CUNA Comment Letter
Form 990 Redesign
September 14, 2007
Internal Revenue Service
Form 990 Redesign
1111 Constitution Avenue, NW
Washington, DC 20224
The Credit Union National Association (CUNA) appreciates the opportunity to comment on the Internal Revenue Services proposal to redesign Form 990, Return of Organization Exempt from Income Tax. By way of background, CUNA is the largest credit union trade organization in this country, representing approximately 90 percent of our nations nearly 8,500 state and federal credit unions, which serve more than 87 million members. This letter was developed under the auspices of CUNAs Accounting Task Force, chaired by Scott Waite, SVP/CFO of Patelco Credit Union in San Francisco.
Summary of CUNAs Views
The proposed changes include a ten-page core form to be utilized by each filer. The form would include a summary page, nine additional sections, and a signature block. The summary page would require information about the organization, including key financial, compensation, governance and operational data. It would include 15 additional schedules that organizations, which engage in certain activities, would have to complete, as appropriate.
Form 990 has not been significantly modified since 1979, and we appreciate the need for the IRS to update the form to enhance its usefulness. However, we have a number of concerns regarding the proposal and Form 990 reporting generally as it relates to state chartered credit unions. A summary of CUNAs views is below.
- Credit unions are substantially different from other tax- exempt entities, such as charities, that are required to file Form 990.
- Unlike charitable organizations, which depend on donations and contributions for their survival, credit unions receive no donations to fund their operations.
- Also unlike charitable organizations, credit unions are financial institutions that are heavily regulated and subject to extensive oversight and financial reporting.
- In light of these significant differences, CUNA questions the appropriateness of Form 990 reporting for state credit unions.
- If state credit unions must be subject to 990-type reporting requirements, those requirements should not be the same as those for charitable organizations.
- To the extent state credit unions must comply with Form 990 reporting, we urge the IRS to continue allowing state regulators to file a group 990 for the credit unions they supervise.
- CUNA is also concerned about specific requirements on Form 990 as proposed. For example, the draft forms request for certain persons city and state of residence raises privacy issues for these individuals.
- Also, the percentage ratios could be misleading and unreliable when a party is comparing different types of organizations.
- Further, we do not think that the IRS has justified the need for the changes in the area of corporate governance, and we question the appropriateness of requesting this information.
Discussion of CUNAs Views
Credit Unions Are Distinct from Charitable Institutions
Credit unions are demonstrably different from charitable organizations that solicit funds from the public to support their endeavors. As financial institutions, credit unions receive no public donations or contributions to underwrite their activities. Rather, they accept deposits from their members, which are placed in savings, or checking (share draft) accounts owned and controlled by the individual member/depositor. (Credit unions have a tradition of paying attractive rates on savings and offering any array of loan products to their members at affordable rates.)
In addition, credit unions are democratically controlled by their member-owners. Each member receives one vote regardless of the size of his or her account and may use that vote to elect the board and participate in certain other corporate governance decisions of the credit union. Contributors to charities are not allowed to have a voice in the governance of those organizations.
Further, unlike charities and other tax-exempt organizations, every state credit union is thoroughly regulated and regularly examined by its state supervisory agency and deposit insurer. (A limited number of credit unions have private deposit insurance as permitted by the laws of their state but most credit unions are federally insured.)
Also, as discussed below, in contrast to charities, credit unions report much of the same type of information to safety and soundness regulators that the IRS requires under Form 990. In addition, credit unions are required to obtain annual audits and provide information to their members on their financial condition on an annual basis.
In short, there is a world of difference between credit unions and the other types of organizations that file Form 990. In light of these material differences between credit unions and other tax-exempt entities that file Form 990, we seriously question whether Form 990 reporting is appropriate for state credit unions. We also do not believe the IRS has provided sufficient explanation of, and justification for, treating credit unions the same as it does charitable organizations for reporting purposes, given the fact that credit unions are vastly different entities.
We would welcome the opportunity to meet with officials at the IRS to discuss our concerns about the applicability to credit unions of Form 990 reporting and whether state credit unions could be exempt from such reporting.
