Louisiana Credit Union League v. The United States of America

693 F.2d 525, 51 A.F.T.R.2d (RIA) 451, 1982 U.S. App. LEXIS 23325
CourtCourt of Appeals for the Fifth Circuit
DecidedDecember 14, 1982
Docket81-3134
StatusPublished
Cited by58 cases

This text of 693 F.2d 525 (Louisiana Credit Union League v. The United States of America) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fifth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Louisiana Credit Union League v. The United States of America, 693 F.2d 525, 51 A.F.T.R.2d (RIA) 451, 1982 U.S. App. LEXIS 23325 (5th Cir. 1982).

Opinions

GOLDBERG, Circuit Judge:

This case involves the taxability of income generated by the revenue-producing activities of a tax-exempt business league. The district court held that the revenue in question constituted unrelated business taxable income and therefore was subject to taxation. We affirm.

I. FACTS AND PROCEDURAL HISTORY

A. Facts

The taxpayer-appellant, Louisiana Credit Union League (“LCUL” or the “League”), is a business league exempt from taxation under section 501(c)(6) of the Internal Revenue Code;1 its membership consists of both state and federally chartered credit unions. LCUL was organized‘to serve as a representative body for the development of credit unions in the state of Louisiana. Among the purposes stated in its charter are the following:

(a) To cause the organization and development of credit unions in Louisiana;
(b) To promote, sponsor, and develop educational and training programs for credit union officials;
(c) To publicize the importance of credit union services and benefits;
(d) To promote legislative activity favorable to credit unions;
(e) To foster cooperation among credit unions;
(f) To maintain a league headquarters; and
(g) To provide operational and advisory services to credit unions.

LCUL is supported in part by membership dues. The maximum dues payable by a member credit union are the greater of five percent of the member’s gross income or $750.

[528]*528LCUL also engages in several revenue-producing activities that have generated both operating income and this litigation. Specifically, LCUL serves as a middleman between member credit unions and commercial vendors of insurance, debt collection, and electronic data processing services. In return for its endorsement and administrative assistance, the League receives fees from the companies providing the services to the member credit unions. The League uses these fees to support its general operations. Because of the importance of these activities to the resolution of this matter, we describe them in some detail.

1.Insurance

One source of revenue for LCUL is the amounts it receives pursuant to contracts with CUNA Mutual Insurance Society and CUMIS Insurance Society, Inc.2 CUNA/CUMIS offers several lines of insurance coverage for both credit unions and the individuals who are members of credit unions.3 CUNA/CUMIS is essentially a mutual company marketing only to credit unions. At least two other companies exist that serve credit unions exclusively; additionally, such large general insurance companies as John Hancock, Prudential, and Metropolitan compete for the credit union market. Under its exclusive contract with CUNA/CUMIS, LCUL provides its active support and official endorsement to the CUNA/CUMIS insurance programs offered to credit unions and credit union members. The League also assists in the solicitation of purchases of coverage from its membership. In return for its activities on behalf of CUNA/CUMIS, LCUL receives commissions based upon a percentage of the premiums received by the insurer from the credit unions and their members. These commissions are commonly 5% or V/2% on initial insurance purchases and 2lh% or 5% on renewals.4

2. Debt Collection

A contract with the Central Adjustment Bureau (“CAB”), a debt collector, provides another source of revenue for LCUL. The agreement requires the League to promote the services of CAB by making credit unions aware of their availability. In return for its efforts, the League receives five percent of the amounts collected on delinquent credit union accounts. Ordinarily the member credit unions enter into collection service contracts with LCUL, which provide that the credit union will turn over to the League any unpaid accounts in need of collection. These collection service contracts authorize the League to assign the delinquent accounts to a collector; the League accordingly assigns the accounts referred to it by its members to CAB. LCUL receives as its fee five percent of all amounts collected; CAB retains thirty percent as its own commission and remits the balance to the credit union.5

3. Data Processing

Another source of funds is the League’s agreement with the Louisiana Computing Corporation (“LCC”). LCC agreed to prepare a new package of computer programs [529]*529for use by credit unions in return for the exclusive endorsement and marketing assistance of the League. All software relating to credit union processing is jointly owned by LCC and LCUL. LCUL ordinarily promotes LCC services through field representatives. LCUL staffers recommend that the credit unions utilize LCC’s data processing services when a computer-assisted accounting system becomes necessary. The League’s data processing contracts with its member credit unions generally provide that LCUL will satisfy all their data processing needs. The League currently collects twenty-seven cents per credit union member account for monthly processing, of which it remits only eighteen or nineteen cents to LCC to cover its service charges. Thus LCUL nets eight or nine cents per member account per month from its data processing activities.6

B. Procedural History

LCUL originally brought this refund suit on October 3, 1978, in the United States District Court for the Eastern District of Louisiana. The League’s amended complaint alleged that the Internal Revenue Service (“IRS”) had wrongfully assessed and collected $77,092.67 in income tax payments under the Internal Revenue Code provisions governing the unrelated business income of tax-exempt organizations;7 the League sought repayment of that amount, with interest. Both sides moved for summary judgment.

The district court held that the League’s insurance, debt collection, and data processing activities constituted “trades or businesses”8 that were regularly carried on9 and were not substantially related to the exercise of the League’s tax-exempt function.10 Thus, the court concluded that the net revenue generated by these three activities constituted unrelated business income of a tax-exempt entity and was subject to tax under I.R.C. section 511(a).11 Accordingly, the court granted judgment in favor of the IRS. The League now appeals to this court.

II. ISSUES ON APPEAL

Under certain circumstances an organization may be granted an exemption from tax under I.R.C. section 501. Such a tax exemption is limited by other Code provisions, however, that impose a tax on the “unrelated business taxable income” of otherwise tax-exempt organizations. See I.R.C. §§ 511-514. The income of an exempt organization is taxable if it arises from the organization’s regular involvement in any business activity that is not substantially related to its tax-exempt function. I.R.C. § 513(a).

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Bluebook (online)
693 F.2d 525, 51 A.F.T.R.2d (RIA) 451, 1982 U.S. App. LEXIS 23325, Counsel Stack Legal Research, https://law.counselstack.com/opinion/louisiana-credit-union-league-v-the-united-states-of-america-ca5-1982.