[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]


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 Proposed Rules
                                                 Federal Register
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 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.
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  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.

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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\
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    \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).
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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 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\
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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 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.
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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 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.
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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 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