Repeal of the UBIT Tax
By: Gardiner Thomsen CPAs | email
For the past few years, state charted credit unions have been taxed on unrelated business taxable income. Taxed items included credit life, credit disability and other insurance products which Credit Unions have been selling to their members. Recently, two cases have challenged the IRS ruling that income from the sale of these products should be subject to UBIT.
Community First Credit Union of Appleton, Wisconsin was first to file a claim for the refund of UBIT paid on the sales of certain insurance products. After the IRS failed to act timely on the claim for refund, the Credit Union sued the IRS for a refund in their federal district court. On May 15, 2009, a jury found in favor of the Credit Union. The IRS may appeal to the U.S. Court of Appeals.
Bellco Credit Union of Greenwood Village, Colorado has a similar case still pending. In Bellco’s case, the IRS moved to dismiss the proceedings stating they needed more time to review the claim for refund. The court rejected the IRS’s motion. A court date will be set for sometime in the summer of 2009.
If Community First and Bellco ultimately prevail against the IRS, other credit unions will have the same opportunity to apply for a refund from the IRS for similar related product sales and may not be taxed on these products in the future.
