10/25/2007

Skipping Out on Taxes

Let’s start today’s column with a couple of definitions. A “for-profit” company operates its business and pays taxes on the earnings that it makes each year.  A “not-for-profit” company operates its business and does not pay taxes on the earnings that it makes each year. This is usually because it attained the “not-for-profit” designation from the IRS under certain guidelines that exempts it from paying federal income taxes.

Just because a company operates as a “not-for-profit” company, that doesn’t mean that it makes no profit. It doesn’t mean that it loses money every year. It basically means that, from a federal tax standpoint, its profits are not taxable.

Many companies that operate as “not-for-profit” are linked to charitable organizations in some way. They have passed the scrutiny of the IRS guidelines to gain the tax exempt status and the tax savings they enjoy can be put to use in various endeavors in support of the charity’s cause.

Credit unions operate as tax-exempt companies. They were first chartered by Congress to enable people with a “common bond” to pool their resources together to benefit their members. Originally, what constituted the “common bond” was an occupational bond. People working within a single industry could pool their resources and charter a credit union to serve their particular needs within that industry.

Like most businesses, credit unions lobby hard in Congress to promote the interests of its members. Some credit unions find it beneficial to merge with each other and spread the benefits from their members’ “common bond’ over a larger group of people. Other credit unions find it more desirable to circumvent the “common bond”. They solicit membership from zip codes by converting to a community charter. This has undermined the “common bond” intent from which they first gained recognition from Congress and tax-exempt status from the IRS.

Credit unions are tax-exempt, but their financial services reach beyond the common bond of their membership. Credit unions operate like banks when they solicit business accounts and make business loans. Basically, credit unions are allowed to do most things that banks can do, but not be taxed for doing them.

As a banker, I have a problem with this. Credit unions should pay taxes if they want to operate like a bank. It’s not right say you’re one way, and be another.

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10/25/2007

Skipping Out on Taxes

Let’s start today’s column with a couple of definitions. A “for-profit” company operates its business and pays taxes on the earnings that it makes each year.  A “not-for-profit” company operates its business and does not pay taxes on the earnings that it makes each year. This is usually because it attained the “not-for-profit” designation from the IRS under certain guidelines that exempts it from paying federal income taxes.

Just because a company operates as a “not-for-profit” company, that doesn’t mean that it makes no profit. It doesn’t mean that it loses money every year. It basically means that, from a federal tax standpoint, its profits are not taxable.

Many companies that operate as “not-for-profit” are linked to charitable organizations in some way. They have passed the scrutiny of the IRS guidelines to gain the tax exempt status and the tax savings they enjoy can be put to use in various endeavors in support of the charity’s cause.

Credit unions operate as tax-exempt companies. They were first chartered by Congress to enable people with a “common bond” to pool their resources together to benefit their members. Originally, what constituted the “common bond” was an occupational bond. People working within a single industry could pool their resources and charter a credit union to serve their particular needs within that industry.

Like most businesses, credit unions lobby hard in Congress to promote the interests of its members. Some credit unions find it beneficial to merge with each other and spread the benefits from their members’ “common bond’ over a larger group of people. Other credit unions find it more desirable to circumvent the “common bond”. They solicit membership from zip codes by converting to a community charter. This has undermined the “common bond” intent from which they first gained recognition from Congress and tax-exempt status from the IRS.

Credit unions are tax-exempt, but their financial services reach beyond the common bond of their membership. Credit unions operate like banks when they solicit business accounts and make business loans. Basically, credit unions are allowed to do most things that banks can do, but not be taxed for doing them.

As a banker, I have a problem with this. Credit unions should pay taxes if they want to operate like a bank. It’s not right say you’re one way, and be another.

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