Taxpayer Group Calls on Congress to Take a Fresh Look at CU Tax Exemption

The National Taxpayers Union, a nonpartisan taxpayer advocacy group, is calling on Congress to re-examine the tax exemption of large, bank-like credit unions.

The issue briefing paper noted the trend of large credit unions acquiring community banks. For example, the National Taxpayers Union cited Lake Michigan Credit Union's acquisition of a southwest Florida bank, despite the credit union's headquarter being 1,000 miles away.

The National Taxpayers Union wrote: "Permanently taking taxpaying business entities off treasuries’ tax rolls and shrinking the tax base is a textbook example of poor tax policy."

The paper also pointed out the erosion of the credit union's field of membership as another reason for Congress to take a look at the credit union industry's preferential tax treatment.

In addition, federal credit unions are not required to file Form 990 to the Internal Revenue Service. The National Taxpayers Union believes that large federal credit unions should be subject to Form 990 filing requirements, just like other tax-exempt entities. Requiring large federal credit unions to files a Form 990 would result in greater transparency and accountability at these institutions.

Furthermore, the Form 990 "is the main enforcement mechanism to ensure compliance with Section 13602 of the Tax Cuts and Jobs Act, which requires a 21 percent excise tax on not-for-profit executive compensation above $1 million."

Moreover, the taxpayer group noted that federal credit unions are not subject to Unrelated Business Income Tax, because they are viewed as instrumentalities of the federal government. This allows federal credit unions to avoid paying taxes on profits that are not related to their core mission. For example, the paper notes that some federal credit unions have gotten into the commercial real estate business and are leasing out excess office space to other businesses. This activity is not part of the core business of federal credit unions and should be taxed.

The taxpayer group concluded that "[w]ith many credit unions growing significantly in both size and scope, it is time for Congress to reevaluate the tax exemption and other tax-related provisions governing credit unions."

Read the paper.