IRS Sets Guidelines on Unrelated Business Income Tax

WASHINGTON – The Internal Revenue Service has begun setting more formal guidelines on taxable practices for state chartered credit unions under its Unrelated Business Income and credit unions are protesting. In Technical Action Memoranda sent to credit unions in Alabama and Connecticut in recent days, the IRS ruled that net income earned on a variety of insurance products, including credit life disability, health, dental, as well as on annuities and on ATM fees earned from non-members is taxable under UBIT, according to CUNA, which has reviewed the long-awaited rulings. But CUNA, which has been negotiating on UBIT guidelines for decades, believes the IRS is misguided and that those listed activities should be non-taxable as essential parts of the delivery of services to its members, according to CUNA General Counsel Eric Richard, who predicted a legal challenge to the rulings. “We believe we are going to have to file litigation,” Richard told The Credit Union Journal yesterday. More than a dozen credit unions in the two states have received notices for payment of taxes dating back as far as 1999. Federally chartered credit unions, defined as instrumentalities of the federal government, do not pay UBIT.