Structuring A CUSO: A TaxingMatter

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LAS VEGAS - (05/11/05) – Credit unions seeking to formnew CUSOs, especially federally chartered credit unions, ought tocharter their CUSO as Limited Liability Companies, or LLCs,according to experts. “If you’re a federally charteredcredit union you need to be asking yourself why you’re notorganizing as an LLC,” said Joseph Melchione, a leadingcredit union attorney, during the annual NACUSO convention hereTuesday. The benefits of an LLC, which virtually all new CUSOs areadopting, is that, as its name suggests, the liabilities arelimited to the portion of the entity owned by a credit union, and,most importantly, the income is taxed at the ownershipstage—the tax-exempt credit union. However, state charteredcredit unions will be liable for unrelated business income tax, orUBIT, on their CUSO income, Melchione noted. In contrast, aSubchapter C Corp., favored by CUSOs of the past, are taxable, eventhe income paid to the credit union. In addition, LLCs may raisecapital by issuing shares and have great flexibility in theirmanagement structures, allowing credit unions to share executiveson a part-time basis with their partially owned CUSOs.

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