Verity Credit Union

Part X, Line 2:

“The Credit Union is exempt from federal and state income taxes, except for taxes on unrelated business income as further discussed in Note 11. The Credit Union's subsidiary is a limited liability company and, therefore, is also exempt by statute from federal and state income taxes, and its earnings and losses are passed through to the members. The Credit Union is a statechartered credit union as described in Internal Revenue Code (IRC) Section 501(c)(14) and, as such, is exempt from federal taxation of income derived from the performance of activities that are in furtherance of its exempt purposes. However, IRC Section 511 imposes a tax on the unrelated business income (as defined in Section 512) derived by statechartered credit unions. Many states have similar laws. The specific application of Section 512 to the various activities conducted by statechartered credit unions has been at issue for many years. During 2007, the IRS issued a series of Technical Advice Memoranda (TAMs) to a number of statechartered credit unions located throughout the country. In light of the TAMs, the Credit Union has assessed its activities and any potential federal or state income tax liability. In the opinion of management, any liability arising from federal or state taxation of activities deemed to be unrelated to its exempt purposes is not expected to have a material effect on the Credit Union's financial position or results of operations. FASB ASC 7401065, Income Taxes, provides guidance for how uncertain tax positions should be recognized, measured, disclosed, and presented in the consolidated financial statements. This requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Credit Union's tax returns to determine whether the tax positions are "more likely than not" to be sustained "when challenged or "when examined" by the applicable tax authority. Tax positions deemed to not meet the morelikelythannot threshold would be recorded as a tax expense and liability in the current year. The Credit Union adopted the provisions outlined in this guidance on January 1, 2009. The Credit Union had no unrecognized tax positions that required adjustment to the January 1, 2009, beginning balance of undivided earnings. For the years ended December 31, 2015 and 2014, management has determined that there are no material uncertain tax positions.”