Credit union group challenges bankers’ push for new tax.

The Defense Credit Union Council is urging the Independent Community Bankers of America to abandon its campaign to tax credit unions with more than $1 billion in assets, arguing that the proposal overlooks how community banks are taxed and could leave credit unions with fewer resources to serve members.

In a Nov. 5 letter to ICBA President and CEO Rebeca Romero Rainey, DCUC President and CEO Anthony Hernandez challenged arguments Rainey made in a Nov. 2 commentary in American Banker. The letter addresses cooperative ownership, bank tax treatment, acquisitions, small-business and mortgage lending, transparency and the potential costs to credit union members.

“A credit union does not stop belonging to its members when it grows,” Hernandez said. “ICBA’s proposed tax would take resources from institutions owned by military families, veterans, and working Americans.”

The dispute centers on a proposal to impose federal income taxes on credit unions once their assets exceed $1 billion. DCUC argues that asset size does not change the institutions’ ownership structure or their nonprofit mission.

Hernandez also challenged what the group described as a double standard in ICBA’s tax position. The banking association has advocated for tax relief for community banks, including an exclusion for retained earnings and an expansion of an existing tax exclusion for agricultural-lending interest income.

DCUC pointed to Federal Reserve Bank of Kansas City data showing that 1,447 community banking organizations, or 38%, had elected Subchapter S tax treatment as of Sept. 30, 2024. Those banks generally pass income through to shareholders, who pay taxes on it, although certain institutional taxes can also apply.

The letter does not argue that those banks or their owners pay no taxes. Instead, DCUC says ICBA should acknowledge the tax treatment available to some banks while seeking to end the exemption that applies to credit unions.