Taxpayers Union Calls for Probe of CU Tax Exemption in Newly-Released Paper

As thousands of credit union advocates prepare to descend on Washington, D.C., credit unions Monday faced a renewed attack on their tax exemption.

The National Taxpayers Union released a new paper that contends that credit unions have gone beyond the original intent outlined in federal law. As a result, the group said, the credit union tax exemption should be reexamined, particularly for the largest institutions.

The move comes less than a week before thousands of credit union advocates gather at CUNA’s Governmental Affairs Conference.

The NTU position is not new; the group, which normally pushes for lower taxes is one of several that in 2018 expressed support for then-Senate Finance Chairman Orrin Hatch’s call for a reexamination of the tax exemption.

And many of the charges leveled by the NTU have been made by others, most notably, bankers.

This paper, coming days before GAC begins, may increase the visibility of the group’s message, at least in the short run.

The NTU said that at least 315 credit unions have assets of more than $1 billion, adding that these institutions are competing with for-profit community banks for similar customers.

“It is entirely appropriate for Congress to periodically review and reform all sections of the federal tax code,” the paper, written by NTU policy and government affairs associate Thomas Aiello said. “In 2020, lawmakers should focus their attention on the tax treatment of large, bank-like credit unions.”

The organization added that the purchase of for-profit banks by credit unions should “invite scrutiny from lawmakers on Capitol Hill.”

The NTU said that many credit unions have strayed from their limited mission and are extending their services to nearly anyone.

The group said that federal policymakers should require credit unions with assets exceeding $1 billion to file IRS Form 990. The NTU said the cost of credit unions preparing that form could be offset by streamlining rules that affect how credit unions operate or a special Form 990 for credit unions could be designed.

CUNA officials said they expect that banking trade groups were behind the NTU report.

“Knowing that 5,000 credit union advocates will be on the Hill next week reminding lawmakers about the outsized benefit the congressional investment in credit unions’ structure and mission provides communities, it’s no surprise that the bankers are trotting out the same old talking points,” Ryan Donovan, CUNA’s chief advocacy officer said. “That doesn’t change the fact that the $1.9 billion in taxes comes back nearly tenfold to support and advances consumers, small businesses, and communities in every state of the union.”

“When talking about tax fairness, people should be concerned about the billions in tax cut benefits banks enjoyed in 2019, which only boosted shareholder payouts and made them richer in the same decade they were bailed out from the financial crisis,” NAFCU President/CEO B. Dan Berger said. “Not to mention, about one-third of U.S. banks enjoy Subchapter S status so they can distribute untaxed profits directly to shareholders. Credit unions are not-for-profit cooperatives.”

The NTU is basically pushing for a new tax on consumers, John McKechnie, senior partner at Total Spectrum

“It’s also unfortunate that they appear to be carrying water for the bank lobby by releasing this attempt at analysis just as thousands of credit union members visit Capitol Hill,” he said. “I suspect those credit union activists will have something to say on the issue.”