[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 [www.gpo.gov]
[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 https://www.irs.gov/charities-non-profits/other-non-profits/veterans-organizations.
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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