[Federal Register Volume 88, Number 104 (Wednesday, May 31, 2023)]
[Proposed Rules]
[Pages 34792-34794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-11556]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 88, No. 104 / Wednesday, May 31, 2023 /
Proposed Rules
[[Page 34792]]
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 721
[NCUA-2023-0043]
RIN 3133-AF56
Charitable Donation Accounts
AGENCY: National Credit Union Administration (NCUA).
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The NCUA Board (Board) is proposing to amend the charitable
donation accounts (CDA) section of the NCUA's incidental powers
regulation. Specifically, the Board is proposing to add ``war veterans'
organizations'' (``veterans' organizations''), as defined under section
501(c)(19) of the Internal Revenue Code, to the definition of a
``qualified charity'' that a federal credit union may contribute to
using a CDA. The Board is also asking 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.
DATES: Comments must be received on or before July 31, 2023.
ADDRESSES: You may submit written comments, identified by RIN 3133-
AF56, by any of the following methods (Please send comments by one
method only):
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments on Docket NCUA-2023-
0043.
Mail: Address to Melane Conyers-Ausbrooks, Secretary of
the Board, National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428.
Hand Delivery or Courier: Same as mail address.
Public Inspection: You may view all public comments on the Federal
eRulemaking Portal at https://www.regulations.gov, as submitted, except
for those we cannot post for technical reasons. The NCUA will not edit
or remove any identifying or contact information from the public
comments submitted. If you are unable to access public comments on the
internet, you may contact the NCUA for alternative access by calling
(703) 518-6540 or emailing [email protected].
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) 518-1179; 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 (current CDA rule or 2013 final rule).\1\ This 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 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 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\ As noted in the 2013
proposed version of the current CDA rule (2013 proposed rule), ``[t]he
exempt purposes set forth in section 501(c)(3) are charitable,
religious, educational, scientific, literary, testing for public
safety, fostering national or international amateur sports competition,
and preventing cruelty to children or animals.'' The 2013 proposed rule
further explained that the Board used the word ``charitable'' in its
generally accepted legal sense and enumerated what the term
encompassed, which ``includes relief of the poor, the distressed, or
the underprivileged; advancement of religion; advancement of education
or science; erecting or maintaining public buildings, monuments, or
works; lessening the burdens of government; lessening neighborhood
tensions; eliminating prejudice and discrimination; defending human and
civil rights secured by law; and combating community deterioration and
juvenile delinquency.'' \4\
---------------------------------------------------------------------------
\1\ 78 FR 76728 (Dec. 19, 2013).
\2\ 12 CFR 721.3(b)(2).
\3\ 26 U.S.C. 503(c)(19).
\4\ 78 FR 57539 (Sept. 19, 2013).
---------------------------------------------------------------------------
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 charity'' must
be both a non-profit and be organized for a charitable purpose.
II. Proposed Changes
A. Veterans' Organizations as a Qualified Charity
While section 501(c)(3) entities are, by title and definition,
charitable organizations, the Board recognizes that there may be other
non-profit, charitable entities outside of section 501(c)(3) that could
be included as a ``qualified charity'' as defined in the current CDA
rule to fulfill the rule's purpose. Still, because the current CDA rule
permits federal credit unions to purchase investments that would
otherwise be impermissible, it is necessary to limit the use of CDA
funds to making charitable contributions or donations to organizations
that are both non-profit and charitable in nature. For purposes of this
proposal, the Board is focusing
[[Page 34793]]
on ``veterans' organizations'' as defined by section 501(c)(19) of the
Internal Revenue Code. The Board has been made aware that some federal
credit unions want to donate to veterans' organizations through CDAs.
Under section 501(c)(19), a ``veterans' organization'' must meet the
following requirements:
It must be organized in the United States or any of its
possessions;
At least 75 percent of its members must be past or present
members of the United States Armed Forces;
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;
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.
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:
It is affiliated with, and organized in accordance with
the bylaws and regulations of, a veterans' post or organization
described above;
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);
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;
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:
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;
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;
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;
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
The Board believes that the attributes listed above of section
501(c)(19) organizations are aligned with the purposes of the current
CDA rule. As such, the Board is proposing to add ``veterans'
organizations'' meeting the criteria of section 501(c)(19) to the
definition of a ``qualified charity.''
B. Questions on Other Organizations
The Board believes section 501(c) of the Internal Revenue Code is a
good starting point for determining whether there may be other types of
organizations that could be included in the definition of a ``qualified
charity'' in the current CDA rule. While all section 501(c)
organizations are non-profits, not all of them are charitable in
nature. The Board has reviewed the list of organizations in section
501(c) and believes that several of them may be considered charitable
in nature. The Board, however, is requesting feedback from stakeholders
on whether any of these organizations should be considered as qualified
charities in future rulemakings. In addition, the Board is requesting
feedback on any other organizations the Board should consider for this
purpose that are not enumerated in section 501(c). The Board,
therefore, is posing the following questions and instructions to
stakeholders and interested parties for use in any future amendments
the Board may make to the current CDA rule.
1. Should the Board consider adding additional groups,
organizations, or entities to the definition of a ``qualified
charity?''
2. If yes, which other groups, organizations, or entities should
the Board consider? Note, commenters are not limited only to those
entities listed in section 501(c) of the Internal Revenue Code.
3. For any suggested group, organization, or entity, please
describe how it is non-profit, organized for a charitable purpose, and
how it otherwise meets the purposes of the current CDA rule.
III. Regulatory Procedures
A. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) applies to 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
and Budget (OMB) control number. OMB has approved the current
information collection requirements and assigned them control number
3133-0133. This rule proposes to add a new entity to the definition of
a ``qualified charity.'' NCUA does not anticipate an increase in the
recordkeeping requirement associated with CDAs.
---------------------------------------------------------------------------
\6\ 44 U.S.C. 3507(d); 5 CFR part 1320.
---------------------------------------------------------------------------
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 proposed rule merely
adds an additional category of permissible entities to which a federal
credit union may donate through
[[Page 34794]]
a CDA. Currently, there are 145 federal credit unions utilizing CDAs.
The NCUA estimates that a small 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, this rule will not have a significant economic impact on a
substantial number of small entities.
---------------------------------------------------------------------------
\7\ 5 U.S.C. 601 et seq.
\8\ Id. at 603(a); NCUA Interpretive Ruling and Policy Statement
15-2.
---------------------------------------------------------------------------
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 proposed rule would 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 proposed rule would 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
proposed 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 proposed rule would 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 proposed 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 would not be direct and is uncertain. However, the
Board welcomes comments on this issue to further inform its analysis of
this matter.
List of Subjects in 12 CFR Part 721
Credit unions.
By the NCUA Board on May 25, 2023.
Melane Conyers-Ausbrooks,
Secretary of the Board.
For the reasons discussed in the preamble, the NCUA Board proposes
to amend 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. Revise Sec. 721.3(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 sections
501(c)(3) or 501(c)(19) of the Internal Revenue Code.
* * * * *
[FR Doc. 2023-11556 Filed 5-30-23; 8:45 am]
BILLING CODE 7535-01-P