Friday, April 11, 2014

A Breakthrough Ruling For Credit Unions

CUNA Mutual joins with credit unions in celebrating IRS's acceptance of more than 15 years of work by CUNA Mutual Group, CUNA, AACULE and NASCUS in discussions and negotiations with IRS, together with two federal court decisions recognizing State chartered credit unions' legitimate role in providing insurance and broad financial services to their members. 

According to CUNA’s April 9 news release, “the Internal Revenue Service recently issued a memorandum that defines nearly all credit union products at stake in the litigation as "substantially related income"--not subject to unrelated business income tax (UBIT).” 

Revenue from the following income-producing activities are deemed "substantially related income" and therefore not subject to UBIT: 
  • Sale of checks/fees from a check-printing company;
  • Debit card program's interchange fees;
  • Credit card program's interchange fees;
  • ATM fees from member transactions;
  • Interest from credit card loans;
  • Sale of collateral protection insurance;
  • Credit life and credit disability insurance (not subject to UBIT if sold to members); and
  • Guaranteed asset protection (GAP) auto insurance (not subject to UBIT if sold to members).
In recognizing these legitimate activities, the IRS also recognizes State chartered credit unions' exemption from federal taxes on the income from these activities.

Importantly, the credit unions' dual chartering system is enhanced by this decision that provides a more equitable treatment of the tax exemption of Federal and State chartered credit unions. 

This is a welcome development for credit unions and couldn't have been achieved without the countless hours of hard work from so many people, including CUNA Mutual's Faye Patzner.

Credit union detractors should take heed: Congress, the federal courts and IRS are unified in their decisions that credit unions' purpose is to meet the contemporary financial services needs of their members, and not merely basic loans and savings accounts.

Guest Blogger: Larry Blanchard, Chair--UBIT Steering Committee
CUNA Mutual Corporate and Legislative Affairs

Larry Blanchard has been instrumental in shaping today’s credit union landscape. In addition to working for CUNA Mutual Group for more than 15 years, he has worked for every major credit union organization in the U.S. Without Larry's efforts in helping to make H.R. 1151 law, there might not be a credit union movement today. He was inducted into the Cooperative Hall of Fame in 2010.