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June 13, 2012 – Credit unions that end up on the IRS's "auto-revocation" list, and thus stripped of tax-exemption status, can find out how to correct that mistake by checking out a notice posted recently on the IRS's website.

Inclusion on the auto-revocation list often follows a missed deadline for filing an information return or notice of charter change with the IRS. Federal credit unions supervised by NCUA are not required to file an information return, or the Form 990-T, but state-chartered credit unions are required to do so. Both are federally tax-exempt, however.

The IRS notes that a change in charter type can trigger the placement of an institution on the revoked list. If a state-chartered credit union converts to a federal charter, it needs to tell IRS about the change; after that, it won't be required to file the return. A state-chartered credit union may also show up on that list if it has failed to file the information return three years in a row or if it switched to a federal charter and didn't tell the IRS in time to prevent being put on the revoked list.

The IRS's website provides three examples of the reasons a credit union most often can be told its exemption is revoked; it also explains how to correct that. One example not noted, however, is the revocation that can follow due to an administrative problem associated with the federal health care tax credit.

There have been several cases in which FCUs have claimed the federal healthcare tax credit, which they're allowed to do, and have filed a 990-T to get the credit. Once the IRS gets a Form 990-T, its system automatically checks for prior years' filings. Since FCUs are not required to file, there won't be any prior filings, and the and the federal credit union can end up on the revoked list.

"We understand that the IRS is trying to fix this glitch for next year, but in the meantime, a federal credit union whose exempt status has been revoked should contact the IRS' Cincinnati office to ask that it be taken off the revoked list," said Tessema Tefferi, NAFCU's regulatory affairs counsel.

To submit that request the FCU should send a letter:

• by fax to 513-263-4330; or
• by mail to IRS - TE/GE, Attn: Correspondence Unit, P.O. Box 2508, Cincinnati, OH 45021.

The letter should include the FCU's name, a printout from NCUA's website showing the credit union is under NCUA supervision, the credit union's address, its employee identification number, and name and title of the officer signing the request.