For years, banking industry advocates have made the case that credit unions should be taxed on their income the same way banks are. .You know the talking points: Credit unions now make up a multi-trillion dollar industry; common bond no longer means anything; credit unions are active in commercial lending; they spend big dollars on marketing campaigns; they are buying banks at an alarming rate; they can now issue subordinated debt; they are exempt from the Community Reinvestment Act; and Federal credit unions don’t even have to fill out 990s like other “nonprofits.”And for years, elected officials have told bankers to forget about it. Despite the facts, bankers are typically told that Congress will never subject credit unions to income tax.Well, never say never. If ever there was a time when it seemed possible that Congress might assess income taxes on credit unions, it’s now. Nothing in Washington, D.C., is operating as it has in the memorable past. Changes are being made, at breakneck speed, which never seemed possible before. And, the federal debt is mounting so high that Congress is looking for every opportunity it can find to collect more revenue.Congress will be taking up a tax bill before too long; the majority party would like to extend the tax cuts that were implemented during the last Trump administration. In order to do that, they are going to have to consider new tax arrangements — like assessing credit unions for income.The Independent Community Bankers of America used the occasion of its annual convention last month to announce an effort to urge Congress to end the federal income tax exemption on credit unions with more than $1 billion in assets — that’s about 450 credit unions, or 10 percent of the number of credit unions and about half the industry’s assets. I think the ICBA’s timing could not be better. Now is the time to make the case for credit union taxation.The American Bankers Association states that “regulators and members of Congress alike have concluded that the modern credit union system, and its 140 million members, would benefit from more disclosure and reporting requirements.” ABA is advocating for “more appropriate regulatory, supervisory and tax requirements that better reflect the industry’s evolution.”In fact, the entire financial services industry landscape is evolving. At least until the midterms, banking industry advocates have a better chance than ever to reshape the applicable tax policy.
