MADISON, Wis. -
That’s the latest update on what’s going on with UBIT, according to UBIT Steering Committee Chair Larry Blanchard of CUNA Mutual Group.
“We put a call out for interested credit unions to contact us, and we had several contact us, and we are working with a few of them now,” Blanchard told Credit Union Journal. “We expect to be in court as early as the first quarter of next year.”
Back in August at the National Association of State Credit Union Supervisors System Summit, Blanchard explained that the UBIT Steering Committee was looking for “the right kind of plaintiff” to take on the IRS in court. That would a credit union with a very special blend of the right membership (such as educators or firefighters, for example), exhibit strong CU philosophy and have sizable income that could be interpreted as coming under UBIT.
Such a plaintiff would also need to be willing to work in the UBIT Steering Committee and be from a part of the country that would be considered more “credit union friendly” on the UBIT issue. New England and the Midwest, for example, would probably be better than the Southeast for this purpose, he suggested.
Due to confidentiality agreements in place, Blanchard would not reveal who the potential plaintiffs are but noted that the UBIT case, once it’s brought to court, will likely stay in the court system through most of 2008 and possibly even part of 2009.
The UBIT issue is one that had the potential to splinter the credit union movement, as federal charters are exempt from UBIT.
“There was some tension, some concern that the movement would split over this issue,” Blanchard related, but thus far that has not been the case. “We really appreciate how credit unions have held tight on this issue and really stayed united.”
As part of the IRS’ investigation into all tax-exempt organizations, the agency has audited six CUs in Alabama, 44 in Connecticut, eight in Colorado and one in North Dakota.
An accounting tool has been put together to aid CUs going through the process, and there is a new and improved-and simplified-tool for small credit unions. “My advice to credit union is make sure your 990s are filed and consult with whoever you work with on your taxes,” Blanchard added.
Tips For An Audit
Larry Blanchard offered these tips for any CU subjected to an IRS UBIT audit:
* Designate one senior exec as liaison to the auditor to ensure the CU’s message is consistent.
* Highlight the fact the CU serves members on a mutual, nonprofit basis.
* Identify the empowering statutes and regulations that support each exempt purpose.
* Identify facts related to each product/service.
* Allocate direct and indirect costs to minimize income.
