Tax Debate Puts CUs In Difficult Straits

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I guess it can be safely said that the credit union movement has never met a tax that it likes.

Whatever it's called: an income tax, franchise tax, excise tax or unrelated business income tax; we're against them all. At least as it relates to credit unions.

That puts the credit union movement in a difficult, if not strange, bind some time. Last week, for example, representatives of low- income credit unions were taking part in a conference in Washington to discuss how credit unions can take advantage of something called the New Markets Tax Credit offered by the Treasury Department's Community Development Financial Institutions (CDFI) Program.

The tax credits are aimed at inducing institutions to invest in community development. But some may ask: if credit unions don't pay taxes how can they contemplate participating in a program for tax credits.

A similar discussion was held in Congress last year when the credit union lobby was seeking to participate in a similar tax credit program. This prompted one leading senator to pose the same question.

The ongoing debate over the Unrelated Business Income Tax, commonly known as UBIT, which applies to state- chartered credit unions, is another one that puts credit unions in a difficult position. The Internal Revenue Service, which has been auditing credit unions for years to determine whether they are paying their required UBIT, has been active in a handful of states in recent months, raising the ire of credit unions.

The UBIT fight has already prompted one credit union, Stamford (Connecticut) CU, to switch back to federal charter, barely 18 months after it converted to state charter. And other credit unions are said to be considering the move.

Howard Pitkin, general counsel for the Connecticut Department of Banking, which is concerned about the tax targeting state charters, complained about a "level playing field" for state charters with their federal counterparts, evoking the same wording used for years by the banks complaining about the credit union tax exemption.

But the credit union lobby is reluctant to make too public of a stand on this issue as they fight off tax initiatives in several states.

One of the fears is that they will draw too much attention to their anti-tax stance. Another is that some public policymakers may not be aware of the vast array of services and products now offered by credit unions and the UBIT issue may bring more attention than they want.

That's what's happened in Utah, Iowa and other states. The attention brought to the credit union tax status in those states has given bankers and lawmakers elsewhere fuel for their own taxing initiatives.

Of course, no one is pure when it comes to taxes.

Just ask the bankers, who continue to work for expanded tax subsidies, via Subchapter S and other means, such as a farfetched proposal to exempt depositor interest from income taxes as President Bush has proposed for capital gains, even as they continue to whine about the credit union tax advantage.

It all brings to mind that wonderful debate CUNA staged at its GAC several years ago between then CUNA President Ralph Swoboda and Don Ogilvie, chief executive of the American Bankers Association.

In one exchange caught on film for posterity, Ogilvie complained that all good Americans pay they're fair share in taxes. "Everyone pays taxes," Ogilvie said. Then Swoboda reminded him that the ABA, a not-for-profit organization, is exempt from taxation-just like credit unions.

Like they say: it depends on whose ox is being gored.

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