CUs celebrate UBIT victory, await resolution

APPLETON, Wis. (5/18/09)--The Wisconsin credit union that won its lawsuit against the government's interpretation of three insurance products as falling under the unrelated-business income tax (UBIT) took some time Friday to assess the impact of Thursday night's decision by a federal jury.

"We're thrilled," said Cathie Tierney, president/CEO of Appleton, Wis.-based Community First CU, after she admitted being "a little numb" from the four-day ordeal before the U.S. District Court in Green Bay, Wis. The trial involved over more than 100,000 documents and 15 depositions requested by the government, she told News Now.

"It was the culmination of years and hundreds of hours and days and weeks' effort. It was an incredible team effort by partners such as the UBIT Steering Committee and their organizations, and all the attorneys," she said. She noted that "it meant so much to have the Credit Union National Association (CUNA) and CUNA Mutual Group there supporting us."

When Community First filed the suit in January 2008, it was with the support of the UBIT Steering Committee--CUNA, the American Association of Credit Union Leagues, CUNA Mutual Group and the National Association of State Credit Union Supervisors. CUNA General Counsel Eric Richard and CUNA Counsel for Special Projects Michael Edwards were present during the trial.

The collective effort "shows credit unions are very special places in the way that they come together with their resources and ideas," said Tierney.

The Wisconsin Credit Union League also supported the effort, and league President/CEO Brett Thompson testified on behalf of the credit union Tuesday morning. He told News Now that he testified about the history of Wisconsin credit unions, how the league services its member credit unions, and how products such as the insurance and GAO products contribute to the purpose of credit unions in serving their members.

During the trial, the judge ordered witnesses outside the courtroom and told those in the courtroom not to talk about the testimony because other witnesses hadn't testified yet. "It's strange to testify with a (gag) order in place because you don't know what has been said in the courtroom," Thompson told News Now.

"We are pleased by the jury's decision ...that the credit insurance and GAP products sold by Community First CU are substantially related to the purpose of credit unions so that income earned from those sales is not taxable," Thompson said in a statement released by the league.

"These products provide credit unions' member borrowers with greater peace of mind and so can be instrumental in re-starting our economy. This decision ensures consumers won't be denied this opportunity or be forced to pay more for the protection they want," he added.

"But even more important, today's ruling clarifies that these loan-related products are part of the everyday mission and purpose of credit unions. The jury agreed that these services help mitigate losses to the credit union, enabling Community First to make more loans--a central task related to credit unions' mission of serving members."

Thompson said the league was grateful to Tierney and the board and members of the credit union "for challenging the IRS and championing this case for the credit union movement." The ruling, he said, "strengthens the credit union movement's position in other pending litigation related to UBIT issues."

Community First's Tierney told News Now that "we were fortunate to find a jury that was very familiar with credit unions." The jury--three men and five women--took less than two hours to find that all three products at issue were substantially related to the purpose of the credit union's mission--and therefore were not taxable under UBIT.

The trial went "better than expected" in terms of timing and it was a smooth process. But it was hard to hear some of the government's accusations, said Tierney. "It was difficult to listen to the government saying for all intent and purposes that credit unions were 'rip-off artists' and that their [insurance] products were not good," she said.

"We are totally grateful to the two members [Yurri Sauerhammer and Robin Jorde] who testified. They are everyday people willing to tell their story. It was very heartwarming and it shows what special places credit unions are--that we're not a typical financial institutions but are cooperatives serving the best interests of members.

Sauerhammer and Jorde testified about their experiences with the credit life and disability life and guaranteed asset protection products. One of the widows told the court she would have lost her home after her husband died, if it hadn't been for the product.

After the verdict, the government's attorney asked the judge to set aside the verdict in a special oral motion. "My guess is that that is not going to happen," said Tierney. "It was a very decisive victory."

The government's attorney has 10 days in which to file a written motion to set aside the jury's verdict, according to CUNA's Edwards.

Tierney expressed "thanks to everybody in the movement and all the credit unions that supported us in their thoughts. Now we're getting back to running the credit union," she added.

courtesy of cuna.org