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UBIT issues Quarterly filing court date
WASHINGTON (9/2/08)—State-chartered credit unions filing Internal Revenue Service (IRS) Form 990-Ts, the "Exempt Organization Business Income Tax Return," and paying unrelated business income taxes (UBIT), will want to consult their accountants or tax advisors to discuss the need to file quarterly estimated tax returns on UBIT income, advises the Credit Union National Association (CUNA). That consultation should be pursued, CUNA says, whether the credit union has filed a 990-T or plans to do so for 2008. CUNA has learned that a handful of credit unions have been told by the IRS that they may be subject to interest or penalties if they fail to submit quarterly estimated tax reporting in years when they file, or expect to file, a 990-T form. At least one credit union received a notice after it filed a 990-T form for the first time in May 2008, for the 2007 tax year, stating that it not only had failed to include the UBIT tax payment due but also that it was being penalized for having not begun quarterly estimated tax reporting by April 15, 2007. The April date would have been 13 months before the credit union filed its first 990-T form and only a few weeks after the IRS issued its first technical advice memoranda (TAMs) taking the position that UBIT is due on the income from certain credit union products and services. CUNA says fair or not, the law is applied strictly and there is no "reasonable cause" excuse for failure to pay estimated taxes. “Unfortunately, the tax law and the 990-T instructions state that ‘generally, an organization filing Form 990-T must make installment payments of estimated tax if its estimated tax is expected to be $500 or more," says Eric Richard, CUNA general counsel. Estimated tax is tax minus allowable credits, and the applicable section of the tax code is 26 USC Section 6655(g)(3). CUNA advises that IRS Form 990-W can be used to help figure estimated UBIT liability. The estimated tax is due April 15, June 15, September 15, and December 15 for the tax year. “Whether there will be any broad effort by the IRS to enforce quarterly UBIT reporting is unknown, which is why it is important for state-chartered credit unions filing 990-T forms to discuss this issue with their accountants,” said Richard. On a related topic, a trial date of Aug. 31, 2009, has been set for Bellco CU vs. the Internal Revenue Service, a case filed earlier this year to challenge the government’s policies on UBIT issues. Bellco, of Greenwood Village, Colo., is seeking a refund of $199,000, based on UBIT taxes paid for 2000, 2001 and 2003. The Colorado credit union refund claim is based on income generated primarily through sales of credit life and credit disability insurance over those three tax years. Revenue generated from sales of accidental death and disability insurance, and the credit union's involvement with CFS Member Financial Services, a credit union service organization, were included under the 2003 refund claim. The Bellco lawsuit was the second filed by a credit union on UBIT issues this year. In January, Community First CU, Appleton, Wis., filed a complaint in federal court challenging the IRS on its determinations that certain insurance products offered to members fall outside the credit union's main mission and are subject to UBIT. The UBIT Steering Committee, comprised of CUNA, CUNA Mutual Group, the American Association of Credit Union Leagues, and the National Association of State Credit Union Supervisors, strongly supports the credit unions’ efforts.


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