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However, in 1951, Congress repealed the tax exempt status of thrift institutions, but retained the credit union tax exemption.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.
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.
ReplyDeleteIn the meantime, more of us wonder why we pay dues for such fairy tale leadership!!
At the expense of being verbose - right on!
ReplyDelete