Friday Shot/Chaser: Lack of Credit Union Transparency

News & Insights

Shot: “We understand your concern in ensuring that federal credit unions promote the intended purposes and the need for greater transparency.” – IRS Acting Director David Kautter responding to Senate Finance Committee Chairman Orrin Hatch’s suggesting that the IRS increase transparency by requiring federal credit unions to file informational tax returns, known as Form 990s. (Credit Union Times, 7/12/18)

Chaser: Can two of Michigan’s largest credit unions lose their tax-exempt status and/or come under IRS audit scrutiny for filing inaccurate and incomplete 990 forms over several years? (Credit Union Times, 7/13/18, see partial text below)

990s: Failure to File

For the privilege of keeping their federal tax exemption and providing public transparency about their financials, operations and governance, nonprofits, including state-chartered credit unions, are required to submit a 990 form every year to the IRS.

But for two of Michigan’s largest credit unions, their privilege of maintaining their tax-exempt status could be at risk or they could face stiff fines and come under IRS audit scrutiny for filing inaccurate and incomplete 990 forms over several years.

One of the key parts of the 990 form requires credit unions to fully reveal specific information about executive compensation, including the executive’s name, title, the amount of his or her W-2 compensation, W-2 compensation from related organizations and estimated amount of other compensation from the credit union or related organization. This information must be listed in this manner in Part VII of the 990 form. Additionally, in Schedule J of the 990 form, credit unions are required to report the names and titles of executives, including their base salary, bonus and incentive compensation, deferred and retirement compensation, nontaxable benefits and other reportable compensation.

The $5.4 billion Lake Michigan Credit Union in Grand Rapids and the $4.7 billion DFCU Financial Credit Union in Dearborn did not fully comply with IRS reporting requirements for executive compensation, their 990 forms show.

For example, LMCU reported in its 990 forms for 2016 and 2015 that President/CEO Sandy Jelinski and CFO Peter Dann received zero compensation. What’s more, LMCU did not report specific compensation information for other top executives in its 990 forms from 2011 to 2016. Michigan’s largest credit union by assets and members also did not list the names of board members as required by the IRS even though this information is publicly available on the NCUA’s website. Similarly, DFCU Financial, Michigan’s second largest credit union by assets and third by members, did not report required executive compensation information, including that of its President/CEO Mark Shobe, in its 990 forms from 2013 to 2016.

According to IRS regulations and financial and tax experts with 990 expertise, any nonprofit that does not fully disclose this information could risk their tax exempt status, face stiff fines or could come under scrutiny by an IRS audit.

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