U.S. Justice Department Won't Pursue UBIT Appeal (Misc News: October 20, 2010)
The U.S. Department of Justice has given up plans to appeal a federal judge's ruling that allows a Colorado credit union to maintain its exemption from the Unrelated Business Income Tax (UBIT) for investment and insurance products sold to members.
Greenwood, Colo.-based Bellco CU challenged the Internal Revenue Service's policy toward UBIT and its application to credit unions.
"We consider this fantastic news because it means that the government did not see enough merit in its own position to push it further in the courts," said CUNA President/CEO Bill Cheney. "Now we will be solidifying a strategy that will, we hope, put the UBIT issue to rest with the IRS and others for a long time to come."
The government had filed a notice of intent to appeal this summer after Judge Christine M. Arguello ruled in November 2009 that investment and insurance products that Bellco sold to its members, including credit life and disability insurance and some other products, stocks, bonds, mutual funds and annuities, were "substantially related" to Bellco's tax-exempt purposes, and therefore the income from those activities was, under the law, exempt from UBIT.
"The IRS decision suggests it now has a greater understanding of credit unions' legitimate right to generate noninterest income related to certain financial services without being subject to UBIT," MCUL & Affiliates CEO David Adams said.
IRS must pay the full tax refund of $199,293 sought by the Bellco on three of its products.
The UBIT Steering Committee, comprised of CUNA, the American Association of Credit Union Leagues, the National Association of State Credit Union Supervisors, and CUNA Mutual Group, while not giving tax advice, has suggested that the Bellco case may be helpful to state-chartered credit unions' legal, tax, and accounting professionals in determining whether the decision constitutes "substantial authority" for their credit union to not pay, or to seek a refund of, UBIT paid on income from sales of brokerage or annuities products.
"This decision is a direct result of legal efforts funded by state credit union leagues," Adams said.