Credit Unions Get Relief From IRS In Regard To Unrelated Business Income Tax (UBIT)
By: Brian Sullivan, CPA, | email
For years the IRS has been pushing Unrelated Business Income Tax on key revenue generating products sold by state chartered credit unions to their members. However, a couple of credit unions, one in Wisconsin and one in Colorado, challenged the position taken by the IRS that income from credit life and disability insurance, as well as GAP insurance, was not substantially related to the tax-exempt purposes of a credit union. Both credit unions won their court cases, therefore, the IRS has conceded, and certain revenue generating products are now not subject to UBIT. The IRS issued a memo on March 24, 2014 that stated the following revenue generating products or activities are now NOT subject to UBIT:• Sale of checks/fees from a check printing company • Debit card program’s interchange fees • Credit card program’s interchange fees • Interest from credit card loans • Sale of collateral protection insurance • ATM per-transaction fees from members • Credit life and credit disability insurance sold to members • GAP auto insurance sold to members • Royalty income from marketing of accidental death and dismemberment insurance to members
It was also noted that if credit life and disability insurance, as well as GAP insurance, is sold to non-members, the income is to be treated as UBIT. The following revenue generating products or activities are subject to UBIT:• Automobile warranties • Dental insurance • Cancer insurance • Accidental death and dismemberment insurance • Life insurance • Health insurance • ATM per-transaction fees from non-members
State chartered credit unions should compare these lists to their products they currently offer to determine which products should be subject to UBIT, but more importantly, how the credit unions could benefit from this new directive by maximizing fee income.