If State CUs Must Continue to Be Subject to Reporting, Requirements Should Reflect Credit Union Differences
Alternatively, if the agency will not consider exempting state credit unions from Form 990-type reporting, then we urge the IRS to work with CUNA and state credit union representatives to develop an information reporting system that reflects credit union distinctions.
This should include the fact that state credit unions provide much of the same information to their safety and soundness regulator that the IRS feels it needs.
A major example is the Form 5300 call report which credit unions must file quarterly with the National Credit Union Administration. The 5300 report transmits a wealth of information, including detailed financial data about credit unions, which is available on NCUAs web site.
Additionally, state credit union reporting requirements should be tailored to reflect the distinctions between credit unions and other tax-exempt organizations and should not significantly increase the regulatory burden for credit unions, which operate under numerous and complex regulations.
We believe working with the credit union system to redesign the reporting mechanism for state credit unions could result in enhanced compliance and an improved reporting process.
The IRS Should Continue Permitting Group 990 Filings
Currently, several state regulators file group Form 990s on behalf of the state credit unions they oversee. However, despite the fact that group 990 filings are permitted under IRS regulations, we are concerned that the agency no longer supports the use of such fillings.
For forty-seven years, the IRS has permitted state credit unions to file a group Form 990 through a state instrumentality, such as their regulator (IRS Rev. Rul. 60-364). Agency policy states:
[a] central, parent, or like organization, exempt under [IRS Code] Section 501 (a) and described in [IRS Code] Section 501(c) may file annually a group return on Form 990. 26 CFR 1.6033-1(d)(1).
The rule also states:
[a] group return shall be in lieu of filing a separate return by each of the local organizations included in the group report. Id. at (d)(2).
To our knowledge, no rule was proposed to change the agencys position on group filings. In our view, this is a policy matter that should be decided through a notice and comment procedure under the Administrative Procedure Act (APA).
We urge the agency to continue group filings. However, if it has concerns about this practice, it should issue a proposed rule or advance notice of proposed rulemaking to solicit comments from stakeholders before abolishing the procedure altogether. To do otherwise, in our view, is wholly inconsistent with the APA.
Concerns with Some of the Proposed Changes
In addition to our broader policy issues, we have concerns about several aspects of the proposed changes to the form. For example, CUNA is concerned with the draft Form 990s request for the city and state of residence of several individuals, such as officers and directors. Including this information along with the individuals name and compensation information could provide a useful profile for those seeking to abuse it. We feel any marginal benefit of including this information is outweighed by the possibility that the individuals privacy will be jeopardized and that it should not be included on the form. We are not aware of a similar requirement for this information from for profit non-SEC registrant filers. We urge the agency to delete this requirement or accept aggregated financial information.
The agency is also requesting several percentage ratios in an effort to measure efficiency. One example of this is the request on the core form for executive compensation information as a percentage of service expenses. We are concerned that this does not provide meaningful information and could even result in misleading conclusions about compensation. We urge the agency to delete these ratios from the form.
The proposed changes would require reporting on how organizations provide information to the public. Credit unions do not serve the public and this requirement is not appropriate for them. While there are a number of community credit unions, even these institutions may not serve individuals outside their community. Many credit unions are subject to greater membership restrictions because they serve an associational or occupational based membership. This requirement should be deleted.
The revised form would require detailed information on corporate governance issues. We do not believe Form 990 is the appropriate vehicle for reporting this information, particularly for credit unions that must answer to their members and to their safety and soundness regulators on such issues. In our view, it is unclear what the IRS is trying to accomplish by requesting this information. We are also concerned that from a public policy standpoint, the IRS should not be in the position of regulating management practices of tax-exempt organizations. In the case of credit unions, such practices are already subject to member scrutiny and regulator review. We urge the IRS to forego the detailed questions on corporate governance matters.
Thank you for the opportunity to express our views on the proposed changes to Form 990. We plan to follow up to discuss our concerns with appropriate agency staff. In the meantime, if you have questions about our letter, please do not hesitate to give Lilly Thomas, Assistant General Counsel or me a call at 202-508-6736.
Mary Mitchell Dunn
SVP and Deputy General Counsel