IRS Form 990 Update
Credit Union Advisor, 2006 Fall

As a reminder, the Office of Financial and Insurance Services (OFIS) will not be preparing or filing a consolidated IRS Form 990, Organization Exempt from Income Tax, for Michigan state-chartered credit unions as in years prior. Michigan state-chartered credit unions will need to begin the preparation and filing of their own individual IRS Form 990 beginning with years ending December 31, 2006. This return will be due to the IRS on May 15, 2007. (Extensions will be available.)

Since federal credit unions, which are exempt under IRC Section 501(c)(1), are considered to be federal instrumentalities, federal credit unions are not subject to the Form 990 filings or the unrelated business income tax (UBIT) provisions.

There are several disclosures required within the IRS Form 990, including balance sheet and income statement information, executive compensation, mission statement, and several disclosures relating to the accomplishments of the credit union (examples might include the number of members served, products offered, and areas served).

In addition to the change in filing Form 990 for Michigan state-chartered credit unions, there is a current focus on determining unrelated business income (UBI). The IRS is expected to issue a technical advice memorandum relating to the treatment of certain items deemed to be UBI. At this time, the items expected to be included in the memorandum include nonmember ATM fees and certain insurance sales. Since tax on UBI is applied to net income, not gross income of UBI, appropriate expense allocation will be crucial. The Michigan Credit Union League (MCUL) is expected to release a legal memorandum, which will help detail expense allocations. Please contact your Plante & Moran representative to help determine the appropriate expense allocation for your credit union.

We will continue to keep you updated as the IRS works to issue the final ruling on the definition of unrelated business activities for the credit union industry.