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UBIT trial begins today in Colorado
DENVER (12/7/09)--The Greenwood Village, Colo.-based credit union challenging the government's unrelated business income tax (UBIT) will make its case in a federal court in Denver this week. The Bellco CU v. U.S. trial is set to begin this morning in the U.S. District Court for the District of Colorado. Bellco will argue why income derived from credit life and disability insurance, as well as royalties from accidental death and dismemberment (AD&D) insurance, should not be subject to UBIT. Presiding over the trial will be U.S. District Judge Christine M. Arguello. In November Arguello issued a summary judgment on another aspect of the case, finding that income from investment products--such as stocks, bonds, mutual funds and annuities--that the credit union made available to its members is not subject to UBIT because the products were "substantially related" to Bellco's tax-exempt purpose. However, income from such products sold to nonmembers was ruled as not "substantially related" to Bellco's tax-exempt purposes and therefore could be subject to tax (News Now Nov. 13). In the summary judgment, Arguello also said the trial should address the issue of whether sales of certain insurance products to people who are not members to Bellco but who do belong to other credit unions, should be exempt from UBIT because the products further Bellco's tax-exempt purposes. Bellco brought the lawsuit in May with the support of the UBIT Steering Committee, which includes the Credit Union National Association (CUNA), CUNA Mutual, the American Association of Credit Union Leagues, and the National Association of State Credit Union Supervisors. CUNA General Counsel Eric Richard will be attending the trial, which is scheduled to end Friday afternoon. Bellco is seeking a refund of $199,293 in tax paid on income from AD&D insurance, credit life and disability insurance, and financial products and services in 2000, 2001 and 2003, as well as statutory interest. Lead attorney on the case is Michael M. Conway of Foley & Lardner LLP, who was also lead counsel in another UBIT trial earlier this year in the U.S. District Court for the Eastern District of Wisconsin. In that case, Community First CU of Green Bay, Wis., won its challenge against the Internal Revenue Service's interpretation of the UBIT rule related to three insurance products (News Now May 15). The government did not appeal that decision.


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