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April 10, 2014 – An IRS memo to "exempt organization" examiners on the processing of unrelated business income tax issues notes recent court wins by credit unions and also reiterates federal credit unions' exemption from such tax.

Federal credit unions are exempt from UBIT, the memo notes, due to their treatment under the internal revenue code as federal instrumentalities.

While FCUs are fully exempt from UBIT due to their federal instrumentality status – a status NAFCU is working preserve – the exemption for state-chartered credit unions depends on the nature of the business activity being reviewed. For example, IRS points out to examiners that income from the following income-producing activities is not subject to UBIT:

• sale of checks/fees from a check printing company
• debit card program interchange fees
• credit card program interchange fees
• interest from credit card loans
• sale of collateral protection insurance

IRS tells its examiners that income from the marketing of certain types of services, such as automobile warranties, dental insurance and other types of health or medical insurance, and ATM "per transaction" fees from nonmembers is subject to UBIT. More details are in the memo.