Credit Insurance and AD&D Not Subject to UBIT

The U.S. District Court for the District of Colorado ruled that Bellco Credit Union is not liable for unrelated business income taxes (UBIT) paid on revenues earned from the sale of credit life and credit disability insurance and accidental death and dismemberment (AD&D) insurance.

Bellco CU was seeking a refund of $199,293 for taxes paid in 2000, 2001, and 2003.

In the Bellco CU case, the court found that credit life and credit disability insurance is related to a credit union’s exempt purpose of “promoting thrift” to its members. This ruling comes eight months after another federal court in Wisconsin found that Community First CU was not liable for UBIT on credit life products.

The court also found that Bellco is exempt from UBIT on AD&D insurance it offered through a third-party provider, Affinion. The Court found that revenues earned on the insurance amounted to royalties paid by Affinion and the Internal Revenue Code expressly excludes royalty income from UBIT.

However, Judge Christine M. Arguello did find that Bellco Credit Union was liable for UBIT on its share of the profits from its membership in an indirect lending association with other credit unions, Credit Union Indirect Lending Association (CUILA).

Only state chartered credit unions are subject to UBIT.