CUNA provides memorandum on UBIT refunds

February 17, 2015

WASHINGTON (2/18/15)--CUNA has asked outside counsel, Foley & Lardner LLP, to prepare a memo with general information on how credit unions can claim tax refunds on income exempt from Unrelated Business Income Tax (UBIT) and what a credit union might expect if it files for a refund.

CUNA does not give tax or accounting advice to individual credit unions, Kathy Thompson underscores in a recent CompBlog entry about the memo.

However, Thompson, CUNA's chief compliance officer, says that after credit unions' hard-won concession from the Internal Revenue Service last March, any state-chartered credit union considering filing for a UBIT refund may want to discuss the contents of the Foley & Lardner memo with its tax adviser. Foley & Lardner has a history of assisting credit unions in this area.

After years of challenges by CUNA, the state credit union leagues and credit unions, the IRS in March 2014 conceded that certain types of income earned by state-chartered credit unions are exempt from unrelated business income taxes.

Specifically, the IRS guidance states that commissions on the sale of credit life/disability insurance sold to members and on GAP insurance sold to members don't trigger UBIT.  Based on court decisions and other guidance, state-chartered credit unions have a basis for treating as tax-exempt other types of income on which a credit union may have paid UBIT.

Thompson reminds credit unions that to start the refund process they must file an amended Form 990-T within three years after they filed the original tax form reporting the disputed income.

CUNA members can find the memo on CUNA's eGuide to Federal Laws and Regulations under UBIT/Resources as the first item under "CUNA/CUNA Mutual Resources." Thompson's CompBlog post is available here.