Profit Sharing Plans for Credit unions and CUSOs

[Guest ksumner]

We have a plan sponsored by a Credit Union (CU). The CU has a new subsidiary which is a credit union service organizaiton (CUSO). 50% of the CUSO is owned by the CU. The CUSO will do work for the CU as well as for other entities. It doesn't appear that we have a controlled group. Do we have an affiliated service group? Both are not-for profits, and I think that may make some difference. Do you need more information? Please advise.

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[davef]

I don't believe that the CUSO and the CU will be part of an affiliated service group. Looking at the "A-Org" rules, the CUSO (as the A-Org) would not have an ownership interest in the First Service Organization (the CU). Also, both the A-Org and the FSO must be service organizations. A bank or other financial institution is not considered a service organization. So, then you look at the "B-Org" rules.

A B-Org must be owned at least 10% by persons who are HCEs of the FSO or an A-Org. Generally, a CUSO will not be owned by individual HCEs of the CU, so the ownership rule probably would not be met. Also, the FSO must be a service organization, which it is not.

The only other type of ASG left is one involving management functions. In this case, you need to decide whether the CUSO's principal business is to perform managment functions for the CU. In the absence of regs it's hard to tell. Personally, I would consider a CUSO to be performing services which are non-management related. But all CUSOs are different. Also, depending on how many CUs own a CUSO, it may be difficult to prove that the CUSO's principal business related to a particular CU. If you really want to make sure, you can ask for an IRS ruling. Hope this helps