Tax-Exempt Credit Unions Insult Three Million Taxpaying Small Businesses

APRIL 30, 2004


The tax-exempt credit unions insult three million taxpaying Subchapter S small businesses by wrongfully suggesting they do not pay taxes. The Credit Union National Association is defending a large and growing tax-free mega credit union industry that has come under increased scrutiny from policymakers and a recent GAO report to reassess its tax-exempt status and explain why credit unions are failing to meet their tax-exempt mission of serving people of modest means. To divert attention from this fresh credit union scrutiny, a new CUNA letter is asking the IRS to look into Subchapter S banks and businesses. Ironically, these businesses do pay billions in taxes each and every year while many tax-exempt credit unions mushroom in size and scope. Somehow or other, credit unions are trying to obscure the simple fact that Subchapter S businesses do pay income tax and credit unions do not.

The facts are clear. Subchapter S businesses and community banks must allocate their income to their shareholders who pay federal income tax on this income at up to 35%. Additionally, state income taxes also apply to this same income. We suggest a simple solution for CUNA's bizarre call to examine the benefits of Subchapter S banks: allow any credit union to also "benefit" by becoming an S corporation and paying a fair share of federal and state income taxes. See www.icba.org for additional information to help stop unfair credit union competition.

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