Community Bankers Association of Illinois

IRS Ends Certain Tax Exemptions for State Credit Unions

The Internal Revenue Service issued two written rulings that either remove or significantly narrow tax exemptions on income state-chartered credit unions earn for selling various products and services, including particular retail investments and lines of insurance. In rulings dated March 9 and March 2, the agency reasoned that certain product and service sales were "not substantially related" to their tax-exempt purpose of promoting savings or providing low-cost credit to members.

Fixed and variable annuities, long-term care insurance, whole life insurance, accidental death and dismemberment insurance, and credit life and disability insurance were among the state-chartered credit union insurance lines subject to taxation, the IRS wrote. Other income from mutual funds, check sales and car warranties were also earmarked for taxation.

The IRS is continuing to evaluate other sales activities. National and state credit unions group have promised to fight the rulings in court. ICBA is studying the rulings as a way to further encourage policymakers closely re-examine the fairness and appropriateness of all credit union tax-exemptions. Read March 9 Ruling. Read March 2 Ruling

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