Comments on: Why Are Credit Unions Tax Exempt? Do You Really Know?

By: Editor

Editor — Fri, 03 Aug 2012 15:47:06 +0000

The Financial Brand takes no position on whether credit unions should be taxed or not. That’s a political debate beyond the scope of this publication. The only purpose of this article is to clarify why credit unions have the tax exemption, not whether they deserve one or not. Credit union marketers often misrepresent and/or misunderstand the nature of the tax exemption (e.g., they say “we are not for profit because we are member owned” in their marketing).

I’m sure you can understand why a publication that caters to the interests of both bank and credit union marketing executives would not take a position on this issue. There is zero upside.

The Financial Brand has always been and will always remain agnostic on the “bank vs. credit union” debate.

By: Scott Gronholz

Scott Gronholz — Thu, 02 Aug 2012 16:12:26 +0000

So editor, are you saying in your comment from 12-27-2010 at 9:27 “or the tax-exempt organization starts providing too many services that compete with for-profit companies, the tax exemption is usually withdrawn”.has not happened? Have you seen an ad from a Credit Union lately? They are specifically competing with commerical banks. If it looks like a duck, quacks like a duck, its a duck. Credit Unions are no longer fulfilling a need that can not be provided by for profit companies. Can you name any other industry that has two companies that are located side by side, offering essentially the same products and services where one is tax exempt and the other one isn’t? I am all for tax-exempt entities as long as they truely deserve the exemption. Credit Unions are no longer operating like they did in the 30′s, so why are we still allowing them tax exempt status.

By: Jesse Taylor

Jesse Taylor — Fri, 17 Feb 2012 21:46:04 +0000

You make some very interesting points here! I am a strong supporter of credit unions, but have always explained the tax exemption in terms of legislation, instead of in terms of values. Thanks for sharing this!

By: Editor

Editor — Fri, 04 Nov 2011 18:21:07 +0000

@Steve – Nowhere does it say or suggest credit unions are supposed to “offer products that commercial banks do not.” Indeed Congress intended the contrary. They sought to provide the same services banks offer, just with a focus on people of modest means. Congress didn’t spell out “what” they wanted credit unions to offer, just to “whom.”

By: Steve Gobel

Steve Gobel — Thu, 03 Nov 2011 23:30:44 +0000

If credit unions are supposed to offer products that commercial banks do not why are credit unions lobbying so aggressively to get legislation passed to allow them to use 30% of their assets to lend to businesses and not to “people
of small means”. Also being not-for-profit does not necessarily mean no income. Many credit unions have more net income than banks. This net income builds up to a large amount of capital that is not taxed. Some credit unions then convert to a savings bank. Who gets that wealth that was not taxed. It is time to get away from the warm fuzzy feelings for credit unions and examine why they still are tax exempt and have them start to pay their fair share of taxes to help support our country and contribute to paying down the huge federal debt.

By: Why Credit Unions are Tax Exempt | unbank with HCPFCU

Why Credit Unions are Tax Exempt | unbank with HCPFCU — Wed, 05 Jan 2011 19:54:19 +0000

[...] http://thefinancialbrand.com/16153/why-credit-unions-have-a-tax-exemption/ [...]

By: CU Water Cooler » Blog Archive » CU Water Cooler 1/4

CU Water Cooler » Blog Archive » CU Water Cooler 1/4 — Tue, 04 Jan 2011 14:22:00 +0000

[...] • Why are Credit Unions Tax Exempt? Do you really know? [...]

By: Editor

Editor — Mon, 27 Dec 2010 17:27:47 +0000

Remember that building and loan associations were not-for-profit and run by all-volunteer boards at the time they lost their tax exemption.

Tax exemptions are normally only extended to organizations providing a public service that other for-profit companies aren’t offering or won’t offer. If for-profit companies start offering the same public service(s) and/or the tax-exempt organization starts providing too many services that compete with for-profit companies, the tax exemption is usually withdrawn.

That’s how legislative history reads anyway.

By: Keith Leggett

Keith Leggett — Wed, 22 Dec 2010 20:59:24 +0000

A very thoughtful article.

As you correctly point out, the tax exemption does not arise from the structure of credit unions; but rather from the public purpose they fulfill. This may explain why the credit union tax exemption was scrutinized by various commissions this year. These commissions came to the conclusion that credit unions are not fulfilling a public purpose.

I also appreciate the links to the 1979 IRS study and to the Nixon executive order regarding the seal for the NCUA.

By: Editor

Editor — Wed, 22 Dec 2010 17:27:03 +0000

Hi Sarah,

Thanks for the comment.

As the article points out, simply running a not-for-profit business isn’t sufficient to obtain a tax exemption. There’s more to it. Not just any organization can be not-for-profit and tax-exempt. Congress only allows certain types of organizations to be non- and not-for-profit. So why did Congress decide to include credit unions in its list of qualifying not-for-profits? Why would Congress grant tax exemptions to credit unions but not allow me to start a not-for-profit, tax-exempt chain of gas stations? What is their criteria? It’s about providing a service with social value that other for-profit businesses don’t/won’t provide.

By: Sarah Snell Cooke

Sarah Snell Cooke — Wed, 22 Dec 2010 16:05:46 +0000

I think the argument you make that the reason behind credit unions’ tax exemption is not their structure is chicken-and-egg. Credit unions would not be tax exempt if they were for-profit so their not-for-profit structure is at least part of the reason.

In the end the reason for credit unions tax-exempt status boils down to one thing: the government allows it. Credit unions then have to earn it everyday by contributing to the economic well-being of the citizenry and the country as a whole. Taking the exemption for granted is the greatest threat to losing it.

By: CU Water Cooler » Blog Archive » CU Water Cooler 12/22

CU Water Cooler » Blog Archive » CU Water Cooler 12/22 — Wed, 22 Dec 2010 13:08:37 +0000

[...] • Do You Really Know Why Credit Unions Are Tax Exempt? [...]

By: Editor

Editor — Wed, 22 Dec 2010 12:56:00 +0000

1. Who said anything about a whim?

2. That credit unions organizational structure hasn’t changed since 1934 does not explain why they are tax exempt.

3. What “other items” preceded the Federal Credit Union Act?

By: 1st Thinker

1st Thinker — Tue, 21 Dec 2010 23:16:15 +0000

The first part of that section you quote starts with: “The Federal credit unions organized hereunder”

As our organizational structure hasn’t changed since 1934, one has to assume that the structure was an integral part of the reason for the tax exemption as well as the other items that preceded this, culminated in a decision for tax exemption.

To assume that we were granted tax exemption on a whim is a bit of a big jump… but then, I wasn’t there.