UBIT: State CUs May Finally Have Precedent Posted by AVCU on 11:12 AM

The UBIT Steering Committee of CUNA, AACUL, CUNA Mutual and NASCUS has released a legal opinion from its law firm regarding the importance of a recently decided credit union unrelated business income tax (or “UBIT”) case . . . Community First Credit Union v. United States. Many credit unions have inquired as to whether this case provides grounds for state-chartered credit unions to decline paying unrelated business income tax on products that were at issue in the case.

In a May 2009 federal jury trial in Green Bay, WI, Community First Credit Union of Wisconsin won a full refund of UBIT taxes that the credit union paid on sales of credit life insurance, credit disability insurance, and GAP products to its members. The jury found that all three products were “substantially related” to Community First’s tax-exempt purposes and therefore not subject to UBIT. The judge upheld the jury’s verdict in a written opinion (see Community First CU v. United States, 2009 U.S. Dist. LEXIS 60283, 2009 WL 2058476, 104 A.F.T.R.2d 5346).

The UBIT Steering Committee’s legal opinion from Foley & Lardner’s concludes that the Community First case constitutes “substantial authority” to infer that products covered in the case are not subject to UBIT for credit unions situated similarly to Community First. Each individual state-chartered credit union, in consultation with legal, tax, and accounting advisors . . . must determine for itself whether the Community First decision constitutes “substantial authority” sufficient for the credit union to not pay UBIT on sales of credit insurance and GAP without penalty. A copy of the law firm’s opinion letter is available from the Association office upon request.