Revenue Service over the unrelated business income tax, when the IRS failed to appeal a May ruling in federal court striking down a UBIT assessment against Community First CU here.

The IRS fail to appeal by Monday indicates the tax agency has conceded defeat in the case, which awarded Community First a $54,604 refund on UBIT paid on credit life and credit disability insurance and guaranteed asset protection products, according to Eric Richard, general counsel for CUNA, who participated in the case on behalf of credit unions.

But the Community First decision will not be definitive in another pending case in which Bellco CU in Denver is challenging UBIT assessments, including credit life and credit disability insurance, according to Richard. Nor will it be in dozens of other UBIT cases, unless the IRS agrees to back off on those or other products, he said. “The judge may take the Community First case into consideration, and in fact did, during oral arguments in the Bellco case last week, but is not bound by that decision,” Richard told The Credit Union Journal yesterday.

State chartered credit unions—federal charters don’t pay UBIT—have been fighting the IRS over the tax for more than 20 years, with credit union asserting that services like credit life policies are closely related to the core purpose of the tax-exempt mission of a credit union.  State chartered credit unions pay millions of dollars in UBIT annually.

Richard said credit unions are still reviewing a recent IRS directive that says the agency will assess UBIT on shared branching services.