IRS Corrects Erroneous Correspondence Regarding SCU Tax Exempt Status

Feb. 8, 2012 - In September 2011, some state regulators and credit unions received erroneous correspondence from the Internal Revenue Service (IRS) regarding the revocation of some credit unions' tax exemption. This week, the IRS clarified that it was a error on their part and the tax exempt status had not been revoked.

NASCUS understands that most of the letters are directed to state-chartered credit unions whose IRS Form 990s were at one time filed by state regulators in group returns. The practice of group filings has been discontinued by state regulators and the credit unions in those groups have been filing their Form 990s individually. The IRS claimed in September that the credit unions in these groups have failed to file their Form 990s for three or more years, and therefore requires the automatic revocation of their tax exemptions. Inexplicably, some federal credit unions have received letters; however they are instrumentalities of the federal government and thereby are not required to file with the IRS.

The IRS letter explained that its correspondence included the following erroneous statement: "Your organization is a subordinate in this revoked group ruling, so your organization ceased to be tax exempt on the date of your central organization's automatic revocation, even though your organization may have met its annual filing requirements."
The clarification letter further stated: "Revenue Ruling 60-364,1960-2 C.B. 382, held that a state agency may file a group information return on behalf of all the exempt state-chartered credit unions under its control and supervision, in lieu of each individual state-chartered credit union filing a separate information return. You received the letter containing the erroneous information because of the way state credit unions that filed group returns were maintained on our systems. If you continue to meet your annual filing requirements, you may hold yourself out as tax exempt as long as you meet all other applicable requirements for tax exemption under the Internal Revenue Code."

The IRS apologized for confusion from the original letter and informed credit unions that they can request a determination letter recognizing its tax-exempt status by applying via Form 1024, Application for Recognition of Exemption Under Section 501(a) or for Determination Under Section 120, and pay the applicable user fee.