IRS Refuses to Make Commitment Requiring FCUs to File Tax Returns

The Internal Revenue Service has refused to make a commitment to require federal credit unions to file informational tax returns, known as Form 990s, CU Times has learned.

In a letter to Senate Finance Chairman Orrin Hatch (R-Utah) obtained by CU Times, IRS Acting Director David Kautter simply thanks Hatch for his interest and states that he agrees that federal credit unions must promote their intended purpose and that the system needs more transparency.

But he refused to go further than that.

Hatch created a firestorm earlier this year, when he questioned whether the credit union tax exemption is outdated. And following an exchange of letters between Hatch and NCUA Chairman J. Mark McWatters, Hatch sent a letter to the IRS asking the agency to require federal credit unions—at least the largest ones—to file Form 990s.

“Congress provided this exemption for express purposes and has an obligation to maintain oversight of credit union activity to ensure that they continue to fulfill its intended vision,” he said in his letter to the IRS.

And he told IRS officials that the agency can require federal credit unions to file those documents without congressional approval.

State credit unions already must file those forms, even though they are tax exempt. The document provides information about the activities of nonprofit organizations, including compensation of key employees.

Kautter sent Hatch a terse reply on June 7—a letter that has remained closely held until now. Kautter begins by thanking Hatch for the letter.

“I appreciate your thoughts on this issue,” it continues. “We understand your concern in ensuring that federal credit unions promote the intended purposes and the need for greater transparency.”

Before ending the letter, Kautter provides Hatch with the phone number of the agency’s legislative director.

Asked for reaction to the letter, a Hatch spokesperson said, “Chairman Hatch will continue to work with Finance Committee members on this issue and monitor oversight of credit union activity.”

However, Hatch is retiring at the end of the year. And so far, no other member of the Finance Committee has expressed interest in picking up the fight.

Banking groups have been lobbying hard for years on the issue, arguing that credit unions have an unfair competitive advantage because they are tax exempt.