Service 1St Credit Union

PART X, LINE 2:

“The credit union is exempt from most federal, state, and local taxes under the provisions of the internal revenue code and state tax laws. The income taxes topic of the fasb asc clarifies accounting for uncertainty in income taxes reported in the financial statements. The interpretation provides criteria for assessment of individual tax positions and a process for recognition and measurement of uncertain tax positions. Tax positions are evaluated on whether they meet the "more likely than not" standard for sustainability upon examination by tax authorities. The credit union is a state-chartered credit union as defined in internal revenue code (irc) section 501(c)(14). As such, the credit union is exempt from federal taxation of income derived from the performance of activities directly related to its exempt purposes. However, irc section 511 imposes a tax on the unrelated business income (ubi) derived by state-chartered credit unions. The internal revenue service (irs) has released technical advice memorandums (tams) to specific state-chartered credit unions specifying the revenue sources subject to unrelated business income tax (ubit). The credit union has assessed its activities and any potential federal or state income tax liability and determined no liability exists from federal or state taxation of activities deemed to be unrelated to its exempt purpose. As such, the credit union has not filed tax returns for reporting ubit-related income for tax years prior to september 30, 2015. The irs and state, where applicable, have the ability to assess taxes, penalties and interest for years in which no tax return was filed. Management has determined that the financial impact, if any, of not filing ubit-related income tax returns in previous years would not be material to the credit union's financial statements for the years ended september 30, 2015 and 2014.”