Terry R. West, President/CEO
Jax Navy Federal Credit Union
P.O. Box 45085
Jacksonville, Florida 32232
Re: Part 724 - Trustees and Custodians of Roth IRAs and Education IRAs.
Dear Mr. West:
You have asked several questions concerning potential tax liability of federal credit union (FCU) members who funded Roth IRA or Education IRA accounts with FCUs between January 1, 1998 and March 23, 1998. You raise these questions because the Internal Revenue Code (IRC) provisions that authorize these accounts went into effect on January 1, 1998, but the technical amendment to NCUA regulations identifying them as permissible did not issue until March 24, 1998. 63 FR 14025, March 24, 1998. Specifically, you have asked whether the Internal Revenue Service (IRS) could determine that tax liability exists for members who funded these accounts during that time period. You have also asked whether NCUA can "preempt" any such IRS determination by adopting a final rule with a retroactive effective date of January 1, 1998.
We cannot state how the IRS will treat a particular activity, however, we believe that the IRS would likely share our view that the IRC has provided the statutory authority for FCUs to offer the accounts since January 1, 1998, and NCUA's interim rule has merely conformed our regulations to that statute. This matter does not involve a question of preemption which generally pertains to circumstances where there is a conflict or inconsistency between state and federal law.
We appreciate your concerns regarding this issue and anticipate that the NCUA Board will address it at the meeting scheduled for September 23, 1998.
Sheila A. Albin
Associate General Counsel