Rule2023-25749
Charitable Donation Accounts
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 21, 2023
Effective
December 21, 2023
Issuing agencies
National Credit Union Administration
Abstract
The NCUA Board (Board) is amending the charitable donation accounts (CDAs) section of the NCUA's incidental powers rule. Specifically, the Board is adding a post or organization of past or present members of the Armed Forces of the United States, or an auxiliary unit or society of, or a trust or foundation for, any such post or organization recognized as exempt from taxation under section 501(c)(19) of the Internal Revenue Code (veterans' organizations) to the definition of a "qualified charity" that a Federal credit union may contribute to using a CDA.
Full Text
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<title>Federal Register, Volume 88 Issue 223 (Tuesday, November 21, 2023)</title>
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[Federal Register Volume 88, Number 223 (Tuesday, November 21, 2023)]
[Rules and Regulations]
[Pages 80950-80952]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-25749]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 721
[NCUA-2023-0043]
RIN 3133-AF56
Charitable Donation Accounts
AGENCY: National Credit Union Administration (NCUA).
ACTION: Final rule.
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SUMMARY: The NCUA Board (Board) is amending the charitable donation
accounts (CDAs) section of the NCUA's incidental powers rule.
Specifically, the Board is adding a post or organization of past or
present members of the Armed Forces of the United States, or an
auxiliary unit or society of, or a trust or foundation for, any such
post or organization recognized as exempt from taxation under section
501(c)(19) of the Internal Revenue Code (veterans' organizations) to
the definition of a ``qualified charity'' that a Federal credit union
may contribute to using a CDA.
DATES: This rule is effective December 21, 2023.
FOR FURTHER INFORMATION CONTACT: Policy: Rick Mayfield, Senior Capital
Markets Specialist, Office of Examination and Insurance; Heather
Murphy, Consumer Compliance Policy and Outreach Officer, Office of
Consumer Financial Protection. Legal: Justin M. Anderson, Senior Staff
Attorney, Office of General Counsel, 1775 Duke Street, Alexandria, VA
22314-3428. Rick Mayfield can be reached at (703) 518-6501; Heather
Murphy can be reached at (703) 664-3102; and Justin Anderson can be
reached at (703) 518-6540.
SUPPLEMENTARY INFORMATION:
I. Background
A. History of the Current Rule
The Board approved the current CDA rule at its December 2013
meeting (2013 final rule).\1\ The 2013 final rule permitted Federal
credit unions to fund a CDA, which may hold investments that are
otherwise impermissible for Federal credit unions, for use as a
charitable contribution or donation under their incidental powers
authority. The 2013 final rule defined a CDA as a hybrid charitable and
investment vehicle that a Federal credit union may fund to provide
charitable contributions and donations to a qualified charity. The 2013
final rule further defined ``qualified charity'' \2\ as a charitable
organization or other non-profit entity recognized as exempt from
taxation under section 501(c)(3) of the Internal Revenue Code.\3\
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\1\ 78 FR 76728 (Dec. 19, 2013).
\2\ 12 CFR 721.3(b)(2).
\3\ 26 U.S.C. 501(c)(3).
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B. Scope of ``Qualified Charity''
As noted in the preceding section, the 2013 final rule permitted
the use of CDAs as an incidental power for Federal credit unions. As
CDAs can be funded with investments that are impermissible for Federal
credit unions, the Board limited the scope of organizations that could
be considered a ``qualified charity'' for purposes of the CDA rule. The
2013 final rule required that a ``qualified charity'' be a section
501(c)(3) entity as defined by the Internal Revenue Code. These
organizations are non-profit and organized and operated exclusively for
charitable purposes. Because CDAs can be funded with impermissible
investments, the Board believes it is necessary to keep in place
distinct limits on groups that are beneficiaries of a CDA. As such, any
group the Board would consider adding as a ``qualified
[[Page 80951]]
charity'' must be both a non-profit and be organized for a charitable
purpose.
II. Proposed Rule and Comments
A. Veterans' Organizations as a Qualified Charity
At its May 2023 meeting, the Board issued a proposed rule to amend
the CDA rule by permitting veterans' organizations recognized as exempt
from taxation under section 501(c)(19) of the Internal Revenue Code to
be included as a ``qualified charity'' as defined in the CDA rule.\4\
The Board noted that under section 501(c)(19), as described on the
official Internal Revenue Service website, veterans' organizations must
meet the following requirements:
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\4\ 88 FR 34792 (May 31, 2023).
