IRS rules UBIT exemption doesn't apply to some credit union services

Northwestern Financial Review, Apr 1-Apr 14, 2007

The Internal Revenue Service ruled that two credit unions must pay income tax on unrelated business income generated through the sale of six products: credit life and disability; accidental death and dismemberment; guaranteed auto protection; dental and cancer insurance; financial management services, and car warranties.

The ruling is expected to set a precedent for all state chartered credit unions. In order to qualify for a tax exemption, the IRS said, services must "contributed directly and importantly to the accomplishment of one or more of [the credit unions'] exempt purposes - promotion of thrift and providing low-cost credit for its members through mutual and nonprofit operation." The National Association of State Credit Union Supervisors said it would likely challenge the IRS ruling with litigation.