CU committee advises on UBITs
WASHINGTON (12/29/05)—In anticipation of an Internal Revenue Service (IRS) 2006 technical guidance letter to examiners, the UBIT Steering Committee has sent a memo to state-chartered credit unions saying it intends to challenge the IRS’s broad interpretation of what should be considered unrelated business income for credit unions.
The IRS is expected to issue a technical advice memorandum (TAM) to its auditors of Alabama and Connecticut credit unions advising them that income from insurance sales, including credit life and credit disability, and from certain nonmember ATM fees, would fall under unrelated business income tax (UBIT).
The UBIT Steering Committee, comprised of the Credit Union National Association (CUNA), CUNA Mutual, the National Association of State Credit Union Supervisors, and the American Association of Credit Union Leagues, noted that the IRS position is still unofficial, but warned that in meetings this fall the tax agency made its intentions clear.
“We believe the IRS decision...is clearly wrong and plan to challenge it in future legal proceedings,” the steering committee memorandum said. “We believe the credit union arguments for a broad exempt purpose are very strong and will ultimately prevail.”
The memo indicated that while the IRS recognized the credit union position as strong, the agency also said it felt bound by many years of preceding rulings treating insurance as a separate line of business.
“None of these rulings,” the memo noted, “involved credit unions, much less the unique relationship credit unions have with their member-owners.”
The committee said that although the IRS’s TAM would address credit unions in Alabama and Connecticut only, it would provide guidance to all IRS auditors as they review other credit unions for UBIT liability.