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<bullet> It must be organized in the United States or any of its
possessions;
<bullet> At least 75 percent of its members must be past or present
members of the United States Armed Forces;
<bullet> At least 97.5 percent of its members must be:
[cir] present or former members of the United States Armed Forces,
[cir] cadets (including only students in college or university ROTC
programs or at Armed Services academies), or
[cir] spouses, widows, widowers, ancestors, or lineal descendants
of individuals referred to in the first or second bullet;
<bullet> It must be operated exclusively for one or more of the
following purposes:
[cir] to promote the social welfare of the community (e.g., to
promote the common good and general welfare of the people of the
community);
[cir] to assist disabled and needy war veterans and members of the
United States Armed Forces and their dependents--and the widows and
orphans of deceased veterans;
[cir] to provide entertainment, care, and assistance to
hospitalized veterans or members of the United States Armed Forces;
[cir] to carry on programs to perpetuate the memory of deceased
veterans and members of the United States Armed Forces and comfort
their survivors;
[cir] to conduct programs for religious, charitable, scientific,
literary or educational purposes;
[cir] to sponsor or participate in activities of a patriotic
nature;
[cir] to provide insurance benefits for members or their
dependents; or
[cir] to provide social and recreational activities for members.
<bullet> No part of its net earnings may inure to the benefit of
any private shareholder or individual.
An organization may also be exempt under section 501(c)(19) as an
auxiliary unit or society of a veterans' post or organization if it
meets the following requirements:
<bullet> It is affiliated with, and organized in accordance with
the bylaws and regulations of, a veterans' post or organization
described above;
<bullet> At least 75 percent of its members are veterans, spouses
of veterans, or related to a veteran within two degrees of
consanguinity (i.e., grandparent, brother, sister, grandchild represent
the most distant allowable relationships);
<bullet> All members are either members of a veterans' post or
organizations described above, or spouses of a member of such post or
organization, or are related to a member of such post or organization
within two degrees of consanguinity;
<bullet> No part of its net earning inures to the benefit of any
private shareholder or individual.
Finally, an organization may be exempt under section 501(c)(19) as
a trust or foundation for a veterans' post or organization if it meets
the following requirements:
<bullet> It is valid under local law and, if organized for
charitable purposes, has a dissolution provision described in section
1.501(c)(3)-1(b)(4) of the Income Tax Regulations;
<bullet> The corpus or income cannot be diverted or used other than
to fund a veterans' post or organization for charitable purposes or as
an insurance set-aside;
<bullet> The trust income is not unreasonably accumulated, and a
substantial portion of the income is distributed to such veteran post
or organization, or for exclusively religious, charitable, scientific,
literary, educational or prevention of cruelty to children or animal
purposes;
<bullet> It is organized exclusively for one or more of those
purposes enumerated above for which a veterans' post or organization
itself may be organized.\5\
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\5\ 26 U.S.C. 503(c)(19); 26 CFR 1-501(c)(19)-1. See <a href="https://www.irs.gov/charities-non-profits/other-non-profits/veterans-organizations">https://www.irs.gov/charities-non-profits/other-non-profits/veterans-organizations</a>.
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The Board received seven comments in response to the May 2023
proposal. One comment was directed at taxation in general and, thus, is
outside the scope of this rulemaking. The remaining six commenters all
supported the proposal as written. One of these six commenters did
request clarification of the applicability of the proposed change. In
response, the Board is reiterating that, under this final rule, any
``veterans' organization'' that meets the requirements in section
501(c)(19) of the Internal Revenue Code is a ``qualified charity'' for
purposes of the CDA rule.
B. Other Organizations the Board Should Consider
In addition to the foregoing, in the May 2023 proposal, the Board
also asked if there are other groups, entities, or organizations the
Board should consider adding to the definition of a ``qualified
charity'' to inform potential future rulemaking in this area. In
response, four commenters offered suggestions of other groups that the
Board should consider including as ``charitable organizations'' under
the CDA rule. One of these commenters provided a general response,
suggesting that the Board consider adding any ``qualified charity if it
serves a mission advancing and benefitting individuals, community(s),
and society not able to provide for themselves.'' This commenter went
on to state, ``The Board should consider local, community, social and
other groups without 501(c) status whose mission and members volunteer
their time (and money) who also seek donations and act to benefit the
public at large to improve the quality of living interests of all
residents and society.'' The remaining three commenters requested the
Board consider the following specific groups:
<bullet> 501(c)(4): Civic Leagues, Social Welfare Organizations,
and Local Associations of Employees.
<bullet> 501(c)(5): Labor, Agricultural, and Horticultural
Organizations.
<bullet> 501(c)(6): Business Leagues, Chambers of Commerce, and
Real Estate Boards.
<bullet> 501(c)(7): Social and Recreational Clubs.
<bullet> 501(c)(29): Qualified Nonprofit Health Insurance Issuers.
