All Credit Unions Should Pay UBIT

Income derived from nonmembers and activities unrelated to a credit union’s tax-exempt purpose should be subject to the unrelated business income tax (UBIT), ABA said yesterday in a statement for the record submitted to the House Ways and Means’ Oversight Subcommittee hearing on tax-exempt organizations’ compliance with UBIT.

Currently, only state-chartered credit unions are subject to UBIT. "Federal credit unions should also be required to comply,” ABA said.

In addition, ABA stated that federal credit unions should be required to file a Form 990, just like state-chartered credit unions.

ABA argued that tax policy shouldn’t differ between federal and state credit unions that offer virtually the same business services and compete for the same customers. “The same competitive pressures between taxable businesses and tax-exempt organizations that motivated Congress to enact the unrelated business income tax also exists between federal credit unions and the nation’s community banks,” the association said.

ABA explained that the disparity between state and federal credit unions in applying UBIT also creates the potential for tax arbitrage and creates an incentive for credit unions to obtain federal charters. “ABA encourages the committee to examine repealing the federal credit union UBIT exemption. There is no public policy reason to exempt federal credit unions from UBIT, especially when the activities have no connection with their tax-exempt purpose,” the association said.

Read the statement.