IRS Pays Up After UBIT Smackdown

Members and employees of the Colorado based Bellco Credit Union are all smiles this week. Bellco received three checks from the IRS totaling over $291,000 as the result of the favorable outcome of its legal challenge to UBIT and its application to Bellco.

The refund represented three years of UBIT paid to the IRS.

Judge Christine M. Arguello of the U.S. District Court of Colorado in Denver ruled in November 2009 that investment and insurance products sold by Bellco to members, including credit life and disability insurance and some other products, stocks, bonds, mutual funds and annuities, were “substantially related” to Bellco’s tax-exempt purposes, and therefore the income from those activities was, under the law, exempt from UBIT.

The U.S. Department of Justice in October 2010 decided not to appeal that ruling, saying the government did not see enough merit in its own position to push it further. The case was the second time within a year that a U.S. District Court had upheld credit unions’ challenges to UBIT rules.

In 2009, Community First Credit Union of Appleton, Wis., was ruled exempt from UBIT on income from credit life insurance, credit disability insurance and GAP coverage.

While this battle is over, the war over UBIT is far from complete as a few key income streams have not yet been litigated, including ATM fees paid by non-members.

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