UBIT jury hears witnesses on behalf of CU

GREEN BAY, Wis. (5/13/09)--During the second day in the trial over the Internal Revenue Service's interpretation of the unrelated-business income tax (UBIT) related to insurance products at a Wisconsin credit union, the jury heard testimony and depositions from six witnesses and experts on behalf of the credit union.

The trial began Monday in a U.S. District Court in Green Bay, Wis. Community First CU, based in Appleton, Wis., filed suit in January 2008 against the government after the IRS determined that certain guaranteed auto protection (GAP) and insurance products offered to members fall outside the credit union's main mission and are subject to UBIT.

The credit union is seeking a refund of $54,000 in taxes paid on credit life and credit disability insurance and GAP products. Community First filed the suit with the support of the Credit Union National Association (CUNA), the American Association of Credit Union Leagues, CUNA Mutual Group and the National Association of State Credit Union Supervisors.

According to Eric Richard, CUNA general counsel, six witnesses testified.

A judicial order issued by Judge William Griesbach on Monday discourages those in the court room from reporting on the specific content of the testimony, since witnesses who haven't testified yet have been excluded from the courtroom.

"The day began with the jury viewing a videotape of CUNA Vice President of Economics and Statistics Mike Schenk, in which he described a study of the value that Community First CU provides to its members," said Richard.

Others testifying Tuesday on behalf of Community CU included:

Kevin Hartz, senior vice president of branch operations at the credit union. Hartz, who has been with the credit union for 24 years, has experience with the products at issue;

Brett Thompson, president/CEO of the Wisconsin Credit Union League;

Kathy Graham of CUNA Mutual Group, which offers credit life and disability insurance;

Richard Fischer, director of product management at CUNA Mutual Group; and

Robin Jorde, a member of the credit union who has experience with the products.

Also, parts of a deposition from Denise Lynch of Allied Solutions, a provider of GAP insurance products, were read by counsel and a member of the credit union's staff.

Today, the credit union's attorney, Michael M. Conway of Foley and Lardner law firm, plans to call two more witnesses on behalf of the credit union: Jurri Sauerhammer, a member, and expert witness Glenn Potts, a professor of finance at the University of Wisconsin-River Falls.

"Then the government will present its case, with two expert witnesses, and the credit union will present two more rebuttal witnesses, " Richard told News Now.

"There is some possibility that the trial could end ahead of schedule, but that still remains to be seen," he said.

The credit union's lawsuit maintains that the revenue from the sale of the products is "substantially related" to the purposes and functions of the tax-exempt, state-chartered credit union (News Now April 30).

CUNA and the Wisconsin league are following the case closely. Earlier this year, CUNA President/CEO Dan Mica wrote a letter to IRS on the UBIT issues (News Now Feb. 24).

Mica's letter reiterated CUNA's concern that the IRS "may not understand that credit unions are an integral part of the credit markets, especially for consumers, and have been playing a vital role in keeping credit flowing to consumers.

"Tax policies that undermine credit unions' ability to lend are completely at odds with current efforts to free up the credit markets and can contribute to pro-recessionary credit shortages."

Credit unions feel so strongly about the UBIT issue that thousands gave Community First CU President/CEO Cathie Tierney a standing ovation at several conferences, including CUNA's Governmental Affairs Conference in Washington, for filing the lawsuit.

courtesy of cuna.org