Government Abandons Appeal in UBIT Bellco Case

Oct. 20, 2010 — The U.S. Department of Justice decided not to move forward with an appeal to challenge the credit union favorable ruling in the unrelated business income tax (UBIT) case brought by Bellco Credit Union, Greenwood Village, Colo.

In November 2009, Judge Christine M. Arguello ruled that income from investment products sold to members, and income derived from credit life and disability insurance, sold directly or indirectly, as well as royalty income from accidental death and dismemberment (AD&D) insurance should not be subject to UBIT.

The U.S. government filed a notice to appeal this past summer, but because the appeal has been abandoned, the IRS must refund the $199,293 sought by the credit union on the products in question from the court case.

As a member of the UBIT Steering Committee, NASCUS along with CUNA, CUNA Mutual and AACUL continue to challenge the Internal Revenue Service (IRS) application of UBIT on state-chartered credit unions. In May 2009, an eight-person jury determined that income from credit life and disability insurance should not be subject to UBIT in the case brought by Wisconsin-based Community First Credit Union.

While not giving tax advice, the UBIT Steering Committee has shared memorandums with the credit union system from the law firm of Foley and Larnder explaining that these two court decisions could constitute "substantial authority" for state-chartered credit unions to not pay or seek a UBIT refund for taxes paid on credit life and disability insurance or income from the sales of brokerage or annuities products.

You can view the memos or more UBIT information at this link.