Origins of the credit union income tax exemption

A 1917 U.S. Attorney General’s opinion serves as the basis for exempting state-chartered credit unions from taxation. (There were no federal credit unions at that time.) The Attorney General’s opinion made it clear that institutions “organized and operated for mutual purposes and without profit” should not be subject to the tax imposed by the 1913 income tax law.[1]

While this opinion included state-chartered credit unions, it also encompassed all institutions organized for “mutual purposes and without profit.”

In the aftermath of the collapse of the banking system, Congress found the growing credit union movement to be the perfect alternative to banks, especially in consumer credit. Congress passed the Federal Credit Union Act on June 16, 1934, and a bill to explicitly exempt federal credit unions from federal income taxes was passed on November 24, 1937.

Supporting testimony in the House of Representatives emphasized that credit unions were “mutual or cooperative organizations operated entirely by and for their members.” There was no mention of credit unions’ tax exemption being linked to the services they offered, their size, or the members they served.[2] [3]

Said Rep. Robert Luce, R-Mass.:

The system has no element of profit making whatever. It was designed to meet the needs of the humble folk of the land, of those who had no credit resources. . .therefore, there is all the more reason why we should lose no opportunity to advance the interests of a system that is doing more good to the humble folk of the land than perhaps any other recent invention. (Emphasis added.)

In none of the official records does any policymaker tie tax exemption to anything except the structure of credit unions: not-for-profit cooperatives. Never is size, services, field of membership, or any other aspect of credit unions mentioned.

In 1951, Congress looked at the savings and loan industry, and found that the institutions had started giving depositors a number of votes corresponding to the number of shares they held. This undemocratic practice eroded the cooperative nature of the S&Ls, and subsequently the S&L tax exemption was lost.

On the other hand, a bill was introduced in 1951 that would have repealed the credit union tax exemption, but it did not pass. The bill’s sponsor, Rep. Noah Mason, spent 15 years trying to tax credit unions and cooperatives, but failed with credit unions.

In 1999, with the passage of HR 1151, the Credit Union Membership Access Act, Congress once again had the opportunity to change the status of credit unions, but once again reaffirmed that credit unions merited their tax exemption because they were still not-for-profit cooperatives.

In 2018, with S 2155, the Economic Growth, Regulatory relief, and Consumer Protection Act, Congress once again could have changed the credit union tax status—but did not.

Over and over, as credit unions have stayed true to their not-for-profit cooperative structure, Congress has reaffirmed that they merit their tax exemption.


[1] Digest of American Income Tax Cases, prepared by Lyle T. Alverson, New York, Baker Voorhis & Company, 1921. Page 88. Page 102 of the pdf found here:

[2] See the Congressional record for the date given, starting on page 12,218, available here:

[3] See the Congressional record for this date, starting at page 358, available at: