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A
special message
from
Mary Martha Fortney, President and CEO,
March 7, 2007
The Internal Revenue Service (IRS) publicly released on March 2 two technical advice memoranda (TAMs) on unrelated business income tax (UBIT). The UBIT Steering Committee, made up of NASCUS, the Credit Union National Association (CUNA), CUNA Mutual Group and the American Association of Credit Union Leagues (AACUL), has monitored UBIT for more than 10 years.
NASCUS is committed to continue addressing UBIT and any potential implications on the credit union system. Along with the UBIT Steering Committee, we will continue our efforts to provide educational resources and equip state credit unions with the tools they need to address any UBIT implications at their credit union.
Some of the IRS decisions can be viewed as positive determinations for state-chartered credit unions. The IRS has determined that the following income sources are related to a credit union’s business: interchange fees from debit and credit card transactions; automated teller machine (ATM) fees from members; the sale of checks to members; and the sale of collateral protection insurance to members.
Conversely, the UBIT Steering Committee intends to challenge other IRS decisions through litigation. In the TAMs made public, the IRS considers the following income sources as unrelated to the business of credit unions:
• The sale of credit life and credit disability insurance;
• The sale of accidental death and dismemberment (AD&D) insurance;
• MEMBERS financial management services;
• Car warranties;
• Guaranteed auto protection (GAP) insurance; and
• Dental and cancer insurance.
Other adverse decisions are expected to be made by the IRS, including income and investment products; income from nonmember ATM fees; and income from auto buying referral services.
In the litigation process, it is important that we educate the IRS about the modernization of the nation’s credit unions. State regulators and state legislatures have long recognized that credit unions must evolve their products and services to meet the needs of members. The IRS must recognize the modern character of credit unions. This understanding will be critical in the system-wide effort to reach IRS agreement regarding what is related to the business of credit unions.
While UBIT poses no immediate threat to federal credit unions, protecting the strength and viability of dual chartering is important to NASCUS. We are watching the issue closely to ensure UBIT doesn’t negatively impact charter choice and dual chartering.
As issues develop with UBIT, NASCUS will continue to provide education and resources to prepare state credit unions. In January, NASCUS held the first UBIT Workshop in Dallas, Texas where regulators, credit union executives and league representatives gathered to understand the latest updates concerning UBIT. NASCUS and the UBIT Steering Committee are planning additional workshops on UBIT. Please check the NASCUS Web site at www.nascus.org for announcements about upcoming workshops. NASCUS members can also access the UBIT Resource page by clicking here. (Member log-in required.)
In the meantime, NASCUS and the UBIT Steering Committee encourage state credit unions to consult with their tax and legal experts on the potential impact of UBIT on their credit union. We also recommend using sound accounting principles to assess potential tax liability. Appropriate expense allocation will reduce the amount of income, if any, subject to tax.
If you have any questions about UBIT, please contact NASCUS at (703) 528-8351 or by email at offices@nascus.org.
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