Thirty-eight percent.
That’s the share of community banking organizations, 1,447 of them, that had elected Subchapter S status as of September 30, 2024, according to the Federal Reserve Bank of Kansas City.
It’s the number at the center of a new fight over who deserves a tax break, and it’s why the Defense Credit Union Council (DCUC) wants the Independent Community Bankers of America (ICBA) to drop its plan to tax credit unions with more than $1 billion in assets.
A 14-Section Rebuttal
In a November 5 letter to ICBA President and CEO Rebeca Romero Rainey, DCUC President and CEO Anthony Hernandez took on the proposal’s facts and its policy logic. The letter answers Rainey’s November 2 American Banker commentary point by point. Its 14 sections cover cooperative ownership, Subchapter S banks, acquisitions, small-business and mortgage lending, transparency, and what a new tax would mean for members.
Hernandez’s core argument is simple. “A credit union does not stop belonging to its members when it grows,” he said. “ICBA’s proposed tax would take resources from institutions owned by military families, veterans, and working Americans. Congress should protect their ability to choose a cooperative that puts their financial needs first.”
The Double Standard Claim
Subchapter S banks generally pass their income through to shareholders, who owe the tax, though certain institutional-level taxes can still apply. The letter is careful here: this is a lawful structure, and it doesn’t mean banks or their owners pay nothing.
Still, DCUC says the contrast is hard to ignore. ICBA’s own tax platform seeks an exclusion for community-bank retained earnings and wants an agricultural-lending interest-income exclusion raised from 25 percent to 100 percent.
“ICBA defends tax advantages for bank owners while demanding that Congress strip away the tax treatment that preserves resources for credit union members,” Hernandez said. “When banks retain earnings, ICBA calls it support for community lending. Credit unions use retained earnings to serve their communities, too. Congress should reject that double standard.”
Where DCUC Pushes Back
- Size doesn’t erase ownership. Congress reaffirmed in 1998 that credit unions’ tax treatment reflects their nonprofit, democratic structure and service mission. Passing an asset threshold doesn’t create outside shareholders or end member ownership.
- The $2.6 billion figure is incomplete. ICBA’s hypothetical estimate combines federal and state income taxes and isn’t an official revenue score of repeal legislation. DCUC wants lawmakers to weigh member costs, lending, and capital. NCUA’s December 2025 comparison put average five-year new-car loan rates at 5.44 percent for credit unions versus 7.41 percent for banks.
- Acquisition claims need context. Profitable bank owners can voluntarily pick a credit union buyer, subject to approvals. Shifts in SBA lending or mortgage denial rates don’t, on their own, prove an acquisition caused harm. DCUC asks for disclosed methods and comparisons with similar markets and bank-to-bank deals.
- Fraud concerns need targeted fixes. The letter concedes that public Call Reports don’t duplicate every Form 990 disclosure. But it argues for closing information gaps and strengthening internal controls and supervision, not using an income tax as a fraud-prevention tool.
The Jackson Area Example
The letter also challenges ICBA’s use of the Jackson Area Federal Credit Union failure. NCUA reported roughly $60 million in assets at Jackson Area and $1.261 billion at Five Star Credit Union, which assumed members’ share accounts. So ICBA’s threshold would hit the larger cooperative that stepped in to preserve service, while the failed institution sat well below it.
“For a military family facing a deployment, a move, or an interruption in pay, the resources available at their credit union have real consequences,” Hernandez said. “A new tax would leave less for lending, reserves, and member assistance. We will strongly defend the tax status of credit unions of every size because the people who own them deserve that defense.”
What Comes Next
The response builds on DCUC’s July 2025 request for Treasury scrutiny of Subchapter S banks and its 2026 letter to Congress defending credit union tax status. Hernandez wants ICBA to withdraw the $1 billion threshold, acknowledge bank tax preferences, and publish the evidence and comparisons behind its acquisition claims.
If you belong to a credit union, or advise one, now is a good time to read both sides’ letters, check the numbers yourself, and tell your members of Congress how you’d like them to weigh the issue.