The Board will retain these suggestions to inform any future
rulemakings in this area.
III. Regulatory Procedures
A. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) applies to a rulemaking
in which an agency creates a new or amends existing information
collection requirements.\6\ For purposes of the PRA, an information
collection requirement may take the form of a reporting, recordkeeping,
or a third-party disclosure requirement. The NCUA may not conduct or
sponsor, and the respondent is not required to respond to an
information collection, unless it displays a valid Office of Management
[[Page 80952]]
and Budget (OMB) control number. OMB has approved the current
information collection requirements and assigned them control number
3133-0133. This rule adds a new entity to the definition of a
``qualified charity.'' NCUA does not anticipate an increase in the
recordkeeping requirement associated with CDAs.
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\6\ 44 U.S.C. 3507(d); 5 CFR part 1320.
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B. Regulatory Flexibility Act
The Regulatory Flexibility Act \7\ requires the NCUA to prepare an
analysis to describe any significant economic impact a regulation may
have on a substantial number of small entities (defined as credit
unions with under $100 million in assets).\8\ This rule merely adds an
additional category of permissible entities to which a Federal credit
union may donate through a CDA. Currently, there are only 136 Federal
credit unions utilizing CDAs, with an average size of approximately
$1.74 billion. Of these 136, only 18 are ``small entities,'' as defined
in the first sentence of this paragraph. The NCUA estimates that a
limited number of Federal credit unions would utilize the authority
granted in this rule. In addition, as the rule merely adds another
category of permissible entities a Federal credit union may donate to
through a CDA, the NCUA does not find that this rule would impose a
cost or burden on any Federal credit unions. As such, the NCUA
certifies that this rule will not have a significant economic impact on
a substantial number of small entities.
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\7\ 5 U.S.C. 601 et seq.
\8\ Id. at 603(a); NCUA Interpretive Ruling and Policy Statement
15-2.
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C. Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on State and local interests. The
NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the Executive Order to adhere to fundamental
federalism principles.
This rule will not have substantial direct effects on the states,
on the relationship between the national government and the states, or
on the distribution of power and responsibilities among the various
levels of government. The rule will affect only Federal credit unions.
Federally insured, State-chartered credit unions derive their
investment and incidental powers authority from State law, and the
NCUA's regulations do not determine the permissibility of such
investments or activities. The NCUA has therefore determined that this
rule does not constitute a policy that has federalism implications for
purposes of the Executive Order.
D. Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this rule will not affect family well-
being within the meaning of section 654 of the Treasury and General
Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681
(1998). The final rule could increase charitable donations by Federal
credit unions to organizations that provide benefits or services to
veterans' households, but the Board believes that the connection will
not be direct and is uncertain.
E. Small Business Regulatory Enforcement Fairness Act--Congressional
Review Act
The Congressional Review chapter of the Small Business Regulatory
Enforcement Fairness Act of 1996 (SBREFA) generally provides for
congressional review of agency rules.\9\ A reporting requirement is
triggered in instances where the NCUA issues a final rule as defined in
the Administrative Procedure Act.\10\ Besides being subject to
congressional oversight, an agency rule may also be subject to a
delayed effective date if it is a ``major rule.'' The NCUA does not
believe this rule is a ``major rule'' within the meaning of the
relevant sections of the statute. As required by the statute, the NCUA
will submit this final rule to OMB for it to determine if this final
rule is a ``major rule'' for purposes of the statute. The NCUA also
will file appropriate reports with Congress and the Government
Accountability Office so this rule may be reviewed.
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\9\ 5 U.S.C. 551.
\10\ Id.
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List of Subjects in 12 CFR Part 721
Credit unions.
By the NCUA Board on November 16, 2023.
Melane Conyers-Ausbrooks,
Secretary of the Board.
For the reasons discussed in the preamble, the NCUA Board is
amending 12 CFR part 721 as follows:
PART 721--INCIDENTAL POWERS
0
1. The authority citation for part 721 continues to read as follows:
Authority: 12 U.S.C. 1757(17), 1766, and 1789.
0
2. Amend Sec. 721.3 by revising paragraph (b)(2)(vii)(B) to read as
follows:
Sec. 721.3 What categories of activities are preapproved as
incidental powers necessary or requisite to carry on a credit union's
business?
* * * * *
(b) * * *
(2) * * *
(vii) * * *
(B) Qualified charity is a charitable organization or other non-
profit entity recognized as exempt from taxation under section
501(c)(3) or 501(c)(19) of the Internal Revenue Code.
* * * * *
[FR Doc. 2023-25749 Filed 11-20-23; 8:45 am]
BILLING CODE 7535-01-P
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</html>Indexed from Federal Register on November 21, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.