Monday, April 25, 2016

Proposal Paves Way for FCUs to Own Mixed-Use Properties

The National Credit Union Administration (NCUA) Board on April 21 issued a proposed rule that will eliminate the requirement that a federal credit union (FCU) must plan for, and eventually achieve, full occupancy of acquired premises.

In addition, the proposed rule modifies the definition of “partially occupy” to mean occupation and use, on a full-time basis, of at least fifty percent of the premises by the FCU, or by a combination of the FCU and a credit union service organization (CUSO) in which the FCU has a controlling interest.

This means that an FCU may lease or sell excess capacity in its facilities.

In justifying the proposed rule, NCUA Chairman Debbie Matz stated:

"In my travels during my two terms on the NCUA Board, I have seen businesses operating successfully in mixed-use buildings, where street-level space is used for retail operations and an upper floor is used for commercial rentals or private residences. These types of mixed-use zoning are especially popular in urban areas."

She further noted that the requirement that an FCU eventually take full occupancy of a mixed-use premise would mean an FCU would have to evict tenants and renters and that would not be fair.

Unfortunately, the income from leasing this excess space by an FCU is not subject to taxation, as FCUs are exempt from the unrelated business income tax (UBIT). This proposal is latest example of NCUA expanding the cost of the credit union tax exemption.

In my opinion, real estate management or the ownership of mixed-use properties is outside of the tax exempt purpose of an FCU.

Congress needs to ensure that income from leasing is subject to UBIT.

Read the proposed rule.

Read NCUA Chairman's statement.

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