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CUNA summary Recent UBIT cases could help CUs challenges
WASHINGTON (4/27/10)--According to a recent memo, state-chartered credit unions that are subject to unrelated business income tax (UBIT) may now "have a good defense against civil tax penalties" that the U.S. Internal Revenue Service (IRS) could try to impose on credit unions that do not declare UBIT due on income from the sale of credit life and disability insurance, Guaranteed Asset Protection coverage, and other financial products. Credit Union National Association (CUNA) executive vice president and general counsel Eric Richard said that the memo, which was prepared at the request of and with the support of the UBIT Steering Committee, “should be helpful to credit unions in having a dialogue with their outside auditors about what, if any, UBIT liabilities need to be accounted for in their financial statements and in their tax filings." The UBIT Steering Committee is comprised of CUNA representatives and members of the American Association of Credit Union Leagues, the National Association of State Credit Union Supervisors, and CUNA Mutual Group. According to the memo from the law firm Foley & Lardner LLP, the recent decisions in federal court cases involving Bellco CU and Community First CU may give other credit unions "substantial authority" sufficient to not pay UBIT on sales of these products without being subject to tax penalties for maintaining a frivolous tax law position. Services such as mutual funds, stocks, and annuities, as well as income qualifying as "royalties," such as from a third-party vendor's sale of accidental death and dismemberment (AD&D) insurance policies to members, are also addressed by this decision. In the U.S District Court for the District of Colorado, Judge Christine M. Arguello earlier this month ruled that Bellco CU's income derived from credit life and disability insurance, sold directly or indirectly, as well as royalty income from AD&D insurance should not be subject to UBIT. Arguello's ruling supplements a 2009 summary judgment ruling which found that Bellco CU's commissions from a vendor's sales of financial products and services such as stocks and annuities to its members were "substantially related" to its tax-exempt purpose and so therefore not subject to UBIT. For a more thorough analysis of the Bellco ruling, use the resource link.


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