Wednesday, August 15, 2012

Ownership Structure Is Not Sufficient for Tax Exemption

In a letter to the House Ways and Means' Subcommittee on Oversight, Bill Cheney, CEO and President of the Credit Union National Association, wrote: "[t]he credit union tax status has always been a function of the ownership structure of credit unions; it has never been about the power or mission of the credit union."

Initially cooperative depository institutions were exempt from federal taxation. A 2001 Treasury study states that "[w]hen the federal income tax was first enacted, state chartered credit unions were not specifically exempt. In 1917, however, an administrative ruling by the U.S. Attorney General exempted these credit unions from federal income taxation. The Attorney General ruled that the credit unions closely resembled cooperative banks and similar institutions that Congress had expressly exempted from taxation in 1913 and 1916."

However, in 1951, Congress repealed the tax exempt status of thrift institutions, but retained the credit union tax exemption. Congress found:

  • These cooperative and mutual institutions were in “active competition” with taxable institutions and continuing their tax exemption would be “discriminatory” and;
  • They had evolved into institutions whose “investing members are becoming simply depositors, while borrowing members find dealing with a savings and loan association only technically different from dealing with other mortgage lending institutions in which the lending group is distinct from the borrowing group.”
The same is true today with regard to the credit union industry. 

Furthermore, many other cooperatives are taxed.  Cooperatives organized for economic purposes (not charitable or limited purposes) are taxed under Subchapter T of the Internal Revenue Code.  

Therefore, the ownership structure is not sufficient for being tax exempt.    


  1. It's ok Keith. All Cheney has to do is get Hampel to write a white paper. Then, like magic (and as occurred with the corporate credit union toxic bonds)', all the scary stuff will go away.
    In the meantime, more of us wonder why we pay dues for such fairy tale leadership!!

  2. At the expense of being verbose - right on!



The content is provided for educational purposes only, with the understanding that neither the authors, contributors, nor the publishers of this site are engaged in rendering legal, accounting or other expert or professional services. If legal or other expert assistance is required, the services of a competent professional should be sought.

Comments appearing in response to articles appearing on this site do not necessarily reflect the views of the ABA. ABA makes no representations regarding the truth or accuracy of commentary or opinions that may be posted in response to the articles that appear on this website.

The inclusion herein of any link to a website, either in the text of an article or in a comment, does not denote any approval, sponsorship, or endorsement by the ABA, and ABA is not responsible for the content or opinions expressed on those linked websites or related commentary. This content is not licensed to third parties sites and is not affiliated with any third party site. Any reference to the author or this content on any third party site on the Internet is not authorized by the ABA.

It is the policy of the American Bankers Association to comply fully with all antitrust laws. Certain discussions should be considered off-limits, including those that contain competitively sensitive data such as price and cost information, or statements that could be construed as reflecting an attempt or desire to control or influence a particular market or markets. Future pricing or other prospective competitive information should never be shared.