Judge Rules In Favor of Denver CU in Latest UBIT Case (Monitor: April 12, 2010)
In a positive development for all state-chartered credit unions, a federal judge has ruled in favor of Bellco CU of Denver, Colo. regarding the credit union's liability for unrelated business income tax (UBIT) in several areas. It was determined that income derived from credit life and disability insurance, sold directly or indirectly, and royalty income from accidental death and dismemberment (AD&D) insurance should not be subject to UBIT.
The court also ruled last year that Bellco CU’s commissions from vendor sales of financial products and services including stocks and annuities to its members were "substantially related" to its tax-exempt purpose and not subject to UBIT. Separately, a jury ruled last year at a U.S. District Court in Wisconsin that an Appleton-based credit union was exempt from UBIT on income from credit life insurance, credit disability insurance and GAP coverage.
"This is the second time in a row the courts have rejected the IRS's analysis of how UBIT should apply to credit unions,” said CUNA General Counsel Eric Richard. “The combined actions in this case extended the tax-exempt determination beyond credit life and disability insurance and GAP to also include financial products and services and royalty payments on AD&D insurance activities. At some point the IRS is going to have to recognize the inevitable and change its policy based on the court rulings that have now been established.”
The Bellco CU trial saw testimony from credit union officers, employees and members, as well as league officials. Attorney Michael M. Conway of Foley and Lardner, who argued the case for Bellco CU, said that this testimony helped the judge derive a ruling from evidence rather than just legal interpretation.
More information on the specifics of the trial are available from CUNA.