IRS Issues ‘Tax Exempt’ Correction to Credit Unions

The U.S. Internal Revenue Service (IRS) sent a letter of correction to credit unions that had been erroneously informed last year that they had lost their tax-exempt status due to a filing error by the credit unions’ “central organization.”

The filing error, in fact, was on the part of the IRS, according to the agency’s letter.

The Credit Union National Association (CUNA) and CUNA’s Unrelated Business Income Tax (UBIT) Steering Committee worked with the affected credit unions to get a clarification from the IRS when the original notices went out in August.

Those notices told each credit union that because its central organization failed to meet its annual filing requirements for three consecutive years, the credit union’s tax-exempt status was automatically revoked. The notice, the IRS said in its correction, also contained the following erroneous statement:

“Your organization is a subordinate in this revoked group ruling, so your organization ceased to be tax exempt on the date of your central organization’s automatic revocation, even though your organization may have met its annual filing requirements.”

The clarification stated:

“Revenue Ruling 60-364,1960-2 C.B. 382, held that a state agency may file a group information return on behalf of all the exempt state-chartered credit unions under its control and supervision, in lieu of each individual state-chartered credit union filing a separate information return. You received the letter containing the erroneous information because of the way state credit unions that filed group returns were maintained on our systems.

“If you continue to meet your annual filing requirements, you may hold yourself out as tax exempt as long as you meet all other applicable requirements for tax exemption under the Internal Revenue Code.”

The IRS apologized for any confusion the original Letter 4777 may have caused and noted that if a credit union wants a determination letter recognizing its tax-exempt status, the credit union must apply using Form 1024, “Application for Recognition of Exemption Under Section 501(a) for Determination Under Section 120,” and pay the applicable user fee.

The letter included a toll free phone number (1.877.829.5500) in case of any further questions.


Questions? Contact the Compliance Hotline: 1.800.546.4465,

Posted in Compliance News, Federal.