NASHVILLE, Tenn. — While the credit union industry will certainly challenge the IRS' interpretation of its Unrelated Business Income Tax and how it applies to state-chartered credit unions, state charters in the meantime must make some accounting adjustments.

That was the view of Faye Patzner, senior vice president and chief legal officer for CUNA Mutual. Patzner said state charters should be able to break out the amount of net income that could be subject to UBIT. They also need to understand the costs involved with these products and be able to document them to offset UBIT. In some cases credit unions could even be running a net loss, which negates any tax, on some products subject to UBIT, Patzner said. "This reinforces the statement we've been telling the IRS all along: Credit unions are here to serve their members' needs, not to make money off product sales."

Credit unions can expect to see a UBIT lawsuit soon. "Given the political landscape, legislation is not a good alternative, which means we will have no other option but to pursue litigation on behalf of state-chartered credit unions," she said. "We believe our legal position on this issue is strong. Credit insurance has been sold by credit unions since 1935. Frankly, it's a ridiculous position to now say, some 70-plus years later, that it's not part of the purpose of credit unions."