Historically, the Office of Financial and Insurance Services (OFIS) has prepared and filed a consolidated IRS Form 990, Organization Exempt from Income Tax return for all of the Michigan state-chartered credit unions. As mentioned in OFIS’s letter number 2006-CU-01 dated February 15, 2006, OFIS will discontinue filing an IRS Form 990 after the 2005 tax year. Please note that OFIS will file the Form 990 return for 2005 (due May 15, 2006). 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.

In addition to the change in filing the 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.

At this time, we do not expect the IRS to require credit unions to file Form 990T, Exempt Organization Business Income Tax Return for past years to pay back UBI tax. Therefore, 2006 will be the first year credit unions should begin the recording, tracking, and analyzing of income sources deemed to be UBI and related expenses.