September 8, 1997
Peter Nalaskowski, General Manager
Polish & Slavic Federal Credit Union
140 Greenpoint Avenue
Brooklyn, NY 11222
You have asked whether your federal credit union (FCU) can donate
funds to your sponsor, the Polish and Slavic Center, an Internal
Revenue Code (I.R.C.) �1(c)(3) tax exempt organization
or a similar I.R.C. �1(c)(3) organization, for purposes
of providing flood relief assistance in Poland. You state that
the FCU is considering a donation of up to $1 million dollars.
Our opinion is that the proposed donation is not permissible under
the NCUA's Interpretive Ruling and Policy Statement No. 79-6,
Donations/Contributions, 44 Fed.Reg. 56691 (October 2, 1979)(IRPS)
because the donation would be earmarked for use outside of the
FCU's community. A copy of the IRPS is attached. We also are
concerned, given the amount of the proposed donation, about whether
the proposed donation would meet other criteria in the IRPS.
As an alternative, you may want to consider establishing a relief
account to which your FCU's members can, themselves, make donations.
The IRPS is the NCUA's interpretation regarding the power of an
FCU to make donations under its incidental authority, as provided
in the Federal Credit Union Act (the Act). 12 U.S.C. �57(17).
The IRPS provides that FCUs can make donations only to organizations
that are tax exempt under I.R.C. �1(c)(3) and are located
in or conducting their activities within the community in which
the FCU has a principal place of business. FCUs also can make
donations to 501(c)(3) organizations whose purpose is to promote
and develop credit unions.
The introductory discussion in the IRPS notes that the IRPS was intended "to result in an increase in community funds," to permit FCUs to contribute toward "community funds" and "to community organizations." The IRPS provides two bases on which a 501(c)(3) organization may qualify as a donee: being located in the same community as the FCU or conducting its activities there. Although stated disjunctively, the intent of the IRPS in permitting a donation to an organization that is located in the same community as the FCU is that the donation will result in an increase in that community's charitable funds. We assume that your sponsor is located reasonably near a principal place of business of your FCU. Nevertheless, you state
that the donation will not be used in that community and we, therefore,
conclude the donation is not permissible. For further discussion
of the requirement that a donation be to an organization engaged
in charitable activities in the FCU's community, we are enclosing
an earlier opinion from Richard Schulman to Joseph P. Clark, dated
September 9, 1994.
The IRPS also requires that an FCU's board of directors must approve
the donation, that the board must determine that the amount of
the donation is in the best interests of the FCU and that it is
sound given the financial condition of the FCU. The introductory
discussion of the IRPS states that the NCUA interprets the Act
to permit an FCU to make "reasonable donations." What
is a reasonable amount involves considering, not only the financial
condition of the FCU, but the FCU's interest in meeting its primary
obligation of providing financial services and a return on investment
to its members. The substantial amount of the proposed donation
raises a question as to whether the amount meets the criteria
of the IRPS.
As an alternative, it would be permissible for the FCU to hold
an account for the purpose of benefiting Polish flood victims
so long as the account is administered by FCU members and not
by the FCU itself. For more information regarding the establishment
and operation of relief accounts, we are enclosing a copy of a
letter from Richard S. Schulman to Stan Fraser, dated April 12,
1994, that you may find useful.
Sincerely,
Sheila A. Albin
Associate General Counsel
GC/SAA/MSC:bhs
SSIC 3601
97-0830
Enclosures
cc: Region I