Wednesday, April 9, 2014

IRS UBIT Guidance

The Internal Revenue Service (IRS) issued guidance to Exempt Organization examiners stating that certain products offered by state-chartered credit unions will now be exempt from unrelated business income tax (UBIT).

The guidance arose from two district court decisions that held that activities the IRS has previously regarded as subject to UBIT should not be subject to UBIT. The government decided against appealing the decisions.

The following products will not be subject to UBIT.
  • Sale of checks/fees from a check printing company
  • Debit card program’s interchange fees
  • Credit card program’s interchange fees
  • Interest from credit card loans
  • Sale of collateral protection insurance
Income from the marketing of certain insurance products as well as ATM fees will be subject to UBIT.
  • Automobile warranties
  • Dental insurance
  • Cancer insurance
  • Accidental death and dismemberment insurance
  • Life insurance
  • Health insurance
  • ATM “per-transaction” fees from nonmembers
Income from credit life and credit disability insurance and GAP auto insurance is not subject to UBIT, unless these products are sold to non-members.

Finally, the IRS states: "Unless there is a royalty arrangement (rather than payments for a credit union’s services), treat all other insurance products including accidental death and dismemberment insurance as generally subject to UBIT.

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